Q4 2023 USCB Financial Holdings Inc Earnings Call

Good morning, everyone and welcome to the Q4 2023 U S. C V Financial Holdings, Inc Earnings Conference call.

All participants will be in a listen only mode.

You need assistance please.

Especially if that's in the star followed by zero.

After todays presentation, there will be an opportunity to ask questions asked.

That's the question you May Press Star then one moving a touchstone telephone to.

So all your questions you May press star two.

Please note. This event is being recorded and at this time I'd like to turn the floor over to Luis Aguilera CEO. Please go ahead.

Good morning, and thank you for joining us today for U S to be financial Holdings fourth quarter 2023 earnings call with me today, reviewing our Q4 highlights as CFO, Rob Anderson, and our new Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance the highlights of which you can see on slide three.

Bill joined US this past November as band fossils our previous Chief Credit Officer formally retired at age 70.

That was the first member of the executive team to join me here at U S century after the bank's recapitalization in 2015.

Played a transformative role in engineering, the bank's conservative credit culture, while always maintaining strong and diversified asset quality I.

I had the distinct pleasure working with Ben for 38 years, he will be missed and we wish them well like Ben I have known Bill Turner since 1984 initially when he was a bank examiner with the OCC subsequently we worked together in the.

The late 19 eighties, a Republic National Bank, where he rose to the position of SPP and credit policy officer from their Bill went on to serve in key senior executive positions in both Union planters and thanks Benighted.

From 2008 to 2015, Bill joined me and Ben at total Bank were for seven years. He was credit policy officer. Afterwards, he moved up to serve as Chief Credit Officer for both Paulo Bank and Inter-american Bank in Miami.

Our full confidence and bill as having worked with him in the past I have firsthand experience of this capacity integrity and leadership.

2023 was a challenging year for the banking industry. The second quarter was the multiple.

Bank failures triggered a short lived price, there's a confidence which affected many regional and community banks consumer sentiment was shaken loan demand stalled and deposits fled to money center banks in a perceived flight to safety. The fed continued raising rates further pumping the mix shift in deposits from non interest bearing to interest bearing categories.

Further compression in NIM.

Despite these and other headwinds the U S. C. B team pushed on through 2023 to deliver solid results with total assets growing $253 million or 12, 1% to close the year at $2 3 billion.

Loan growth was robust and diversified ending the year at $1 8 billion with total loans growing $273 million or 18% over the previous year deposits close the year at $1 9 billion, an increase of $107 9 million or 6% from December 31 2022.

After the slow down in Q2 loan production came back on track over the last two quarters as the economy in South Florida continues to perform well with gains across most sectors. In Q4, our loan production was 186 billion of which $150 million funded mostly in December this will continue to be accrete.

Net interest margin going forward to this end the weighted average coupon on quarterly loan production over the past five quarters has increased from 5656, 8% to 8% this will be detailed shortly.

Equally important to loan production and yields is asset quality and diversity and this past year, 57% of gross loan production was non CRE consisting of diversified HOA SBA equipment consumer and your outlooks.

Since loan growth is optimally funded by low cost deposits our efforts to further leverage our deposit gathering business lines has taken a priority.

New deposit focused hires sourced in Q3, and Q4 are coming online and new business verticals have been developed and our recently introduced.

In December 2017, the bank launched or reintroduced three deposit aggregating business lines, namely HOA banking.

Jurist advantaged initiative focused on developing the deposit rich legal market and global banking, primarily focused on a correspondent banking.

Over these five years these verticals have grown over $400 million and deposits of which 35% are non interest bearing.

Each business line is headed by a senior banker having expertise in their field new production personnel has been identified allocated and hired to further support the deposit gathering activities of these verticals.

Furthermore, on January 18 of this year, we announced a new business vertical branded as MD advantage focus on the local medical and health care market.

In early 2023 and experienced team with a $200 million book of business was hired and organized to develop this market.

The team has set operations at our Dadeland Bank to center, which is within one five miles or three of the largest hospitals in south Miami.

Another veteran senior producer managing $110 million portfolio was also hired this month to further grow our deposit rich legal banking niche sourcing lower funding costs.

Also during this quarter.

The company.

Repurchased 92000.

317 shares of common stock at a weighted average price per share of $10 45.

As of December 31, 2023.

880080 shares remain authorized for repurchase under the company's stock program.

Before we move on I am pleased to confirm that.

