Q3 2023 USCB Financial Holdings Inc Earnings Call
Okay.
Speaker 1: Thank you for standing by and welcome to the Q3 2023 USB financial holding bank earnings car.
Thank you for standing by and welcome to the Q3 'twenty to 'twenty three.
FCB Financial Holdings, Inc. Earnings Conference call I would now like to welcome Luis did the AGA Lira, Chairman President and CEO to begin the call Louise over to you.
Speaker 1: I would now like to welcome Luis Dilla Aguilera, chairman, president and CEO to begin the call. Luis over.
Speaker 2: Good morning, and thank you for joining us today for USDB Financial Holding's 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.
Good morning, and thank you for joining us today for you FCB financial Holdings third quarter 2023 earnings call with me today, reviewing our Q3 highlights as CFO, Rob Anderson, Chief Credit Officer, Ben parcel.
We will provide an overview of the bank's performance the highlights of what you can see on slide three.
Speaker 2: As we report our third quarter earnings, I am pleased to highlight the rebound and loan growth following earlier concerns this year about the safety and soundness of the banking industry.
As we reported 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.
Speaker 2: The third quarter saw 135 million in new loan production, more than doubling the volume of the previous quarter.
Third quarter saw a $135 million in new loan production more than doubling the volume of the previous quarter our commitment.
Speaker 2: Our commitment to enhance net interest margin is evident in the 8% weighted average coupon on new loans in Q3 production, exceeding up portfolio average. Surely we will review this consistent increase in both production and yield.
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% and new <unk>.
Speaker 2: We are encouraged by the continued diversification of our loan growth, particularly the 59% in new non-seary 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 co-respondent banking.
Non CRE 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 jaap loans and correspondent banking.
Speaker 2: 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.
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 wall spread over various asset classes. Furthermore, we took the opportunity to restructure our bank owned life insurance, which.
Speaker 2: Furthermore, we took the opportunity to restructure a bank-owned life insurance, which bolstered Bully Revenue by 982,000 in this quarter. And we offset this one time non-recurring gain with a comparable size security loss trade. This small portfolio restructuring will allow us to optimize our investment portfolio by transitioning from lower yielding securities to higher return investments.
Bolstered moly revenues by 982000, this quarter and we offset this onetime nonrecurring gain with a comparable size security loss trade. This small portfolio restructuring will allow us to optimize our investment portfolio by transitioning from lower yielding securities to higher return investments.
Speaker 2: Despite a decrease in NIM early in the third quarter, September's NIM increased to 2.7%, which reflects the resilience and adaptive of the Sverrett, our bank, in fortifying our financial performance.
Despite a decrease in NIM early in the third quarter September <unk> increased to two 7%, which reflects the resilience and adapt the spirit of our bank and fortifying our financial performance.
Speaker 2: As a commercially focused SBA preferred lender, US Venturi is committed to support South Florida Small Business Community. Early in 2020, we launched our SBA Business Initiative, which has generated over 115 million and SBA 504 and 7A loans, while generating over 4 million fees on the gain on sale of the guarantee portion of the 7A loans.
As a commercially focused SBA preferred lender U S century is committed to support South, Florida small business community.
Early in 2020, we launched our SBA seven eight our SBA business initiative, which has generated over $115 million and SBA $504 70 loans, while generating over $4 million in fees on the gain on sale of the guaranteed portion of the 70 loans sure.
Speaker 2: 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 best quarter, a strategic partnership with industry leading technology partner, new tech one, delivering a fully integrated small ticket, SBA 7a, online application, and expedited approval process.
Serving over 7000 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, New Tech one delivering a fully integrated small ticket SBA seven eight online application and expedited approval process.
Speaker 2: In business since 2000, New Tech 1 is a public-betrated company listed on NASDAQ and an industry leader in the field. This partnership will officially support our existing small business relationships and attract new clients without additions to staff.
In business since 2000, New Tech one as 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.
Speaker 2: Since launching this initiative this past September 7, 61 applications totaling 12.5 million to be submitted, the program accepts loans between 10,000 to 500,000.
Since launching this initiative. This past September 761 applications totaling $12 5 million can be submitted the program except loans between 10000.
To 500000.
Speaker 2: 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.
Management's commitment and ever improving operational efficiency can be observed in the year to year declining trends seen the bank's non interest expense to average assets, which improved from two 1% in 2021% to 197% in 2020 due to 184% this past quarter.
<unk>, we are committed to running an efficient bank and any expense save allow us further investment in people and technology to improve our platform here in South Florida.
Speaker 2: 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.
Speaker 2: To this end, our focus on growing low cost deposits which reinforce 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 cost-eared 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.
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.
Since their launch in 2017, and the new hires will support our targeted deposit growth plans.
Speaker 2: The following page is self-explanatory, directly 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 keep performance indicators, which will be reviewed by our CFO Rob Anders.
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 focus focus on consistently delivering so let's now turn our attention to our specific financial results and key performance indicators, which will reviewed by our CFO Rob Anderson.
Speaker 3: 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.
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 impacted 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 off.
Domestic 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.
Speaker 3: 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.
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 remained flat for the quarter. However, when we review average balances you'll see an annual growth rate of 10.
Speaker 3: 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%.
<unk>, 1%.
Speaker 3: Moving on to the P&L, that 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 name with the low point in July in both August and September steadily increase.
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 a low point in July in both August and September steadily increasing.
Speaker 3: 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.
I'll expand on the NIM conversation as we progress with the call. Another good thing to report this quarter as the increase in noninterest income compared to the prior quarter and last year noninterest income was up due to SBA fees and higher wire fees, where our high touch concierge business verticals differentiate themselves from our competition.
<unk>.
Speaker 3: Furthermore, within this line item, we executed a small security loss trade and restructured our bank loan life insurance portfolio, which will provide higher earnings going forward.
Furthermore, within this line item, we executed a small security loss trade and restructured our bank on life insurance portfolio, which will provide higher earnings going forward.
Speaker 3: 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.
Fences were flat from the prior quarter, and we booked 653000 per loan loss provision with growth in our loan book on a GAAP basis net income was $3 8 million or <unk> 19 per diluted share, let's briefly cover our performance metrics for the quarter.
Speaker 3: In terms of soundness, our credit metrics remained 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%.
In terms of soundness, our credit metrics remained strong our loan loss reserve coverage was down slightly to $1 one 6% in terms of profitability. Our return on average assets was <unk>, 7% and our return on average equity was 819% our NIM was two 6% down 13.
Speaker 3: 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.
<unk> 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.
Speaker 3: Non-interested expense to average assets tick down to 1.84% in tangible 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. Absence, the AOCI mark or tangible book value per share would have been $11.98. Moving.
Noninterest expense to average assets ticked down to 184% and tangible book value per share moved down to $9 36 per.
Sure, which is reflective of the negative mark of $2 62 per share an Aoc I referenced earlier absent the OCI Mark our tangible book value per share would have been $11 98.
Moving onto the next slide.
Speaker 3: A big part of our NEM story centers around our deposit costs and composition.
A big part of our NIM story centers around our deposit cost and composition.
Speaker 3: where we are continuing to see that a shift in the posit mix with balances moving out of DDA and into interest fairing deposits, it is happening at a much slower pace.
We are continuing to see the shift in deposit mix with balances moving out of DDA and interest 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 are maintain.
Speaker 3: 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.
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 was is within our modeling assumptions at 41%. The second is the average DDA to total deposits was 30%.
Speaker 3: Overall, there are three positive takeaways from this slide.
Speaker 3: The first is that our deposit beta is within our modeling assumptions at 41%. The second is the average DDA, the total deposits was 30%, which is within our expectation. And the third is that monthly, we have seen deposit costs increasing, but at a much slower pace.
Which is within our expectations and a third is that the months that monthly we have seen deposit costs, increasing but at a much slower pace as 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.
Speaker 3: 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.
<unk> to attract and retain DDA checking accounts.
Let's move forward.
Speaker 3: 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% broker. The total amount of uninsured deposits adjusted by the collateralized portion of the public funds is 49% per the quarter. And if you excluded the collateralized portion of public funds, the uninsured deposits are 53%.
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% broker the total amount of uninsured deposits adjusted by the collateralized.
Portion of the public funds was 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.
Speaker 3: For this quarter, liquidity decreased from previous periods as we experienced strong loan demand.
For this quarter liquidity decreased from previous periods as we experienced strong loan demand accordingly, youll 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 are on.
Speaker 3: 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 enlisting CDs, is more than 550 million.
On balance sheet liquidity is $229 million in our off balance sheet sources, excluding brokered enlisting Cds.
More than $513 million given this we feel confident that these liquidity sources are adequate for us to navigate the current environment.
Speaker 3: Given this, we feel confident that these liquidity sources are adequate for us to navigate the current environment.
Unknown Executive: Thank you for standing by and welcome to the Q3 2023 USDB financial holding bank earnings conference call.
Speaker 2: With that, let me turn it back to Luke to discuss our loan book. Thank you, Rob. Average loans increased 41.6 million or 10.52% annualized compared to the prior quarter, and 212 million or 15.2% compared to the third quarter 2022. Directionally, portfolio loan yields have increased 103 basis points compared to the third quarter 2022, a trend that will continue through the end of the year.
With that let me turn it back to allude to discuss our loan book.
Rob <unk>.
Luis Aguilera: I would now like to welcome Luis Dilla Aguilera, Chairman, President and CEO to begin the call. Luis, over to you. Good morning, and thank you for joining us today for USDB financial holding third quarter 2023 earnings call. With me today reviewing our Q3 highlights, is CFO Rob Anderson and Chief Credit Officer Ben Pazos, who will provide an overview of the bank's performance, the highlights of which you can see on slide three.
Average loans increased $41 6 million or 10, 5%, 2% annualized compared to the prior quarter and $212 million or 15, 2% compared to the third quarter 2022, Directionally portfolio loan yields have increased 103 basis points compared to the third quarter 2022, a trend that will.
Continue through the end of the year.
Speaker 2: The slowdown in loan demand seen after the crisis in confidence triggered by the sudden failure of SBB and other banks has abated. Our lenders responded, so did the market, and production more than doubled over the previous quarter. As noted, loan production was well diversified over various asset classes.
The slowdown in loan demand seen after the crisis in confidence triggered by the sudden failure of SBB in other banks has abated or lenders responded so did the market and production more than doubled over the previous quarter as noted loan production was well diversified over various asset classes.
Luis Aguilera: As we reported third quarter earnings, I am pleased to highlight the rebound and 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. Surely we will review this consistent increase in both production and yield.
Speaker 2: As we see in the graphic, quarter to quarter, the weighted average coupon on new production continue to increase from 485 basis points in Q3 2022 to 800 basis points in Q3 2023, or 247 basis points above the portfolio average.
As we see in the graphics quarter to quarter. The weighted average coupon on new production continued to increase from 485 basis points. In Q3, 2022 to 800 basis points in Q3, 2023, or 247 basis points above the portfolio average.
Luis Aguilera: We are encouraged by the continued diversification of our loan growth, particularly the 59% in new non-CRE 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 corresponded 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.
Speaker 2: In the third quarter, gross closing stopped $135 million and the active pipeline is strong as we forecast similar activity, diversification and pricing into Q4. Asset quality and continued portfolio diversification is our ongoing priority. Chief Credit Officer Ben Fossils will be reviewing on slide 16, our loan portfolio mix as well as growing production volumes contributed by our non-CRE business verticals.
In the third quarter gross closings topped $135 million in the active pipeline as strong as we forecast similar activity diversification and pricing into Q4 asset quality and continued portfolio diversification is our ongoing priority <unk>.
<unk> credit officer, Ben parcels will be reviewing on slide 16, our loan portfolio mix as well as growing production volumes contributed by our non CRE business verticals.
Okay, Let me pick it up on page 12 of our slide 12.
Speaker 3: Net interest income decreased by $151,000 compared to the prior quarter, predominantly due to an increase in deposit costs. While deposits grew from year to year on average, the growth has been towards interest-bearing accounts, which had a negative impact on our interest expense and consequently on the margin.
Net interest income decreased by 151000 compared to the prior quarter predominantly due to an increase in deposit costs. While deposits grew from year to year on average the growth has been towards interest bearing accounts, which had a negative impact on our interest expense and consequently on the margin the.
Luis Aguilera: Furthermore, we took the opportunity to restructure our bank owned life insurance, which bolstered Bolly revenue by 982,000 in this quarter. We offset this one time non-recurring gain with a comparable size security loss trade. This small portfolio restructuring will allow us to optimize our investment portfolio by transitioning from lower yielding securities to higher return investments. Despite a decrease in them early in the third quarter, September's name increased to 2.7%, which reflects the resilience and adaptive severity of our bank in fortifying our financial performance.
Speaker 3: Despite a decrease in our NIM quarter over quarter, we saw an inflection point early in the third quarter with both August and September's NIM higher than July's NIM. September's NIM increased to 2.7%, which was 10 basis points above the quarterly average.
First despite a decrease in our NIM quarter over quarter, we saw an inflection point early in the third quarter with both August and September NIM higher than July is now.
September is NIM increased to two 7%, which was 10 basis points above the quarterly average apps.
Speaker 3: Absent further rate hikes, we have reasons to believe that our NIM will continue to improve and stabilize going forward. This includes the following.
Absent further rate hikes, we have reasons to believe that our NIM will continue to improve and stabilize going forward. This includes the following <unk>.
Luis Aguilera: As a commercially focused SBA preferred lender, the U.S. Venturi is committed to support South Florida Small Business Community. Early in 2020, we launched our SBA Business Initiative, which has generated over 115 million in SBA 504 and 7A loans, while generating over 4 million fees on the gain on sale of the guaranteed portion of the 7A loans. Serving over 7,000 small business clients, we recognized the responsibility and business opportunity in supporting the lending needs of these clients.
Speaker 3: First, the third quarter new loan production coupon was 8% and we expect similar coupons in the coming quarters. With consistent loan growth and increasing yields, we can eventually overcome the historical rise and pace of interest rates that has impacted our deposits.
First the third quarter, new loan production coupon was 8% and we expect similar coupons in the coming quarters with consistent loan growth and increasing yields we can eventually overcome the historical rise in pace of interest rates has impacted our deposit book.
Speaker 3: Second, and to the point above, we have already experienced slower increases in deposit costs. In September , our deposit cost was 2.42%, while for the quarter was 2.39%, which reflects a slower pace of increasing rates compared to prior quarters.
Second and to the point above we have already experienced slower increases in deposit costs in September our deposit cost was $2 four 2% while for the quarter was $2, three 9%, which reflects a slower pace of increasing rates compared to prior quarters.
Luis Aguilera: With that said, we launched this past quarter, a strategic partnership with industry leading technology partner, Newtech One, delivering a fully integrated small ticket SBA 7A online application and expedited approval process. In business since 2000, Newtech One is a publicly traded company listed on NASDAQ and an industry leader in the field. This partnership will officially 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 to be submitted.
Speaker 3: Next, we executed a small security loss trade with our BOLI restructuring. This allowed us to sell 7 million low-yielding securities and put the cash flow into loans yielding 8%, more than a 625 basis point improvement. While small, it does provide incremental benefit, and as everyone knows, it is the cumulative effect of multiple items that eventually make a difference.
Next we executed a small security loss trade with our boley restructuring this allowed us to sell 7 million low yielding securities and put the cash flow into loans, yielding 8% more than a 625 basis point improvement while small it does provide incremental benefit and as everyone knows it is the cumulative effect of multiple I'd.
That eventually make a difference.
Speaker 3: Last, we further prepared for a higher-for-longer rate environment by putting on another $100 million notional pay-fix interest rate swap.
We further prepared for a higher for longer rate environment by putting on another 100 million notional pay fixed interest rate swaps. This tranche of interest rate swaps was similar to the previous set in which we took advantage of the inverted yield curve by paying a fixed amount at the two and a half year tenor spot.
Speaker 3: This tranche of interest rate swaps was similar to the previous set in which we took advantage of the inverted yield curve by paying a fixed amount at the two-and-a-half-year tenor spot and receiving floating rate SOFR.
Luis Aguilera: The program accepts loans between 10,000 to 500,000. Management commitment and ever-improving operational efficiency can be observed in the year-to-year declining trends seeing the banks' non-interest expense to average assets which improve 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 aid 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 which reinforce in the third quarter with two new hires.
And receiving floating rate sofa.
Speaker 3: The interest rates swap do two things for us. First, it provides us with an additional $2 million in net interest income on an annual basis at current rates. And second, if positions are balanced to be less liability.
The interest rate swaps do two things for US first it provides us with an additional $2 million and net interest income on an annual basis at current rates and second it positions our balance sheet to be less liability sensitive in fact, when you turn to the next phase Youll notice our balance sheet is now asset sensitive.
Speaker 3: In fact, when you turn to the next page, you'll notice our balance sheet is now asset.
Speaker 3: And according to our model, our balance sheet went from neutral to liability sensitive in year one and asset sensitive in year two to now being asset sensitive for both years, as you can see in the chart. This is a direct result of booking 250 million notional of interest rate swaps in totality over the past couple quarters, where we went out on the curve and paid a fixed amount and received a variable SOFR payment on the front end of the curve.
And according to our model our balance sheet went from neutral to liability sensitive in year, one and asset sensitive the year to now being asset sensitive for both years as you can see in the chart. This is a direct result of bookings 250 million notional of interest rate swaps in totality over the past couple of quarters.
Luis Aguilera: One in our association banking group and another in the private client group which is focused in delivering personalized, cost-eared-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.
Where we went out on the curve and paid a fixed amount and received a variable so for payment on the front end of the curve.
Speaker 3: Furthermore, the efforts of diversifying our loan book with shorter duration, YACHT and C&I loans increases our asset sensitivity.
Furthermore, the efforts of diversifying our loan book with shorter duration.
Unknown Executive: The following page is self-explanatory, directly 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.
And C&I loans increases our asset sensitivity.
Speaker 3: As discussed before, our practice is to book 10-year fixed-rate CRE loans that have a repricing mechanism after year five. We price these loans with an index tied to the five-year CMT.
As discussed before our practices to book 10 year fixed rate CRE loans that had a repricing mechanism after year five we price these loans with an index tied to the five year CMT and while we expect 31% of the variable and hybrid loans to reprice within a year, we have $210 million of luxury.
Robert Anderson: So let's now turn our attention to our specific financial results and keep performance indicators which will be reviewed by our CFO Rob Anderson.
Speaker 3: And while we expect 31% of the variable and hybrid loans to reprice within a year, we have 210 million of loans repricing within the next six months. And we expect to reprice 66 million of securities between now and the end of 2024, which leads me to the next slide.
Pricing within the next six months and we expect to reprice $66 million of securities between now and the end of 2024, which leads me to the next slide.
Robert Anderson: Thank you, Lew, and good morning everyone. Overall, I would characterize this quarter as resilient. The management team executed on several initiatives which we believe positively impact forwarders.
Speaker 3: A key component of our balance sheet and liquidity management is our securities portfolio. And for the third quarter, the fair market value of the securities portfolio was 416 million, of which 52.6% is classified as AFS, while the remaining 47.4 is classified as HTM or held to maturity.
A key component of our balance sheet and liquidity management is our securities portfolio and for the third quarter at a fair market value of the securities portfolio was $416 million of which 52, 6% is classified as <unk>. While the remaining 47 four is classified as HTM or <unk>.
Robert Anderson: 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 have 416 million insecurities and total equity flows that 183 million display decrease compared to the previous quarter due to the increase in unrealized losses in the security portfolio with higher interest rates.
The maturity.
Speaker 3: By classifying 47.4% of our portfolio as HTM, we have saved approximately $36 million on unrealized losses. And that helps to preserve our tangible book value per share.
By classifying 47, 4% of our portfolio is HCM, we have saved approximately $36 million on unrealized losses and that helps to preserve our tangible book value per share.
Speaker 3: Our portfolio has a modified duration of 5.4 years and the average life of 7. Duration has increased as the result of extended higher rates, which has also slowed prepayments and cash flows. And for the rest of the year, we expect to receive
Our portfolio has a modified duration of five four years and the average life of seven duration has increased as the result of extended higher rates, which has also slowed prepayments and cash flows and for the rest of the year, we expect to receive $29 8 million from the securities portfolio and for 2024, we expect to receive.
Robert Anderson: 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, that 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 name with the low point in July in both August and September steadily increasing.
Speaker 3: $29.8 million from the securities portfolio, and for 2024, we expect to receive another $36.7 million. And we intend to invest these cash flows at considerably higher yields as most of the securities portfolio was purchased when rates were at historical lows.
Another $36 7 million.