This past December a Florida State Court judge dismissed with prejudice a federal class action suit led by three U S century bank shareholders against current and former corporate directors. The judge held that the class action had no merit.

The next page is self explanatory directionally, showing nine select historical trends since recapitalization profits.

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 specific financial results and key performance indicators, which will be reviewed by our CFO Rob Anderson.

Okay. Thank you Lou and good morning, everyone. It appears we are coming to the close of the federal Reserve's, most aggressive tightening cycle in decades as you. All know this has put a squeeze on the industry's profitability in U S. C. B is no exception as we discussed on our last call. Our goal is to aggressively reprice current assets originate new loans at higher yields.

Slow the pace of deposit cost increases to improve the profitability of the bank.

Well I am pleased to say that we have accomplished these goals in Q4, it will take a few more quarters with more more pronounced results to materially improve our profitability profile.

We also need some help from the fed which most believe will come in the second half of 2024.

First I would point to the loan growth.

Our growth in our loan book up a $104 million from the prior quarter or nearly 25%.

Our deposits were up slightly the pace of increases in our deposit book has slowed and I'll touch more on this in a bit.

Net interest income finally saw an inflection point after declining all year and during the fourth quarter, we sold $10 million of lower yielding securities for an $883000 loss, which impacted our non interest income on the cash flows from the sale were reinvested in higher earning assets with an earn back under one year.

With $104 million of loan growth in the quarter, we booked a rather large provision expense I would also note that this growth came on late in the quarter predominantly in December. So we have the provision expense, but not the benefit of the interest income for the quarter and that impacted our profitability regardless of the interest income generally generated by these loans will help them.

<unk> profitability going forward.

Earnings per share on a GAAP basis was <unk> 14 for the quarter and if you back out the securities loss sale, we made 17 cents for the quarter as Lou mentioned, we were able to repurchase some shares this quarter and that did lower our share count both on a spot and weighted average basis. So let's move on to our key performance indicators.

First our tangible book value per share increased to $9 81, and includes Aoc impact of a negative or negative $2.26. We saw an improvement in our <unk> S. A OCI portfolio of $10 2 million this quarter, which translated into higher tangible book value.

For sure in terms of profitability return on average assets was <unk> four 8% for the quarter and return on average equity was 588%, our NIM was 265% and up five basis points from the prior quarter driven by several factors, which I'll cover later in terms of soundness, our credit metrics remains.

Strong and our loan loss reserve coverage was up slightly to 1.18%.

Going on to the next page on deposits are big part of our NIM story centers around our deposit cost and composition of our deposit book was down slightly on an average basis, but up slightly when compared to the previous quarter on an ending spot basis.

Deposit costs continue to increase however, the pace of change is slowing down, particularly when compared with the first two quarters of 2023 as you know the narrative around interest rates has bounced around some in the quarter first we are higher for longer than the fed came out in December and announced the expectation for rate cuts in 2024 and the market quickly.

Started pricing in rate cuts.

Now in January it appears we may be at current rates a bit longer than the market is pricing in and rates have moved back up a bit having said all of this in December as the rate narrative was moving down we saw clients asking for one year Cds at 525 to $5 50, and bringing us advertisements or E mails with our competitors with those rates.

While we did lose some of our clients excess liquidity at those rates I can tell you we're not losing clients typically clients that moved funds have Cds renewing or would be taking excess liquidity from their money market accounts and trying to lock in rates before they drop.

As a note alternative wholesale funding was nearly 70 to 90 basis points lower than competition for these Cds. So we decided only to match rates for our very best clients and so far this year, we haven't opened a C D above 5% and the weighted average coupon for new Cds is close to four 5%.

Another positive aspect regarding our deposit portfolio is at the beta of total deposit costs remain within the 40% guidance and even when we have seen deposit mix shifting towards interest bearing accounts, our DDA balances comprised 31% of total deposits.

At the end of 2023, we have $262 million of deposits that are indexed to rate, both Brian and fed funds. So when rates eventually drop these deposits will have 100% beta which will benefit our NIM in overall cost of funds.

If you take a closer look at our deposit book on the next slide our deposit base reflects our business model a diversified commercial bank.

Our uninsured deposits ticked up to 55% the conversations we're having with clients today are more about the rate being paid and not centered around the safety and insured deposits, which dominated the headlines in Q2.

Page nine is the new slide to give everyone a better picture of our business verticals and how they contribute to our growth story as mentioned before each of these verticals are led by one senior leader with deep expertise strong industry and client contacts and very little support staff. So the operating leverage in these verticals can be impressive, especially with.