And we intend to invest these cash flows are considered way higher yield as most of the securities portfolio was purchased when rates were at historical lows with that let me turn it over to Ben process to discuss asset quality.
Robert Anderson: I will expand on the NIM conversation as we progress with the call. Another good thing to report to 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 vertical differentiates 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 expenses were flat from the prior quarter, and we booked 653,000 for loan-loss provisions with growth in our loan book. On a gap basis in that income was 3.8 million, or 19 cents per deluded share.
Speaker 3: With that, let me turn it over to Ben Pazos to discuss asset quality.
Speaker 4: Thank you, Rob, and good morning to all. Our ALLL increasing absolute numbers, yet it is slightly lower in percentage than the previous quarter. The increase of 678,000 was strictly due to portfolio growth.
Thank you, Rob and good morning to all of our <unk> portfolio, increasing nationally numbers, yes. It is a slightly lower in percentage than the previous quarter.
The increase of 678000, which is briefly due to portfolio growth.
Speaker 4: The reduction in percentage from 18% to 16%, which due to improvement of the economic outlook of the model. We continue without Oreos and with just one CNI loan in Nona, Corosta.
The reduction in percentage from 118% to 116%, whereas due to improvement of the economic outlook of the model.
We continue without oreos.
Just one C&I loan in non accrual status.
Speaker 4: Moving to slide 16, we have information on our loan portfolio.
Moving to slide 16, we have information in our own portfolio mix.
Robert Anderson: Let's briefly cover our performance metrics for the quarters. In terms of soundness, our credit metrics remain strong. Our loan-loss reserve coverage was down slightly to 1.16%, in terms of profitability, a return on average assets was 0.67%, and a return on average equity was 8.19%. Our name 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.
Speaker 4: out of a book of $1.675 billion.
Our book of one $6 75 billion CRE.
Speaker 4: CRM loans amount to a little bit over $1 billion.
CRE loans amount to a little bit over $1 billion.
Speaker 4: However, our CRE concentration has decreased and is now at the lowest point of the year. Our biggest concentration is in the retail segment with 296 million, which translates into 29% of our CRE portfolio.
However, our CRE concentration as decrease and is now at the lowest point of the year.
Our biggest concentration is in the retail segment with $296 million, which translates into 29% of our CRE portfolio.
Speaker 4: as we usually do every quarter, the table in page 16 gives you the metrics of this theory.
As we usually do every quarter that they will in page 16 gives you the metrics of this theory book.
Speaker 4: with their average loan-to-value ranging from 54 to 60%.
The weighted average loan to value ranging from 54% to 60%.
Robert Anderson: Non-interest expense to average assets ticked down to 1.84% in tangible 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. Absence, the AOCI mark, or tangible book value per share, would have been $11.98.
Speaker 4: Depth service coverage ratio ranging from 138 times to 2.5.
<unk> service coverage ratio ranging from $1 38 times.
Two 218 times, an average loan size growing shareowner low ranging from $1 3 million to $4 8 million.
Speaker 4: and average loan size considerably low, ranging from 1.3 million to 4.8 million.
Speaker 4: Going to slide 17, Rob will talk about our non-interesting.
Robert Anderson: Moving on to the next slide. A big part of our NIM story centers around our deposit costs and composition, where we are continuing to see the shift in the deposit mix with balances moving out of DDA and into interest-faring deposits. It is happening at a much slower pace. Many of our competitors are still offering higher rates on interest-faring deposits, and we have felt that pressure. However, as mentioned before, we have maintained our deposit price in discipline, and believe that is evident in our overall deposit cost compared to peers.
Going to slide 17, where our board talk about our non interest income. Okay. Thank you Ben we had a positive quarter for noninterest income service fees increased compared to the prior quarter and year, which is driven by an increase in wire fees in both foreign correspondent banking and our private client group.
Speaker 3: Okay, thank you, Ben. We had a positive quarter for non-interest income. Service fees increased compared to the prior quarter and year, which is driven by an increase in wire fees in both foreign correspondent banking and our private client group.
Speaker 3: The main activity here was the strategic restructuring of our bank-owned life insurance, which increased other income by 982,000.
The main activity here was the strategic restructuring of our bank owned life insurance, which increased other income by 982000 in short we surrendered a portion of lower yielding bully for higher yielding volume, which will provide an additional 400000.
Speaker 3: In short, we surrendered a portion of lower-yielding BOLI for higher-yielding BOLI, which will provide an additional $400,000 annually going forward.
Robert Anderson: Overall, there are three positive takeaways from this slide. The first is that our deposit beta was is within our modeling assumptions at 41%. The second is the average DDA that total deposits was 30%, which is within our expectation. And the third is that the month 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 earning them going forward. Nevertheless, a material positive NIM impact will depend on our ability to attract and retain DDA checking accounts.
Annually going forward.
Speaker 3: This $982,000 gain is a one-time, non-recurring item. And given this, we also took the opportunity to offset the bullet gain with a similar-sized securities loss.
$982000 gain as a onetime nonrecurring item and given this we also took the opportunity to offset the bowl again with a similar sized securities laws as mentioned before the loss provided us with $7 million of liquidity, which reinvested in loans at 8%. This provided us with an additional 625 <unk>.
Speaker 3: As mentioned before, the loss provided us with $7 million of liquidity, which reinvested in loans at 8%. This provided us with an additional 625 basis points and earned back on the loss at approximately two years. Let's take a closer look at it.
At this point and an earn back on the loss at approximately two years.
Let's take a closer look at our expenses for the quarter.
Speaker 3: Our total expense space was 10.5 million in flat compared to the prior quarter. Dalleries and benefits were up as we adjusted the sales incentive accrual based on performance through Q3. Consulting in legal fees increased 150,000 due to a one-time non-recurring legal expense.
Our total expense base was $10 5 million and flat compared to the prior quarter salaries and benefits were up as we adjusted the sales incentive accruals based on performance through Q3 consulting and legal fees increased 150000 due to a onetime nonrecurring legal expense.
Robert Anderson: 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% broker. 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%.
Speaker 3: Overall, this was a good quarter in terms of expense discipline as we were able to improve the non-interest expense to average assets by 14 basis points year over year. In terms of a forward run rate, we feel our quarterly expenses will be at or near 10.5 million per quarter near term and increased slightly more in 2024.
Overall this was a good quarter in terms of expense discipline as we were able to improve the noninterest expense to average assets by 14 basis points year over year in terms of our forward run rate, we feel our quarterly expenses will be at or near $10 $5 million per quarter near term and increased slightly more than 2024.
Robert Anderson: 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 loaned 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 broker in listing CDs, is more than 513 million.
Speaker 3: Let's take a quick look at capital. Capital levels remain in bug well, capitalized levels, and as discussed before, AOCI was negatively impacted by higher rates of support. We have 172,000 shares remaining under our current authorization, which allows us to be opportunistic if the share price retreats. And with that summary, I'll turn it back to Louvers and Quizz and Cun.
Let's take a quick look at capital capital levels remain above well capitalized levels and as <unk> discussed before <unk> was negatively impacted by higher rates this quarter.
We have 172000 shares remaining under our current authorization, which allows us to be opportunistic if the share price decrease and with that summary, I will turn it back to Luke for some closing comments.
Speaker 2: While 2023 has presented a challenging operating environment for the industry, our management team has taken a prudent, yet active approach in managing our balance sheet, liquidity, expenses, and capital. Our focus is on taking action that will safely enhance our margin and profitability as we prepare for a higher for longer interest rate environment.
While 2023 has presented a challenging operating environment for the industry. Our management team has taken a prudent yet active approach in managing our balance sheet liquidity expenses and capital. Our focus is on taking actions that will safely enhance our margin and profitability as we prepare for a higher for longer interest rate environment.
Robert Anderson: Given this, we feel confident that these liquidity sources are adequate for us to navigate the current environment, with that.
Luis Aguilera: Let me turn it back to Lou to discuss our one book. Thank you Rob. Average loans increased 41.6 million or 10.52% annualized compared to the prior quarter and 212 million or 15.2% compared to the third quarter 2022. Directionally, portfolio loan yields have increased 103 basis points compared to the third quarter 2022, a trend that will continue through the end of the year. The slowdown in loan demands seen after the crisis in confidence triggered by the sudden failure of SBB and other banks has abated.
Speaker 2: The Florida economy is strong and growing and amongst the best in the country. And we will take full advantage of these conditions as we operate in an economic market with many opportunities. To this point, we expect steady growth for USCB and forecasts continued low double digit diversified loan growth.
The Florida economy is strong and growing and amongst the best in the country and we will take full advantage of these conditions as we operate in a dynamic market with many opportunities to this point, we expect steady growth for USB and forecast continued low double digit diversified loan growth.
Speaker 2: In Q3, we added new production personnel focused on deposit growth, maintaining expense control as we reinvest personal cost savings in supporting growth strategies. We launched a complimentary business line to our SBA initiative focused on small-ticket lending, leveraging a best-in-class technology partner. Again, this partnership will efficiently support our existing small-buses relationships and attract new clients without additional staff.
In Q3, we added new production personnel focus on deposit growth maintaining expense control as we reinvest personnel cost savings and supporting growth strategies, we launched a complementary business line to our SBA initiatives focused on small ticket lending leveraging a best in class technology partner again, this partnership will efficient.
Luis Aguilera: Our lenders responded so that the market and production more than doubled over the previous quarter. As noted, loan production was well diversified over various asset classes. As we see in the graphic quarter to quarter, the weighted average coupon on new production continued to increase from 485 basis points in Q3 2022 to 800 basis points in Q3 2023 or 247 basis points above the portfolio average. In the third quarter, gross closing stopped 135 million and the active pipeline is strong as we forecast similar activity, diversification and pricing into Q4.
We support our existing small business relationships and attract new clients without additions to staff.
Speaker 2: We have new initiatives coming online, which will support 2020-24 performance, with a continued focus on deposit growth.
We have new initiatives coming online, which will support 2020 for performance with a continued focus on deposit growth deposit costs are slowing and we feel that we are at or near an inflection point as our NIM rebounded in September balance sheet and liquidity management actions are ongoing and have included interest rate swaps.
Speaker 2: The positive costs are slowing and we feel that we are at or near an inflection point as our name rebounded in September . Balance sheet and liquidity, management actions are ongoing and have included interest rate swaps and the restructure of our bank owned life insurance, which bolstered our bully revenue. While the economic headwinds are evident, our management team is actively navigating a challenging operating environment, focus on delivering sustainable results. With that said, let's open the floor.
And the restructure of our bank owned life insurance, which bolstered our moly revenue while the economic headwinds are evident our management team is actively navigating a challenging operating environment focus on delivering sustainable results with that said lets open the floor for questions.
Luis Aguilera: Asset quality and continued portfolio diversification is our ongoing priority.
Benigno Pazos: Chief credit officer Ben Possils will be reviewing on slide 16 or loan portfolio mix as well as growing production volumes contributed by our non-CRE business products.
Speaker 1: And at this time, I'd like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile any questions.
And at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Benigno Pazos: Okay, let me pick it up on page 12 or slide 12. Net interest income decreased by 151,000 compared to the park quarter predominantly due to an increase in deposit cost. While deposits grew from year to year on average, the growth has been towards interest sparing accounts which had a negative impact on our interest expense and consequently on the margin. Despite a decrease in our NIM quarter over quarter, we saw an inflection point early in the third quarter with both August and September's NIM higher than July's NIM. September's NIM increased to 2.7 percent which was 10 basis points above the quarterly average. Absent further rate heights, we have reasons to believe that our NIM will continue to improve and stabilize going forward.
For just a moment to compile any questions.
Speaker 1: Again, if you'd like to ask a question, please press star 1 on your telephone keypad now.
Again, if you'd like to ask a question. Please press star one on your telephone keypad now.
Speaker 1: Our first question comes from the line of Graham <expletive> with Piper Sandler. Please go ahead.
Our first question comes from the line of Graham <expletive> with Piper Sandler. Please go ahead.
Speaker 5: Hey guys, good morning. Morning, morning, Graham.
Hey, guys good morning.
Good morning, good morning Graham.
Speaker 6: So I guess I just wanted to start on the margin. It seems like things are moving in the right direction there. But there's definitely a lot of moving parts right now with the swaps.
So I guess I just wanted to start on the margin it seems like.
Things are moving in the right direction, there, but there's definitely a lot of moving parts right now with the swaps the bond maturities and then whatever loan growth youre, putting on today and I assume is accretive to the margin given what you said on the 8% new yield.
Speaker 6: bond maturities and then whatever loan growth you're putting on today that I assume is accretive to the margin given what you said on the 8% new yield.
Benigno Pazos: This includes the following. First, the third quarter new loan production coupon was 8 percent and we expect similar coupons in the coming quarters. With consistent loan growth and increasing yields, we can eventually overcome this historical rise and pace of interest rates has impacted our deposit book. Second, and to the point above, we have already experienced slower increases in the deposit cost. In September, our deposit cost was 2.42 percent while quarter was 2.39 percent which reflects the slower pace of increasing rates compared to prior quarters.
Speaker 6: So as you look at it from here, is there any, I mean, if you were to say that, you know, the Fed doesn't raise rates again and the environment remains pretty, I guess, as calm as it could be on the funding side, is there any reason we shouldn't see?
So as you look at it from here is there any I mean, if you were to say that if that doesn't raise rates again and the environment remains pretty I guess.
His comments could be on the funding side is there any reason we shouldn't see.
Speaker 6: more margin expansion. I mean, it sounds like there was a large, or there was a sizable step up in September from the July and August levels just to be at 270 versus the average of 260. So is there anything that should stop that the momentum heading into 4Q?
More margin expansion I mean, it sounds like there was a large are there there was a sizable step up in September from July and August levels, just to be at $2 70 versus the average of 260 <unk>. So is there anything that should stop the momentum heading into <unk>.
Speaker 3: No, I mean, it's, we're throwing a lot at the margin. And, you know, we've taken a lot of pain early on because of the rise in rates pretty quickly and how that's impacted our deposits. We think our deposits.
No I mean, it's we're throwing a lot at the margin and.
Benigno Pazos: Next, we executed a small security loss trade with our Bully restructuring. This allowed us to sell 7 million low yielding securities and put the cash flow into loans yielding 8 percent more than a 625 basis point improvement. While small, it does provide incremental benefit and as everyone knows, it is the cumulative effect of multiple items that eventually make a difference.
We've taken a lot of pain early on because of the rise in rates pretty quickly and that how thats impacted our deposits. We think our deposit cost is beginning to slow and now our earning assets have to catch up and a good piece of that was the loan production that we put on which was $135 million at 8%.
Speaker 3: costs is beginning to slow and now our earning assets have to catch up and a good piece of that was the loan production that we put on, which was 130,000,000,000 at 8%. So that did impact March and we've booked a lot of that at the end of the quarter and predominantly in the last two to three weeks.
Benigno Pazos: Last, we further prepared for a higher for longer rate environment by putting on another 100 million notional pay-fix interest rate swap. This tranche of interest rate swaps was similar to the previous set in which we took a bayonet of the inverted yield curve by paying a fixed amount at the two-and-a-half-year tenor spot and receiving floating rates so far.
So that did impact margins and we booked a lot of that at the end of the quarter and predominantly in the last two to three weeks.
Speaker 3: You know, with some of the movement out of DDA and interest fairing, I think management in our Alka wanted a more neutral balance sheet. So we are prepared for a higher for longer rate environment. So our, the market is the number one focus for us, putting on profitable business.
With some of the movement out of DDA and interest bearing I think management in our Alco one at a more neutral balance sheet. So we are prepared for a higher for longer rate environment. So are the margin is the number one focus for us putting on profitable business and Theres a number of things at <unk>.
Benigno Pazos: The interest rate swaps do two things for us. First, it provides us with an additional $2 million in net interest income on an annual basis at current rates. Second, it positions our balance sheet to be less liability sensitive. In fact, when you turn to the next phase, you'll notice our balance sheet is now assets sensitive. According to our model, our balance sheet went from neutral to liability sensitive in year one and assets sensitive in year two to now being assets sensitive for both years as you can see in the chart.
Speaker 3: And, you know, there's a number of things that impact it, but one, raising low cost deposits and building relationships, putting on strong earning assets will outrun it. And, you know, tinkering around the edges, I mean, I mentioned it's $7 million lost rate. I mean, it's very small, but, you know, we're doing what we can to move it. So I think we're moving in the right direction, and we fully anticipate to keep that trend moving in the fourth quarter and into 24.
<unk>, but one raising low cost deposits and building relationships, putting on strong earning assets will outrun it and tanker.
Tinkering around the edges, I mean, I mentioned, a $7 million loss rate I mean, it is very small, but we're doing what we can to move it. So I think we're moving in the right direction and we fully anticipate to keep that trend.
Moving in the fourth quarter and into 'twenty four.
Benigno Pazos: This is a direct result of booking 250 million notional of interest rate swaps in totality over the past couple quarters where we went out on the curve and paid a fixed amount and received a variable sofa payment on the front end of the curve. Furthermore, the efforts of diversifying our loan book with shorter duration, yacht and sea and islands increases our asset sensitivity.
Speaker 6: yeah and then i guess just uh... on the on the bonds that are maturing in for q i think you said thirty million well maturing in the fourth quarter correct
Yeah, and then I guess just on.
On the on the bonds that are maturing in <unk> I think you said $30 million will mature in the fourth quarter.
Correct.
Yes.
Speaker 3: Sorry guys. We had a US Treasury bond there that was maturing. That will either most likely go to...
Alright, guys, we had a U S treasury bond that was maturing that will either.
Most likely go to.
Speaker 6: Loan demand where we could pay down some borrowing depending upon how deposits come in, but we'll use that will give a Com optionality there. So what would the what would the spread pick up be there if you put into loans? So if you're getting alone at 8% today, is that what's that you the bond you right? Right 300 basis points on 30 million
Loan demand or we can pay down some borrowings depending upon how deposits come in but we will use that will give us some optionality there.
Benigno Pazos: As discussed before, our practice is to book ten-year fixed rate CRE loans that have a repricing mechanism after year five. We've priced these loans with an index tied to the five-year stampede and while we expect 31% of the variable and hybrid loans to reprice within a year, we have 210 million of loans repricing within the next six months and we expect to reprise 66 million of securities between now and the end of 2022.
What would that what would the spread pickup be there if you put it into loans. So if youre getting alone at 8% today is that what's that yield the bond.
300 basis points on $30 million.
Speaker 6: So there is actually a question there on, do you put it to Lone Growth or do you pay down borrowing? So how do you guys think about, I guess, that?
Okay, 300 basis points pick up got it and so there is actually a question. There on do you put it to low loan growth or do you pay down borrowings how do you guys think about I.
I guess that decision.
Speaker 3: I would say long growth right now and we're looking to raise some of deposits. We have, as Lou mentioned, we hired some new, new, new talent that are focused on deposit aggregating and we're focusing a lot on the deposit gathering. As you know, I'm sure you've heard throughout the call as this quarter, it is a real slug for deposit results practice.
I would say loan growth right now and we're looking to raise some deposits we have.
Lew mentioned, we have hired some new new new talent that are focused on deposit aggregating and we're focusing a lot on the deposit gathering as you know I'm sure you've heard throughout the calls this quarter. It is a real slugfest for deposits right now.
Benigno Pazos: This is a key component of our balance sheet and liquidity management is our securities portfolio and for the third quarter of the fair market value of the securities portfolio with 416 million of which 52.6% is classified as AFS while the remaining 47.4% is classified as HGM or held to maturity. By classifying 47.4% of our portfolio as HGM, we have saved approximately $36 million on unrealized losses and that helps preserve our tangible book value for share.
Speaker 6: Yeah. Okay, well, if you do generate some, I guess some good deposit growth and the new hires can contribute. Do you think that even not putting that 30 million into the, you're not paying off borrowings, you think you could pay borrowings down just organically through deposit growth going forward?
Yes, Okay, well, if you do generate some I guess some good deposit growth in the new the new hires can contribute do you think that even even not putting that $30 million and today youre not paying off borrowings you think you could pay borrowings down just organically through deposit growth going forward.
Speaker 3: Yeah, I mean, we could tap some public funds clients, you know, we'll have some seasonality there that we think on the public funds fund that we'll have tax revenue that kicks in. That seasonally, you know, higher in the fourth quarter. So we can use that to pay down some some borrowings as well. But, you know, those are probably priorities. There's a long growth and the maintain our borrowings there to pay it down.
Yes, I mean, we could tap some public funds clients will have some seasonality there that we think on the public fund side that will have tax revenue that kicks in.