That all the brick and mortar branch cost as Lou mentioned, we are adding personnel to all these verticals and fully expect this growth trend to continue as we progress through 2024, let's.

Let's move on to liquidity first you'll notice our loan to deposit ratio increased again this quarter to 91, 9% as a result of the loan growth in the last few weeks of the quarter, we still have ample sources of liquidity, both on and off balance sheet and the most noteworthy item on this slide is an action we took in early January the <unk>.

<unk> Bank term funding program has seen increased activity due to the market sentiment of multiple rate cuts over the next 12 months the rate banks pay to use the <unk>.

Is tied to future interest rate expectations now that investors have priced in a series of rate cuts later this year uscb. Another banks are able to utilize this program at a lower cost in FHL B borrowings.

USA drew down $80 million and paid off a similar amount in overnight FHL b borrowings saving the company 70 basis points or $560000 annually, we will see the impact of this action in 2024, so with that let me turn it back to Luke to discuss our loan book.

Thank you, Rob average loans increased $87 7 million or 21, 6% annualized compared to the prior quarter and $241 8 million or 16, 6% compared to the fourth quarter of 2022.

Directionally portfolio loan yields have increased 97 basis points to compared to the fourth quarter 2022, a trend that will continue into the new year.

The previously noted Q2 slowdown in loan demand initiated by the sudden bank failures has abated or loan production teams responded and so did our clients loan production for 2023 totaled $446 million.

And well diversified over various asset classes as we see on the graphic quarter to quarter. The weighted average coupon on new production continued to increase from 568 basis points in Q4, 2022 to 800 basis points in both Q3, and Q4 2023 or 220.

One basis points above the portfolio average in the fourth quarter.

Gross closings were $150 million in the active pipeline as strong as we forecast similar activity diversification and pricing into the new year.

Asset quality and continued portfolio diversification is an ongoing priority our chief credit Officer, Bill Turner will be reviewing a slide 17, our loan portfolio mix as well as the growing production volume contributed by our non CRE business verticals through our product lines, including association lending SBA lending yacht.

Loans and correspondent bank.

Okay. Thank you Lou on page 13, both net interest income and the NIM increased this quarter, while nominal it does represent an inflection point and we feel both will continue to improve over 2024 for the following reasons slower increases in deposit costs, new loans coming on at higher rates lower cost of <unk>.

Borrowings with the FH L. B N V T F D transaction loan to deposit ratio is increasing the mix of our interest earning assets continues to improve $40 million of cash flows coming off our security securities portfolio that can be reinvested and rate cuts coming in the second half of the year occur.

According to our a L. M model, we are slightly asset sensitive on a static model run and this reflects the balance sheet changes and strategies, we executed during 2023 while.

While the model is loaded with conservative assumptions that results in a low volatility to interest rate movements. We believe that we could beat these assumptions and see a margin improvement. During 2024. This however is dependent on the yield curve shape normalization from inverted to a more positive slope curve. Furthermore, when we look at our deposit portfolio. We have reasons to believe that during 2024.

We will see NIM expansion as mentioned before we have 262 million of deposits are indexed with a beta of 100%.

Taking into consideration the index deposits, we have a remaining $750 million in money market accounts. So we'll reprice with a 44% beta so the fed cuts rates 25 basis points. The annual savings on the money market accounts will be 825000 on the loan side and 204 in 2024.

We expect to reprice $330 million of variable rate loans and receive a $118 million in cash flows from loan maturities.

The current weighted average food funds for both these buckets is seven 2% we repriced these buckets at $7 50 or above this will result in additional interest income of $2 2 million.

Moving onto the next slide.

Key component of our balance sheet and liquidity management as our securities portfolio for the fourth quarter. The securities portfolio was $404 million of which $56 seven as classified as a SaaS while the remaining 43, 3% is classified as HTM.

By classifying 43, 3% of our portfolio as HTM, we have saved approximately $28 million of Unreal unrealized losses, and this has helped to preserve our tangible book value per share.

Our portfolio has a modified duration of 5.5 and the average life of $6 nine <unk>.

Duration has increased as a result of extended higher rates, which has resulted in lower prepayments for the year, we expect to receive $45 million from the securities portfolio and depending on our liquidity position and loan demand we could invest.

Investing cash flows a considerable higher yields as most of the securities portfolio was purchased when rates were at historical lows.