Benigno Pazos: Our portfolio has a modified duration of 5.4 years in the average life of seven duration as increased as the result of extended higher rates, which is also free payments and cash flows. And for the rest of the year, we expect to receive 29.8 million from the securities portfolio and for 2024, we expect to receive another 36.7 million. And we intend to invest these cash flows a considered way higher yield as most of the securities portfolio was purchased when rates were at historical lows.
That seasonally higher in the fourth quarter. So we can use that to pay down some some borrowings as well, but those are priorities as our loan growth and to maintain our borrowings are to pay it down.
Speaker 6: Okay, and then just on the swap, can you walk me through?
Okay and then just on the on the swap can you walk me through.
Speaker 6: The math on that again, I mean, I got it here from the last quarter, but it sounded like you guys added another hundred million this past.
The math on that again.
Got it here from the last quarter, but it sounded like you guys added another 100 million this past quarter.
Benigno Pazos: With that, let me turn it over to Ben Pasa to discuss how that quality.
Speaker 6: And what's the what are you paying fixed on that new 100 million if I remember crossing the other two or paid three and a half percent right?
Great Heng whats the what are you paying fixed on that new $100 million, if I remember correctly. The other two were paid three 5% rate.
Benigno Pazos: Thank you Rob and good morning to all. Our 8.4L increasing absolute numbers, yes, it is a slightly lower in percentage than the previous quarter. The increase of 678,000 was strictly due to portfolio growth, the reduction in percentage from 118% to 116%, was due to improvement of the economic outlook of the model. We continue without worries with just one CNI loan in non-accurrosa.
Speaker 3: Yeah, so right now we, we have 250 million noional in total on our interest rate swaps. We did 50 million in the second quarter. We did 100 million early on in the third quarter. And then we just did another 100 million in September . And again, on this last 100 million, we went out on the curve. We did roughly 50 million at the three-year spot. 50 million at the two-year spot. We're paying 450.
Yes, so right now we.
We have $250 million notional in total on our interest rate swaps, we did $50 million in the second quarter, we did a $100 million early on in the third quarter and then we just did another $100 million in September and again on this last $100 million, we went out on the curve.
We did roughly $50 million at the three year spot.
$50 million at the two year spot, we're paying $4 50.
Benigno Pazos: Davis. Moving to slide 16, we have information our own portfolio makes. On a book of 1.675 billion, Syrian loans amount to a little bit over 1 billion. However, our Syrian concentration has decreased and is now at the lowest point of the year. Our biggest concentration is in the retail segment with 296 million, which translates into 29% of our Syrian report for you. As we usually do every quarter, they will in page 16 give you the metrics of this Syrian book. Where their average loan to value ranging from 54 to 60%. Their service covers ratio ranging from 138 times to 2.18 times. An average loan size can certainly low ranging from 1.3 million to 4.8 million.
Speaker 3: And then on the fixed portion of that, that's a two and a half year tenors spot. And then we're receiving SOFR, which is about 533 right now. So more than an 80 basis point carry at current rate.
And then on the fixed portion of that to two and a half year tenure spot and then we're receiving sofa, which is about $5 33, right now so more than an 80 basis point carry at current rates.
Okay. Okay got it that's really helpful. And then I guess just the last thing on the margin and then I'll leave it.
Speaker 6: Okay, got it. That's really helpful. And then I guess just the last thing on the margin, then I'll leave it on the fixed rate loan book, which is I guess true fixed rates, 41%. I see you guys break the variable down with a lot of detail. But on the fixed rate side, how much of that is up for maturity or repricing over the next, I don't know, call it through 20.
On the fixed rate loan book, which is I guess true fixed rates, 41% I see you guys break the variable down.
With a lot of detailed on the fixed rate side how.
How much of that is is up for maturity or repricing over the next I don't know call it through 2024.
Speaker 3: Not a lot, I ought to give you the specific number, but not a lot.
Not a lot of ought to give you the specific number but not a lot.
Speaker 6: Okay, okay, that's helpful. That's really all I needed. All right, well, I appreciate it. I guess if I could just sneak one more in, it would be on expenses. It sounds like you guys are, you know.
Okay. That's helpful. That's really all I needed alright, well I appreciate it I guess, if I could just sneak one more and it would be on expenses. It sounds like you guys are.
Speaker 6: Trying to optimize expense base, taking out costs that don't need to be there and and spending them on revenue, driving personnel and technology. So what sort of your outlook going forward? Do you think this 10.5 million is a good run rate and then maybe you just grow slightly from here in 2024?
Trying to optimize the expense base taken out costs that don't need to be there and spending them on revenue driving personnel and technology. So whats sort of your outlook going forward do you think this $10 5 million is a good run rate and then maybe just grow slightly from here in 2024.
Robert Anderson: Going to slide 17, Rob will talk about our non-interesting. Okay, thank you Ben. We had a positive quarter for non-interesting income. Service fees increase compared to the prior quarter and year, which is driven by an increase in wire fees in both foreign forced fund and banking and our private client group. The main activity here was the strategic restructuring of our bank-owned life insurance, which increased other income by 982,000. In short, we surrendered a portion of lower yielding for higher yielding volume, which will provide an additional $400,000 annually going forward.
Speaker 3: I think we'll grow slightly in 2024. You know, we're looking at a couple new hires, whether or not we get them in the fourth quarter or not or the first quarter, but certainly there's some available talent in the marketplace.
And then it will grow slightly in 2024.
We're looking at a couple of new hires on whether or not we get them in the fourth quarter or not or the first quarter, but certainly there is some available talent in the marketplace.
Speaker 6: We are keeping a keen eye on the expenses right now with revenue being down in the quarter. At 1.84% to non-interest expense average assets, I would argue that peers and benchmarks well. And I would say the 10 and a half near term is a good number, but it will creep up in 2024, but we need to put the revenue on first. . in the value of that, but in the interest increase rates increase, yeah. Becauserate is a good number. 207.colonialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialinialing in <expletive> Hate environment. chips.
We are keeping a keen eye on the expenses right now.
Robert Anderson: This $982,000 gain is at one time non-recurring the item. Given this, we also took the opportunity to offset the bullet game with a similar size securities loss. As mentioned before, the loss provided us with 7 million of liquidity, which reinvested in loans at 8%. This provided us with an additional 625 basis point and earned back on the loss at approximately two years.
Revenue being down in the quarter.
At 184%.
Noninterest expense to average assets.
Argue that peers and benchmarks well.
<unk>.
I would say that 10 five near term.
Is a good number but it will creep up in 2024, but we need to put the revenue on <unk>.
Okay got it alright I appreciate it thank you guys.
Thanks, Brian.
Speaker 1: Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Speaker 7: Hey, good morning guys. Thanks for taking my questions.
Hey, good morning, guys. Thanks for taking my questions.
Speaker 7: Just wanted to follow up on the expense commentary. You've noted now a couple of times how well you've done with the expense for the asset ratio. And I totally appreciate that just giving the environment challenging for revenue growth. But you did mention there's a bunch of talent out in the market. Just given how strong South Florida is performing at this point, why not be a little bit more aggressive? I understand you're trying to balance.
Just wanted to follow up on the on the expense commentary you've noted now a couple of times, how well you've done with the expense to.
Robert Anderson: Let's take a closer look at our expenses for quarter. Our total expense base was $10.5 million in flat compared to the prior quarter. Dollars and benefits were up as we adjusted the sales incentive accrual based on performance through Q3, consulting and legal fees increased $150,000 due to a one-time non-recurring legal expense. Overall, this was a good quarter in terms of expense discipline as we were able to improve the non-interest expense to average assets by 14 basis points year over year. In terms of a forward run rate, we feel our quarterly expenses will be at or near $10.5 million per quarter near term and increased slightly more in 2024.
To asset ratio and I totally appreciate that just given the environment's challenging for revenue growth, but you did mentioned there is a bunch of talent out in the market.
Just given how strong south Florida is performing at this point.
Why not be a little bit more aggressive I understand you're trying to balance and get back to a 1% ROA and 10% ROTC, but if it is going to be tough for now why not accelerate some of those hiring efforts to position yourself better for a better environment.
Speaker 7: get back to a 1% ROA 10% you know, ROTC but if it's gonna be tough, you know, for now why not accelerate some of those hiring apps?
Speaker 7: to position yourself better for a better environment, which I hope is gonna be 2025. Just wanted to get some thoughts there as you guys think about balancing, expense savings, but also the investment side. Thanks.
But it's going to be 2025 I'm.
Just wanted to get some thoughts there as you guys think about balancing expense savings, but also the investment side. Thanks.
Robert Anderson: Let's take a quick look at capital. Capital levels remain above all capitalized levels and as discussed before, AOCI was negatively impacted by higher rates of support.
Speaker 2: Oh, without question, we are. I have scheduled two interviews next week and two the week after that.
But without question we are.
Yes.
I have scheduled two interviews next week and to the week after that and we're looking at talent, we're looking at specialty on the HOA side and on all the.
Robert Anderson: We have a $172,000 shares remaining under our current authorization, which allows us to be offered to nistic if the share price retreats.
Speaker 2: And we're looking at a talent, we're looking especially on the HOA side. And on all the initiatives that are focused on deposits, we have a new initiative that we're going to be announcing in the fourth quarter. Those hires are already in place. We got them earlier in the year, but we're going to be ready to launch it in Q1. And so they're already.
Luis Aguilera: And with that summary, I'll turn it back to Lou for some closing comments. While 2023 has presented a challenging operating environment for the industry, our management team has taken a prudent yet active approach in managing our balance sheet, liquidity, expenses and capital. Our focus is on taking action that will safely enhance our margin and profitability as we prepare for a higher for longer industry environment.
The initiatives that are that are focused on deposits. We have a new initiative that we're going to be announcing in the fourth quarter. Those hires are already in place. We got from earlier in the year, but we're going to be ready to launch it in Q1.
And so they are already in place we are very we're very conservative and very focus on our expenses, but we want to make we want to find the hires that fit the bill for the.
Speaker 2: We are very conservative and very focused on our expenses, but we want to find the hires that fit the bill for the
Luis Aguilera: The Florida economy is strong and growing and amongst the best in the country. And we will take full advantage of these conditions as we operate in an dynamic market with many opportunities. To this point, we expect steady growth for USCB and forecasts continued low double-digit diversified loan growth. In Q3, we added new production personnel focused on deposit growth, maintaining expense control as we reinvest personal cost savings in supporting growth strategies. We launched a complimentary business line to our SBA initiative focused on small ticket lending, leveraging a best-in-class technology partner.