We also saw an improvement in our <unk>, a OCI portfolio of $10 2 million from quarter to quarter, which translated into higher tangible book value per share. So with that let me turn it over to bill to discuss asset quality.

Bill: Thank you Rob I look forward to working with you and the rest of the team here in U S history. As you can see from the first graph on page 16, the allowance for credit losses increased two basis points to one 1% to 8% of the loan portfolio at quarter end.

Bill: This increase was a result of a $1 $6 million provision to the allowance driven mainly by the increase of over $100 million.

Bill: And new loans booked during the fourth quarter.

Bill: Remaining graph on page 16 show the nonperforming loans at quarter end were unchanged at <unk>, 3% of the portfolio and classified loans increased five basis points from the third quarter to three 2% of the portfolio and $2, 49% of capital those losses are expected from these classified loans the bank debt.

Bill: They have no other real estate.

On page 17, the first graph shows the loan portfolio mix at year end the portfolio increased over $100 million on a net basis in the fourth quarter almost $1 $8 billion. The composition continues to be well diversified.

Commercial real estate represented 59% or a little over $1 billion in a segmented between retail multifamily owner occupied properties and offices.

Second graph is a breakout of the commercial real estate portfolios for the non owner occupied and owner occupied loans, which demonstrates the diversified makeup of this segment.

Bill: Favorable to the right of the graph shows the weighted average loan to values are less than 60%.

That service coverage ratios are adequate for each segment of the portfolio.

The loan quality and paper performance is good for all segments is the SaaS.

As to loan percentage remains below peer below peer group banks.

We're especially vigilant of the upcoming 2020 for repricing or maturing, it's scheduled for all portfolios and monitor and model of the repayment ability in order to respond proactively overall quality and performance of the portfolio remains good.

Okay. Thank you Bill couple.

Bill: A couple of items to point out on page 18, first service fees increase year over year due to new foreign correspondent banks being added to the portfolio.

More business with current clients and modifying our approach to wire fees second which has already been discusses the securities loss sale Wow. We did two of these in 2023, we will be opportunistic about doing further loss sales going forward.

Moving on to page 19, our total expense base was $10 7 million and up slightly from the prior quarter salaries and benefits were relatively flat as we made a few hires in the quarter and made final adjustments to our incentive accrual on this front our incentive program is aligned with shareholders. So when the performance of the company is good the incentive.

Rural is larger and when the company performance is lower the incentive accrual is lower in short we win together and we lose together our associate base is aligned with our shareholders.

Forward to 2024 will be resetting the incentive accrual and anticipate new hires in Q1. So you should expect our expense base to move up from this point with that let's turn to capital.

While capital levels retreated somewhat strong loan growth in the quarter U S. TB remains comfortably above well capitalized guidelines also worth noting is that the company repurchased 92317 shares of common stock at a weighted average price of $10.45 during the quarter and for the full year of 2008.

23, the company repurchased 669920 shares of the company's common stock at a weighted average price of $11 28 per share.

As of year end 80000 shares remain authorized for repurchase under the current program. So with that let me turn it back to Luke for some closing comments. Thanks, Rob our plans for 2024 or supported of the vibrant strength of Florida's economy, which is forecasted to grow by a solid three 3% in 2024 more.

And doubling the national economy growth of one 5%.

Strong migration and new residents and businesses continued as the state's population approached $23 million, adding over $300000 300000, new residents last year.

We service, a strong diversified and growing market and project annualized loan growth of approximately 12%, 10% deposit growth to support our lending activities with a focus on noninterest bearing deposits in the past four quarters, we have on boarded five new veteran bankers, who collectively manage over 300.

$50 million of deposits at their prior institutions and expect to hire two more in the first quarter 2024, we have launched a new business vertical supporting the medical health care market. This will be our fourth specialized deposit aggregating business line.

With that said I would like to open the floor to Q&A.

Ladies and gentlemen at this time well begin the question and answer session.

Bill: Ask a question you May press Star and then one using a touchtone telephone.

So it's all your questions you May press star two.

If you are using a speaker phone would you. Please pick up your handset prior depressing the numbers to ensure the best sound quality.

Once again that is star then one to join the question queue.

We'll pause momentarily to assemble the roster.

Bill: Our first question today comes from will Jones from <unk>. Please go ahead with your question.

Hey, great good morning, guys.

Good morning Wilmar.