Speaker 2: for the business lines that we have plans for. So we will always be opportunistic.
For the business lines that we have plans for so we will always be opportunistic.
Speaker 2: And the fact that we're keeping our costs in check, doesn't mean that we won't move quickly if the opportunity presents itself.
Does it mean that we will move quickly if the opportunity presents itself.
Speaker 7: Thanks for the color Louise and then if you can just I appreciate you know the outlook for for long growth next year but can you give us a sense of the breakdown and there's been an initiative to to grow the CNI you know customer you know base and diverse file a little bit from
Okay.
If you can just I appreciate the outlook for loan growth next year, but can you give us a sense of the breakdown I know theres been an initiatives to.
Luis Aguilera: Again, this partnership will efficiently support our existing small business relationships and attract new clients without additional staff. We have new initiatives coming online which will support 2020 for performance with a continued focus on deposit growth. Deposit costs are slowing and we feel that we are at or near an inflection point as our name rebounded in September. Balance sheet and liquidity management actions are ongoing and have included interest rate swaps and the restructure of our bank owned life insurance which bolstered our boldly revenue. While the economic headwinds are evident, our management team is actively navigating a challenging operating environment focused on delivering sustainable results.
To grow the C&I customer base and diversify a little bit from <unk>.
Speaker 7: from real estate, just in terms of kind of if you could just broadly kind of discuss what that could contribute for next year versus real estate versus maybe some of your specialty.
From real estate.
In terms of kind of if you could just broadly kind of discuss.
What that could contribute for next year versus real estate versus maybe some of your specialty.
Speaker 7: vehicles that might be our business that might be that would be appreciated thanks
Vehicles that might be our business that might be that would be appreciated. Thanks.
Speaker 2: Well, with the rise in interest rates, a lot of CRE deals down here just simply don't work. There's no refinancing. The refinancing market is pretty much shut down, has been all year.
With the rise in interest rates a lot of CRE deals down here just simply don't work. There is no refinancing the refinancing market is pretty much shut down has been all year and theres a lot of our investment deals that because of the quick rise in rates just simply simply do not cash flow I am very.
Speaker 2: And there's a lot of investment deals that because of the quick rise in rates, just simply do not cash flow. I am very pleased that over time we developed all the business lines that we have.
Unknown Executive: With that said, let's open the floor of questions. And at this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile any questions. Again, if you'd like to ask a question, please press star one on your telephone keypad now.
Pleased that over time, we developed all the business lines that we have we were very confident with the continued growth in the yacht lending, which has been great. The Fort Lauderdale boat show is as this weekend.
Speaker 2: We are very confident with a continued grill.
Speaker 2: in the yacht lending which has been great uh... the four-lottard air boat show is uh... is this weekend
Speaker 2: And then you've got Miami International in February , followed by Palm Beach. And usually during that period of time is when you really see volume come in.
Then you've got the Miami International in February followed by Palm Beach unusually during that period of time is when you really see volume come in our HOA initiative is going to continue very strongly.
Speaker 2: Our H-Away initiative is going to continue very strongly. We, I think, are looked at in the market as a very active player and it's no longer a bank that had an idea to put their toe into H-Away. We have a senior product specialist, which is the person who heads this.
We I think are looked at in the market as a very active player and it's no longer a bank that had kind of an idea to put their toe into HOA, we have a a senior.
Graham Dick: Our first question comes from the line of Graham Dick with Piper Fandler. Please go ahead. Hey guys, good morning. Good morning, Graham. So I guess I just wanted to start on the margin. It seems like things are moving in the right direction there, but there's definitely a lot of moving parts right now with the swaps, the bond, materials, and then whatever long growth you're putting on today that I assume is a creative to the margin given what you said on the 8% new yield.
Product specialists, which is the person who heads this he.
Graham Dick: So as you look at it from here, if you're to say that the Fed doesn't raise rates again and the environment remains pretty, I guess, as calm as it could be on the funding side, is there any reason we shouldn't see more margin expansion? I mean, it sounds like there was a large or there was a sizable step up in September from the July and August levels just to be at 270 versus the average of 260.
Speaker 2: He has trained our lenders over time and they're all sourcing those deals
He has trained the our lenders over time and Theyre all sourcing those deals SBA will continue and.
Speaker 2: SBA will continue and C&I will continue in equipment and whatnot. So we're very pleased that right now 65% of all our loan production is coming in through these business lines.
And C&I will continue in equipment and whatnot. So we're very pleased that right now 65% of all our loan production is coming in through these business lines.
Speaker 2: And I think we reported last time that in a period of three years, our non-CRE went from 9% to 26% in less than three years. I expected that's going to continue to grow to maybe, I think our number we were looking at is about 35 to 40% within the next three years. So I think these are all going to continue. And this is a real estate denominated economy, but we will choose.
I think we reported last time that in a period of three years, our non CRE went from 9% to 26% in less than three years I expect that thats going to continue to grow to maybe I think our the number we were looking at is about 35% to 40% within the next three years. So I think these are all going to continue and this is a.
Our real estate denominated economy, but we will choose.
Speaker 2: We will choose those deals that make sense that are prudent and that credit quality is very strong.
We'll choose those deals that make sense that are prudent and the.
That credit quality is very strong.
Graham Dick: So is there anything that should stop the momentum heading into 4Q? No, I mean, it's worth throwing a lot at the margin and, you know, we've taken a lot of pain early on because of the rise in rates pretty quickly and how that's impacted our deposits. We think our deposit cost is beginning to slow and now our earning assets have to catch up and a good piece of that was the loan production that we put on, which was $135 million.
Speaker 3: Thanks for that Louise and maybe just one last quick one for Rob Understand the bully trade this quarter Not sure when you did in the quarter, but I assume next quarter you I think you'd mentioned that the the bullying come will be higher Can you just you know kind of describe what that that pickup will be? Yeah, we said it's probably gonna be a $400,000 annually, so maybe you know a hundred K on the bully
Thanks for that and maybe just one last quick one for Rob.
Understand the bully trade this quarter or not.
I'm not sure when you did in the quarter, but I assume next quarter, Yes, I think you had mentioned that.
The bully income will be higher can you just.
Kind of.
Describe what that that pickup will be.
Yes, we said, it's probably going to be $400000 annually. So maybe.
100, K on the Boeing.
Graham Dick: At 8%, so that did impact the margin and we booked a lot of that at the end of the quarter and predominantly in the last two to three weeks. You know, with some of the movement out of DDA and interest fairing, I think management in our Alco wanted a more neutral balance sheet, so we are prepared for a higher for longer rate environment. So the market is the number one focus for us, putting on profitable business, and there's a number of things that impact it, but one, raising low cost deposits and building relationships, putting on strong earning assets will outrun it and tinkering around the edges, I mean I mentioned it is $7 million lost rate, I mean it's very small but we're doing what we can to move it.
Speaker 7: Okay, the part where, sorry if I missed that. Thanks a lot. Thanks for taking my questions. Thanks, much.
Okay.
Sorry, if I missed that thanks, a lot thanks for taking my questions. Thanks, Mike.
Speaker 1: Our next question comes from a line of Freddy Strickland with Janie Montgomery Scott. Please go ahead. Hey, good morning, gentlemen.
Our next question comes from the line of Ravi strict Glynn with Janney Montgomery Scott. Please go ahead.
Hey, good morning, gentlemen.
Good morning, Craig.
Speaker 8: Just following up on Michael's last question there the overall level of non-interest income will be a little lower Next quarter the right just because you had
Just following up on Michael's last question there.
Overall level of noninterest income will be a little lower.
Next quarter, there right just because you had.
Speaker 8: Some of the non-core items backing out the security's lost.
Some of the noncore items backing out the <unk>.
Securities laws.
Speaker 8: Something like a 175 to 190 kind of range for non-interesting.
Is something like a $1 75 to 190 <unk> kind of range for noninterest income ex.
Speaker 8: to gain on sale a good number or good range I guess.
Robert Anderson: So I think we're moving in the right direction and we fully anticipate to keep that trend moving in the fourth quarter and into 24. Yeah, and then I guess just on the bonds that are maturing in 4Q, I think you said 30 million will maturing in the fourth quarter. Correct, we have a US Treasury bond there that was maturing, that will either most likely go to loan demand or we could pay down some borrowing depending upon how deposits come in.
Gain on sale.
Good number a good range I guess.
Speaker 3: I think for on our non-impression come we have three things that I would point to to be positive about one and we've talked about this in prayer calls.
Yes, I think for on our noninterest income we have three things that I would point to that would be positive about one and we've talked about this in prior calls is our wire fees, we're seeing a lot of demand in our foreign correspondent business and our.
Robert Anderson: But we'll use that will give us some optionality there. So what would the spread pick up be there if you put into loans? So if you're getting a loan at 8% today, what's that you, the bond you made 300 basis points on 30 million? Okay, 300 basis points pick up, got it. And so there is actually a question there on, do you put it to loan growth or do you pay down borrowing?
Speaker 3: is our wire fees. We're seeing a lot of demand in our foreign correspondent business and our high touch, you know, jurist advantage private client group where we cater to the attorney crowd and we're doing a lot of wire see in that business as well. So you can see that the service fees has picked up and that's mainly on the wire fees. If you take out kind of the one off things like the gain or loss on the securities, the bully piece.
Our high touch jurist advantage private client group, where we cater to the attorney crowd and we're doing a lot of wires in that business as well. So you can see that the service fees has picked up and thats, mainly on the wire fees. If you take out kind of the one off things like the gain or loss on the securities the boldly piece.
Speaker 3: The other thing that's going to continue to climb is our SBA.
The other thing that's going to continue to climb is our SBA initiative.
Speaker 3: Initiative as Lou mentioned we just partnered with a Fintech
Lou mentioned, we just partnered with a fintech.
Speaker 3: Company here in Fort Lauderdale called Newtech 1. That shall have benefits beginning in the fourth quarter. I'll be at a little small, but that should prove helpful. And then on the Treasury management side as well. So, I think what you'll see, take out the one time kind of non-referring type stuff.
Company here in Fort Lauderdale called New Tech won that she'll have benefits beginning in the fourth quarter, albeit a little small but that should prove helpful. And then on the Treasury management side as well so I think what youll see when you take out the onetime kind of nonrecurring types up and we expect our noninterest income to us.
Robert Anderson: So how do you guys think about, I guess that decision? I would say long growth right now and we're looking to raise some of deposits. We have, as Lou mentioned, we hired some new, new, new talent that are focused on deposit aggregating and we're focusing a lot on the deposit gathering. As you know, I'm sure you've heard throughout the calls this quarter, it is a real slug best for deposits right now.
Speaker 3: And we expect our non-interest income to steadily increase year over year. Now is that 12% for year, 15% for year? I think those are good modeling numbers for that line item in total.
Steadily increased year over year now is at 12% per year, 15% per year I think those are good modeling numbers for that.
Robert Anderson: Yeah, okay. Well, if you do generate some, I guess some good deposit growth and the new, the new hires can contribute. Do you think that, you know, even, even not putting that 30 million into the, you're not paying off borrowings, you think you could pay borrowings down just organically through deposit growth going forward? Yeah, I mean, we could tap some public funds clients, you know, we'll have some seasonality there that we think on the public funds fund that we'll have tax revenue that kicks in.
Line item in total.
Speaker 8: Got it. That's perfect. I'm gonna ask about SBA as well. So two birds will stone there.
Got it perfect often ask about SBA as well so a two part one stone there.
Speaker 8: And just as we look back to the sensitivity slide, and I know we've had all those discussions about the swaps you've put on, should we expect a slight benefit to net interest in town if we see a 25 basis point height in December , and then conversely, I don't think it's happening anytime soon, but down the road if we see a rate cut.
And just as we look back to the sensitivity slide and I know that all the discussion about swaps you put on.
Should we should we expect a slight benefit to.
Net interest income if we see 25 basis point hike in December and then Conversely, I don't think thats happening anytime soon but down the road, if we see a rate cut.
Robert Anderson: That seasonally, you know, higher in the fourth quarter, so we can use that to pay down some, some borrowings as well. But, you know, those are probably priorities, the long growth and the maintain our borrowings are to pay it down. Okay. And then just on the, on the swap, can you walk me through the math on that again? I mean, I got it here from the last quarter, but it sounded like you guys added another hundred million this past quarter.
Speaker 8: With that end up causing that interesting come the margin to come down incrementally just try to make sure I understand Where your sensitivity
With that end up, causing net interest income and the margin to come down incrementally just trying to make sure I understand.
Where your sensitivity is today.
Speaker 3: Yeah, so, you know, we have $250 million of no-standard interest rate swaps. It's probably the tenor spot on all of those combined has probably about 2.4 years. We have with those swaps at current rate.
So we have $250 million of notional interest rate swaps.
Robert Anderson: Correct. And what's the, what are you paying fixed on that new 100 million? If I remember correctly, the other two were paid three and a half percent, right? Yeah, so right now we, we have 250 million, notional in total on our interest rate swaps. We did 50 million in the second quarter. We did 100 million early on in the third quarter and then we just did another 100 million in September. And again, on this last 100 million, we went out on the curve, we did roughly 50 million at the three-year spot, 50 million at the two-year spot, we're paying 450.
It's probably the tender spot on all of those combined us by about two four years.
We have with those swaps at current rates.
Speaker 3: about an 80 basis point carry, maybe slightly over that maybe 81. And that's $2 million of additional net interest income if rates go up. We'll receive the additional stoker benefit on that. And if rates go down, that would be less. So that certainly can be somewhat volatile out and rate dependent.
About 80 basis point carry maybe slightly over that maybe 81 and thats $2 million of additional net interest income if rates go up we will receive the additional soaker benefit on that and if rates go down that would be less so that certainly can be somewhat volatile out and rate.
Speaker 3: But management and our alcove believe that we're in a higher rates for longer. And for right now, that's going to provide a benefit in positions. Our balance sheet to be a little bit more neutral because we're liabilities sensitive, which the management team didn't.
Dependent but management and our Alco believe that we're in a higher rates for longer and for right now thats going to provide a benefit and positions our our balance sheet to be a little bit more neutral because we are liability sensitive, which the management team didn't alike.
Robert Anderson: And then on the fixed portion of that, that's a two-and-a-half-year tenor spot. And then we're receiving so far, which is about 533 right now. So more than an 80-based point carry at current rate. I'll leave it on the fixed rate loan book which is I guess true fixed rates 41% I see you guys break the variable down with a lot of detail but on the fixed rate side how much of that is is up for maturity or repricing over the next I don't know call it through 2024 not a lot ought to give you the specific number but not a lot.
Speaker 8: That's helpful. Thanks. And just one last one for me, just with the potential margin pickup here, limited expense growth, the loan growth you talked about, could we see efficiency start to go back below 60 percent, maybe the high 50s by late 2024, assuming we have a Fed pause?
That's helpful. Thanks, and just one last one for me just with what the potential margin pickup here.
Limited expense growth loan growth you talked about could we see efficiencies start to go back below <unk>.
60%, maybe the high <unk> by late 2024, assuming we have a fed pause.
Speaker 3: Yeah, I mean, the efficiency ratio is certainly why we've pointed out the non-interess expense to average. As the efficiency has both the revenue and the expense piece in the calculation. So as we expand our margin into 24 and bring more revenue in, certainly, and hold our expense to study, that's going to bring the efficiency ratio back down under 60%. When and how quickly that happens, it depends a little bit on rates and how we perform, but that's certainly the goal.
Yes, I mean, the efficiency ratio is certainly why we pointed out the noninterest expense to average assets efficiency has both the revenue and the expense piece in the calculation. So as we expand our margin into 'twenty, four and bring more revenue and certainly and hold our expenses study that's going to bring the efficiency.
Robert Anderson: Okay, okay that's helpful that's really all I needed all right well I appreciate it I guess if I could just sneak one more and it would be on expenses it sounds like you guys are are you know trying to optimize expense based taking out costs that don't need to be there and and spending them on revenue driving personnel and technology so what sort of your outlook going forward do you think this you know 10.5 million is a good run rate and then maybe you just grow slightly from here in 2024. I think we'll grow slightly in 2024 you know we're looking at a couple new hires whether or not we get them in the fourth quarter or not or the first quarter but certainly there's some available talent in the marketplace.
Ratio back down under 60% on when and how quickly that happens depends a little bit on rates and how how we perform but thats certainly the goal.
Got it thanks for all the color. Thanks for taking my questions guys. Thank you Fred.
Speaker 9: yeah thank you for turning.
Yes.
Speaker 1: Our next question comes from a line of Brady Gailey with KBW, please go ahead.
Our next question comes from the line of Brady Gailey with <unk>. Please go ahead.
Speaker 5: Hey, thank you. Good morning, guys. Morning, Brady. Morning.
Hey, Thank you good morning, guys good.
<unk> morning.
Speaker 10: But I know you've talked about double digit Lungrath, which clearly you did in the third quarter, at 20% link quarter annualized. But you know, deposits were flat, so the loan deposit ratio ticked up a little bit, link quarter, that maybe just remind us, you're given kind of a new environment. Are we still targeting double digit Lungrath? And what are the expectations on the deposit side as well?
But I know you've talked about double digit loan growth, which clearly you did in the third quarter at 20% linked quarter annualized.
Robert Anderson: We are keeping a keen eye on the expenses right now with you know revenue being down in the quarter you know at 1.84% to non-interest expense average assets you know I would argue that that appears as benchmarks well and you know I would say the 10.5 near term is a good number but it will creep up in 2024 but we need to put the revenue on first.
Deposits were flat so the loan to deposit ratio ticked up a little bit linked quarter, but maybe just remind us there given kind of the new environment are we still targeting double digit loan growth and what are the expectations on the deposit side as well.
Speaker 3: Yeah, Brady, I'll answer first. I would say yes on the loan sign on double digit loan growth. And we think we feel confident about the pipeline that we have right now for the fourth quarter. I think if you looked at the new loan production, this past quarter was 135. And that was up from the previous quarters, where we kind of stalled a little bit with.
Yes.
I'll answer first I would say, yes on the loan side on double digit loan growth and we think we feel confident about the pipeline that we have right now for the fourth quarter I think if you looked at the new loan production. This past quarter was 135 and that was up from the previous quarters, where we kind of.
Robert Anderson: Okay got it all right I appreciate it thank you guys thanks for thank you.
Michael Rose: Our next question comes from the line of Michael Rose with Raymond James please go ahead. Hey good morning guys thanks for taking my questions just wanted to follow up on the on the expense you know commentary you've known and now a couple times you know how well you've done with the expense the asset ratio and I totally appreciate that just given the environments you know challenging for revenue growth but you did mention there's a bunch of talent out in the market you know just given how strong you know South Florida is performing at this point. Why not be a little bit more aggressive I understand you trying to balance and get back to a 1% ROA 10% you know ROTC but if it's going to be tough you know for now.
Saw a little bit with <unk>.
Speaker 3: you know, all the activity that was happening and with, you know, Silicon Valley bank. But we think we can grow the loan book double digits and we have to grow the deposit book in a similar fashion.
All of the activity it was happening.
With Silicon Valley Bank, but we think we can grow the loan book double digits and we have to grow the deposit book in a similar fashion.
Speaker 3: to keep pace with that and have it be diversified and low cost. So you know money market will not just get it done that'll they'll be covered But we definitely need to grow the deposit book probably at or near double digits to fund the loan growth
To keep pace with that and have it be diversified and low cost. So money market will not just get it done that'll there'll be tougher, but we definitely need to grow the deposit book, probably at or near double digits to fund the loan growth. This will have very little on the security side as I mentioned.
Speaker 3: because we'll have very little on the security side, as I mentioned, that will come up on cash flow.
And that will come off on cash flows. So Lew mentioned a couple of new hires that we have those those new hires are targeted towards deposit aggregating strategies and we believe we will have some others coming in the first quarter that will mentioned, where the hires are already here that we'll announce as well, but we will have a big push on the.
Speaker 3: So Lou mentioned a couple new hires that we have. Those new hires are targeted towards deposit aggregating strategies. And we believe we'll have some others coming in the first quarter that we'll mention where the hires are already here. That will announce as well. But we will have a big push on the deposit side.
Luis Aguilera: Why not accelerate some of those hiring efforts to position yourself you know better for a better environment which I hope is going to be 2025. I'm just wanted to get some thoughts there as you guys think about balancing expense savings but also the investment side thanks. Oh without question we are I have scheduled two interviews next week and two the week after that and we're looking at a talent we're looking especially on the HOA side and on all the initiatives that are that are focused on deposits we have a new initiative that we're going to be announcing in the fourth quarter those hires are already in place we got them earlier in the year.