So Rob I wanted to start with the margin I know, there's a ton of moving pieces, there and write on paper you might screen little asset sensitive but.

Unnamed Host: Good morning everyone, and welcome to the Q4 2023 U.S.C.B. Financial Holdings, Inc. Earnings Conference Call. All participants will be in a listen-only mode.

It feels like just just with deposit betas on that that you're expecting on the way down and then just the growth you guys are experiencing the right directionally.

You will see expansion again next year, so is there any way to kind.

Unnamed Host: If you need assistance, please email a competent specialist by typing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. That's the question they pressed a star and then one using a touch screen telephone. If you have any questions, you may press star 2. Please note this event is being recorded, and at this time, I'd like to turn the floor over to Luis de la Aguilera, CEO. Please go ahead.

Kind of ring fence a range.

Or where do you feel like the NIM could ultimately in the year.

As we move through 2024.

It's going to be a little challenging I mean I think.

This quarter, we did hit an inflection point on the margin I think I pointed out a number of reasons why we think it will even.

We will increase even without rate cuts.

And if we do get rate cuts in the second half of the year I think our margin.

Good morning, and thank you for joining us today for USDB Financial Holdings' fourth quarter 2023 earnings call. With me today, reviewing our Q4 highlights, is CFO Rob Anderson and our new Chief Credit Officer Bill Kerner, who will provide an overview of the bank's performance, the highlights of which you can see on slide three. Bill joined us this past November as Ben Fossils, our previous Chief Credit Officer, formally retired at age 70.

Bill: We will expand even though a little further.

<unk> is neutral to slightly asset sensitive right now, but I would point out that the deposit costs are slowing and if rates stay.

Where they are today.

<unk>.

On the deposit side, we shouldn't see too many more more increases going forward and plus on the way down we would anticipate 40% of <unk>.

Ben was the first member of the executive team to join me here at US Century after the bank's recapitalization in 2015. He played a transformative role in engineering the bank's conservative credit culture while always maintaining strong and diversified asset quality. I had the distinct pleasure of working with Ben for 38 years. He will be missed, and we wish him well.

Betas on the deposit book.

And then also we have $262 million thats indexed.

To like Prime and fed funds and that could have a 100% beta.

So I would say margin specifically for modeling purposes, I think it's going to grind up slowly until we get rate cuts and then it can move a little faster.

Like Ben, I have known Bill Turner since 1984, initially when he was a bank examiner with the OCC. Subsequently, we worked together in the late 1980s at Republic National Bank, where he rose to the position of SVP and credit policy officer. From there, Bill went on to serve in two senior and executive positions at both Union Planners and Banks United. From 2008 to 2015, Bill joined me and Ben at Total Bank, where for seven years he was the credit policy officer. Afterward, he moved up to serve as chief credit officer for both Apollo Bank and Inter-American Bank in Miami. I have full confidence in Bill, as having worked with him in the past, I have firsthand experience of his capacity, integrity, and leadership.

Okay perfect. That's very helpful. There and then.

Bill: 18% loan growth in a year like this is really pretty impressive and look back really since the IPO you guys.

<unk> been growing loans at this kind of mid to upper teens pace.

I guess first question is the expectation that you will continue to see that demand.

What we can see that same pace of loan growth moving into next year.

And then <unk>.

<unk>.

All of these have grown but not quite at that pace and we're now sitting at a little over 90% loan to deposit ratio is that a constraint you guys moving.

Moving forward.

Well I think I answered I shared with the group what we're doing strategically.

2023 was a challenging year for the banking industry. The second quarter was tumultuous, as certain bank failures triggered a short-lived crisis of confidence that affected many regional and community banks. Consumer sentiment was shaken, loan demands stalled, and deposits fled to money center banks in a perceived flight to safety. The Fed continued raising rates further, prompting a mixed shift in deposits from non-interest-bearing to interest-bearing categories, further compressing them. Still, despite these and other headwinds, the USCB team pushed on through 2023 to deliver solid results, with total assets growing $253 million, or 12.1%, to close the year at $2.3 billion. Loan growth was robust and diversified, ending the year at $1.8 billion, with total loans growing $273 million, or 18% over the previous year. Deposits closed the year at $1.9 billion, an increase of $107.9 million, or 6% from December 31, 2022. After the slowdown in Q2, low production came back on track over the last two quarters as the economy in South Florida continues to perform well with gains across most sectors.

We were setting the bank up next.

Next year to really focus for last year to really focus on the deposit growth side by continuing to support the.