Positive side.
Alright, that's helpful. And then finally for me its good to hear about the partnership with New Tech won an SBA I'm. Just wondering just kind of if you isolate that new partnership what's the earnings impact do you think that that could have.
Speaker 10: All right, that's helpful. And then finally for me, it's good to hear about the partnership with New Tech One and SBA. I'm just wondering, just kind of, if you isolate that new partnership, what's the earnings impact do you think that that could have on US Century overtime?
On U S century overtime.
Brady it.
Speaker 3: It is very new with them and I wouldn't put much money in our forecast. We haven't just yet. We're really working with them. But I can tell you in Luke quoted some of the numbers.
It is very new with them and I wouldn't put.
Luis Aguilera: But we're going to be ready to launch it in Q1 and so they're already in place we are very we're very conservative and very focused on our expenses but you know we want to make we want to find the hires that fit the the bill for the for the business lines that we have plans for so we will always be opportunistic. And you know the fact that we're keeping our costs in check does it mean that we won't move quickly if the opportunity presents itself.
Much money in our forecast we haven't just yet we're really working with them, but I can tell you in lieu quoted some of the numbers.
Speaker 3: We have traditionally done larger size SBA and some of our clients want the small thick SBA and we really didn't have a platform to do that.
We have traditionally done larger size SBA and some of our clients want the small ticket SBA and we really didn't have a platform to do that I think within the first month, we had over $12 $5 million is very granular in terms of the request to look at it in all the requests are not going to make it through the funnel but.
Speaker 3: I think within the first month we had over 12 and a half million, it's very granular in terms of the request.
Speaker 11: to look at and all the requests are not going to make it through the funnel, but certainly we're getting a lot of early looks on that. And we will have a revenue share with new tech one. And we do expect to start making some money off that. And we'll see the size of that grow over a period of time. We'll be able to answer that probably a little bit better in the first quarter, you know, next year. Okay.
Certainly we're getting a lot of early looks on that and we will have a revenue share with new tack, one and we do expect to start making some money off of that and we will see the size of that grow over a period of time, we will be able to answer that private a little bit better in the first quarter of next year.
Luis Aguilera: Thanks for the collar, Luis. And then, if you can just, I appreciate, you know, the outlook for long growth next year, but can you give us a sense of the breakdown? I know there's been an initiative to grow the CNI, you know, customer, you know, base and diverse file a little bit from, from real estate, you know, just in terms of kind of if you could just broadly kind of discuss, you know, what that could contribute for next year versus, you know, real estate versus maybe some of your special vehicles that might be our business that might be that would be appreciated.
Okay, great. Thanks for the color guys.
Thank you Brad.
Speaker 1: There are no further questions at this time. I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's class.
There are no further questions at this time I would like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's call you may now disconnect.
Luis Aguilera: Thanks. Well, with the rise and interest rates, a lot of CRE deals down here just simply don't work. There's no refinancing, the refinancing market is pretty much shutdown has been on here. And there's a lot of investment deals that because of the quick rise and rates just simply simply do not cash flow. I am very pleased that over time we developed all the business lines that we have. We are very confident with the continued growth in the yacht lending, which has been great.
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Okay.
Luis Aguilera: The Fort Lauderdale boat show is this weekend, and then you've got Miami International in February followed by Palm Beach and usually during that period of time is when you really see volume come in. Our HOA initiative is going to continue very strongly. We, I think, are looked at in the market as a very active player and it's no longer a bank that had kind of an idea to put their toe into HOA.
Luis Aguilera: We have a senior product specialist, which is the person who hedge this. He has trained our lenders over time and they're all sourcing those deals. SBA will continue and C and I will continue in equipment and whatnot. So we're very pleased that right now 65% of all our loan production is coming in through these business lines. I think we reported last time that in a period of three years our non CRE went from 9% to 26% in less than three years.
Luis Aguilera: I expected that's going to continue to grow to maybe I think the number we were looking at is about 35 to 40% within the next three years. So I think these are all going to continue and this isn't really state the nominated economy, but we will choose. We will choose those deals that that makes sense that are prudent and that that credit quality is very strong.
Luis Aguilera: Thanks for that.
Robert Anderson: But we said maybe just one last quick one for Rob. Understand the bully trade this quarter. I'm not sure when you did in the quarter, but I assume next quarter you I think you'd mentioned that the bully income will be higher. Can you just kind of describe what that that pick up will be. Yeah, we said it's probably going to be a $400,000 annually. So maybe you know 100K on the bully. Okay, sorry if I missed that. Thanks a lot. Thanks for taking the questions. Thanks, Mike.
Freddie Strickland: Our next question comes from a line of Freddie Strickland with Jannie Montgomery Scott. Please go ahead. Hey, good morning gentlemen. Good morning. Good morning, Freddie. Just following up on Michael's last question there. The overall level of non interest income will be a little lower next quarter. The right just because you had, and some of the non-core items backing out, the security's lost.
Robert Anderson: I mean, is something like a 175 to 190 kind of range for non-interesting ex, beginning on sale, a good number, or a good range, I guess? Yeah, I think for on our non-imperson come we have three things that I would point to to be positive about. One, and we've talked about this in prior calls, is our wire fees. We're seeing a lot of demand in our foreign correspondent business and our high touch, you know, jurist advantage, private client group where we cater to the attorney crowd, and we're doing a lot of wire see in that business as well.
Robert Anderson: So you can see the service fees has picked up and that's mainly on the wire fees. If you take out kind of the one off things like the, you know, gain or loss on the securities, the bully piece, the other thing that's going to continue to climb is our SBA initiative as Lou mentioned, we just partnered with a Fintech company here in Fort Lauderdale called new tech one that shall have benefits beginning in the fourth quarter, I'll be at a little small, but that should prove helpful.
Robert Anderson: And then on the treasury management side as well. So, you know, I think what you'll see, you know, take out the, you know, one time kind of non-referring type stuff, and we expect our non-interest income to steadily increase year over year. Now, is that 12% for year, 15% for year? I think those are good modeling numbers for that line item in total. Got it. That's perfect.
Robert Anderson: I'll can ask about SBA as well, so two birds won't stone there. And just as we look back to the sensitivity slide, and I know we've had all those cashmaps swap you put on, should we expect a slight benefit to net interest income if we see 25 basis point height in December, and then conversely, I don't think it's happening anytime soon, but down the road if we see a rate cut, would that end up causing net interest income in the margin to come down incrementally?
Robert Anderson: Just trying to make sure I understand where your sensitivity is today. Yeah, so, you know, we have $250 million of no external interest rate swaps. It's probably the tender spot on all of those combined, it's probably about 2.4 years. We have, with those swaps at current rates, about an 80 basis point carry, maybe slightly over that, maybe 81, and that's $2 million of additional net interest income if rates go up. We'll receive the additional stoker benefits on that, and if rates go down, that would be less.
Robert Anderson: So that certainly can be somewhat volatile out and rate dependent, but, you know, management and our alcohol believe that we're in a higher rates for longer, and for right now, that's going to provide a benefit in positions. Our balance sheet to be a little bit more neutral because we're liability sensitive, which the management team didn't like. That's helpful. Thanks.
Robert Anderson: Just one last one for me, just with the potential margin pick up here, limited expense growth, the longer we talked about, could we see efficiencies start to go back below 60%, maybe the high 50s by late 2024, assuming we have a fed pause. Yeah, I mean, the efficiency ratio is certainly why we've pointed out the non-interest expense to average, as the efficiency has both the revenue and the expense piece in the calculation.
Robert Anderson: So as we expand our margin into 24 and bring more revenue in, certainly, and hold our expense to study, that's going to bring the efficiency ratio back down under 60%. When and how quickly that happens, it depends a little bit on rates and how we perform, but that's certainly the goal. Got it. Thanks for all the color. Thanks for taking the questions, guys. Yeah, thank you for that.
Brady Gailey: Our next question comes from a line of Brady Gailey with KBW. Please go ahead. Hey, thank you. Good morning, guys. Morning, Brady. Morning.
Luis Aguilera: But I know you've talked about double digit lung growth, which clearly you did in the third quarter, at, you know, 20% link quarter annualized, but you know, deposits were flat, so the loan deposit ratio ticked up a little bit, link quarter, that maybe just remind us you're given kind of the new environment, are we still targeting double digit lung growth? And what are the expectations on the deposit side as well? Yeah, Brady.
Luis Aguilera: All answer first. I would say yes on the loan side on double digit lung growth. And we think we feel confident about the pipeline that we have right now for the fourth quarter. I think, you know, if you looked at, you know, the new loan production, you know, this past quarter was 135, and that was up from, you know, the previous quarters where we kind of stalled a little bit with, you know, all the activity that was happening and with, you know, Silicon Valley bank.
Luis Aguilera: But we think we can grow the loan book double digits and we have to grow the deposit book in a similar fashion to keep pace with that and have it be diversified and low cost. So, you know, money market will not just get it done, that'll be covered, but we definitely need to grow the deposit book probably at or near double digits to fund the loan growth, because we'll have very little on the security side, as I mentioned, that will come off on cash flow.
Luis Aguilera: So, Lou mentioned a couple new hires that we have. Those new hires are targeted in towards deposit aggregating strategies. And we believe we'll have some others coming in the first quarter that we'll mention where the hires are already here that will announce as well. But we will have a big push on the deposit side. All right, that's helpful.
Robert Anderson: And then finally, for me, it's good to hear about the partnership with New Tech One and SBA. I'm just wondering, just kind of if you isolate that new partnership, what's the earnings impact do you think that that could have on US century over time? You know, Brady, it is very new with them. And, you know, I wouldn't put much money in our forecast. We haven't just yet. We're really working with them.
Robert Anderson: But I can tell you, and Lou quoted some of the numbers, you know, we have traditionally done larger size SBA and some of our clients want the small ticket SBA. And we really didn't have a platform to do that. I think within the first month, we had over 12 and a half million. It's very granular in terms of the request to look at them. And all the requests are not going to make it through the funnel.
Robert Anderson: But certainly we're getting a lot of early looks on that. And we will have a revenue share with New Tech One. And we do expect to start making some money off that. And we'll see the size of that grow over a period of time. We'll be able to answer that probably a little bit better in the first quarter, you know, next year.
Unknown Executive: Okay, great. Thanks for the color, guys. Thank you, Brady. There are no further questions at this time.
Unknown Executive: I would like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's call. You may now disconnect.