Posit aggregating verticals that we have.

We've hired five new team members throughout the course of 2023.

We were looking for teams that had.

That had deposit books.

And that we've had no issues regarding noncompete.

The members that we brought in have $350 million under their management, which now theyre going to be targeting of the $350 million from the analysis that we've done about 35% of that is DDA, which is very much in line with the deposit.

The composition of the verticals that we do have so we feel comfortable that we're going to be.

Moving up on the deposit side my projection is 10% deposit growth to support our lending activities.

With a focus on an interest bearing deposits and as I stated I believe the annual loan growth that we are going to be having is is about 12% annualized.

Okay.

In Q4, our loan production was $186 million, of which $150 million was funded mostly in December. This will continue to be accretive to net interest margin going forward. To this end, the weighted average coupon on quarterly loan production over the past five quarters has increased from 5.68% to 8%. As will be detailed shortly, equally important to loan production and yields is asset quality and diversity. And this past year, 57% of gross loan production was non-CRE, assisting diversified HOA, SVA, equipment, consumer, and yacht loans.

Sense.

And the advantage program.

Citing vertical for you guys you called out the 315 million or so booked at.

Bill: All the lenders currently have.

Initial expectation that those deposits you will ultimately be able to attain at some point in time.

We're definitely going to be working on it. The good thing is that when you have a veteran bankers and in this case, one particular banker has been handling that book of business for 30 years.

So the relationship with those clients is very very deep I've already met with a few of them of these doctor groups. The first one I met with.

A very significant high seven figure depository balances and they were just waiting to come onboard. So they are being on boarded as we speak and the newest hire that we have which actually starts in a weak again has a deposit book of $110 million.

Since Sloan Brookes is optimally funded by low-cost deposits, our efforts to further leverage our deposit-gathering business line have taken a priority. New deposit-focused hires sourced in Q3 and Q4 are coming online, and new business verticals have been developed and recently introduced. In December 2017, the bank launched or reintroduced three deposit aggregating business lines, namely HOA Banking, vp, Europe, and the U.S. S record, the U.S. Over these five years, these verticals have grown over 400 million hours in the closet, of which 35% are non-interest bearing. Each business line is headed by a senior banker having expertise in their field. New production personnel have been identified, allocated, and hired to further support the deposit-gathering activities of these verticals. Furthermore, on January 18th of this year, we announced a new business vertical, branded as MD Advantage, focused on the local medical and healthcare market. In early 2023, an experienced team with a $200 million book of business was hired and organized to develop this market. The team set up operations at O'Dayland Banking Center, which is within 1.5 miles of three of the largest hospitals in South Miami.

Which she has handled for the last almost 15 years. So again, we believe that when you've got that kind of a banker that IATA has a very loyal following.

Bill: We'll follow them.

Okay great.

Exciting things ahead, guys and congrats on a great career.

Thank you.

Our next.

Comes from Michael Rose from Raymond James. Please go ahead with your question.

Hey, good morning, guys. Thanks for taking my questions.

Just following up on the deposit discussion on slide nine.

These specialty verticals.

Michael Edward Rose: It's kind of range in the low to mid 20% range in terms of total deposits just with the.

With the medical group coming on I mean, how comfortable are you letting that percentage drift.

Drift higher.

Michael Edward Rose: And just.

Are there any other verticals that you guys are exploring that are out there maybe other licensed professionals or things like that thanks.

Well, we we feel I feel very strongly that we're going to see.

Another veteran senior producer managing a $110 million portfolio was also hired this month to further grow a deposit-rich legal banking network, sourcing lower funding costs. Also, during this quarter, the company purchased 92,000. 317 shares of Common Stock at a weighted average price per share of $10.45 as of December 31st, 2023. 80,080 shares remain authorized for repurchase under the company's stock program. Before we move on, I am pleased to confirm that this past December, a Florida state court judge dismissed with prejudice a federal class action suit led by three U.S. Century Bank shareholders against current and former corporate directors. The judge held that the class action had no merit.

Faster growth on the jurist advantage side on the one that's focused on <unk>.

<unk> because we have hired.

Two new individuals to work on that the medical one has just started again, we announced the launch January 18th of this year.

That one is going to get traction quickly.

Correspondent banking, we on boarded in the fourth quarter for new banks, and we plan to probably do another four by the end of the second so all of these are going to be accretive into moving these numbers higher.

We are for the first time in the last five years really adding much more personnel.

Focused on these areas and I think because of they are very experienced they have proven books.

There is no restraints on.

Non solicitation or noncompete, we should be seeing these areas moving forward.

The next page is self-explanatory, directly showing nine selected 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 specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson. Okay, thank you, Lou, and good morning, everyone.

We have a total of six business verticals for our now focus on deposit the others are not C. R E lending.

We we identify the opportunities and create them.

When especially when we find the senior person to lead them. So I don't have any other in mind right now.

It appears we are coming to the close of the Federal Reserve's most aggressive tightening cycle in decades. As you all know, this has put a squeeze on the industry's profitability, and USCB is no exception. As we discussed in our last call, our goal is to aggressively reprice current assets, originate new loans at higher yields, and explore the pace of deposit cost increases to improve the profitability of the bank. Well, I'm pleased to say that we accomplished these goals in Q4. It will take a few more quarters with more pronounced results to materially improve our profitability profile. We also need some help from the Fed, which most believe will come in the second half of 2024.

Just wanted to focus on expanding and maximizing the growth of the ones we have.

Okay helpful. And then it was good to see the the loan production new loan production yield kind of hold steady at 8% as you guys are thinking about your you're modeling in.

As it relates to the margin what are you guys assuming.

For new production loan yields as we move through the year.

Assuming we do get a couple cuts. This year do you guys think you can you can hold it or do you think as rates come down there'll be more kind of competition would put more pressure on those yields.

First, I'd point to the growth in our loan book, up $104 million from the prior quarter, or nearly 25%. Bob, our deposits were up slightly. The pace of increase is in our deposit focus load, and I'll touch more on this in a bit. Net interest income finally saw an inflection point after declining all year, and during the fourth quarter, we sold $10 million of lower-yielding securities for an $883,000 loss, which impacted our non-interest income loss.

Until rates are lowered I think we're going to be able to hold it again.

Our focus on the non C. R E.

Michael Edward Rose: Uh huh.

Business lines.

Give us the ability to hold there.

Not as competitive as the CRE market here is in Miami This as a real estate denominate economy than ever.

The cash flows from this sale were reinvested in higher-earning assets with an earn-back under one year. With $104 million of loan growth in the quarter, we booked a rather large provision expense. I'd also note that this growth came on late in the quarter, predominantly in December, so we had the provision expense but not the benefit of the interest income for the quarter, and that impacted our profitability. Regardless, the interest income generated by these loans will help the bank's profitability going forward. Greensboro share on a gap basis was 14 cents for the quarter, and if you back out the securities loss sale, we made 17 cents for the quarter.

Every bank in town is competing.

On CRE.

But when you get into all these other.

<unk> business lines, you've got more flexibility on the higher prices.

Yes, Michael the other thing I would say as you know I think we've proven year. After year, we've had very long strong loan demand and I think we can probably be a little bit more selective on the ones that are priced a little higher with good relationship deposits and still have a good growth.

Number on the loan side and as Lou mentioned, we're putting a lot of resources right now on the deposit aggregating verticals and growing our loan book to our deposit book to support loan growth.

As Lou mentioned, we were able to repurchase some shares this quarter, and that did lower our share count both on a spot and weighted average basis. So now, let's move on to our key performance indicators. First, our tangible book value per share increased to $9.81 and includes an AOC impact of a negative $2.26. Additionally, we saw an improvement in our AOCI portfolio of $10.2 million this quarter, which translated into a higher tangible book value per share. In terms of profitability, return on average assets was 0.48% for the quarter, and return on average equity was 5.88%.

That's helpful and Rob I am sorry, if I missed this but what is your base case for for rates as it relates to the previous margin commentary.

Yeah, I mean, when we went through our strategic plan. This fall I think anywhere from two to three rate cuts could could happen in the second half of the year as.

As mentioned on Will's question around the margin I think we can grind the margin a little higher until our rate cuts do materialize and then I think the margin expands a little further from there.

Our NIM was 2.65% and up five basis points from the prior quarter driven by several factors, which I'll cover later. In terms of soundness, our credit metrics remained strong, and our loan loss reserve coverage was up slightly to 1.18%. Going on to the next page on deposits, a big part of our NIMS story centers around our deposit costs and composition. Our deposit book was down slightly on an average basis but up slightly when compared to the previous quarter on an ending spot basis. Deposit costs continue to increase, but the pace of change is slowing down, particularly when compared with the first two quarters of 2023. As you know, the narrative around interest rates has bounced around some this quarter. First, we were higher for longer, then the Fed came out in December and announced the expectation for rate cuts in 2024, and the market quickly... started pricing in rate cuts.

Okay, Great and then maybe finally for me you mentioned some some new hires expenses moved higher in the first quarter you guys had a deceleration in expense growth, though in 'twenty three.

Any other initiatives on the horizon.

What would cause a re acceleration of.

Expense growth as we move through the year or is it.

Kind of.

Mid single digit range, something we should be contemplating for the year. Thanks.

Yeah on the on the expenses I mentioned, it's going to move up somewhat the new hires and then resetting the incentive accrual a little bit no do you want to start off closer to $11 million and we ran 10 seven this past quarter, we had a one time item in there, but we could move that up starting off in 2024, but again.

And we're going to be watching our expenses and the major hires right now around deposit aggregating people and we've got a couple of them in the in the funnel, but nothing materially above that for the near term.

Now, in January, it appears we may be at current rates for a bit longer than the market is pricing in, and rates have moved back up a bit. Having said all this, in December, as the rate narrative was moving down, we saw clients asking for one-year CDs at $5.25 to $5.50 and bringing us advertisements or emails from our competitors with those rates. While we did lose some of our clients who did not want liquidity at those rates, I can tell you we're not losing clients. Typically, clients that move funds have CDs renewing or would be taking excess liquidity from their money market accounts and trying to lock in rates before they drop. As a note, Alternative Wholesale funding was nearly 70 to 90 basis points lower than competition for these CDs, so we decided only to match rates for our very best clients. And so far this year, we haven't opened a CD above 5%, and the wage at average coupon for new CDs is close to 4.5%.

Okay, great. Thanks for taking my questions.

Our next question comes from steady strictly from Janney Montgomery Scott. Please go ahead with your question.

Hey, good morning, just wondering if you could provide a little more detail on the yield of the securities that were sold versus what came on or just generally what the pickup in yield was there on that security straight.

Yeah, I'm looking at my Treasurer, right now I think the 10.

$10 million was roughly around.

Well around 2% and I think we had about a 700 basis point pickup in some of those those securities. It was $10 million I mean, we originated loans at eight we did pick up a couple of pieces.

Another positive aspect regarding our deposit portfolio is that the beta total deposit costs remain within the 40% guidance, and even when we have seen deposit mix shifting towards interest-bearing accounts, our DDA balances comprise 30.1% of total deposits. At the end of 2023, we have 262 million in deposits that are indexed to rates, both prime and Fed funds. So when rates eventually drop, these deposits will have 100% beta, which will benefit our NIM and overall cost of funds. If you take a closer look at our deposit book on the next slide, our deposit base reflects our business model, a diversified commercial bank. While our uninsured deposits ticked up to 55%, the conversations we are having with clients today are more about the rate being paid and not centered around safety and insured deposits, which dominated the headlines in Q2.

Sub debt I think that we're above 10, but nothing material, but I would say 700 basis points.

Got it so with that the loan growth the bank term funding program.

Paying off I think there will be funding I mean, it seems like maybe we see a little bit more of a pickup maybe in the first quarter and margin that slows down or we have already discussed the song, but that flows down a bit and then if we get rate cuts in the back half of the year. It starts to accelerate again is that a fair way to look at it.

Friday, that's very fair.

Okay Perfect and then just one more question just generally speaking I know you talked a little bit about noninterest income earlier, but can you talk about how much opportunity you see to grow that line and then more specifically.

Longer term.

Okay, I'll start and one on the service fees, which is predominantly wire fees. This past year, we worked on that a little bit.

Page 9 is the new slide to give everyone a better picture of our business verticals and how they contribute to our growth story. As mentioned before, each of these verticals is led by one senior leader with deep expertise, strong industry and client contacts, and very little support staff, so the operating leverage in these verticals can be impressive, especially without all the brick and mortar branch costs.

We have our foreign correspondent business that really has the predominant share of the wire fees.

And the leader there one we did.

More business with our current clients. We just asked for more business. We also we're working on how we.

As Blue mentioned, we are adding personnel to all these verticals and fully expect this growth trend to continue as we progress through 2024. Now, let's move on to liquidity. First, you'll notice our loan-to-deposit ratio increased again this quarter to 91.9% as a result of the loan growth in the last few weeks of the quarter. We still have ample sources of liquidity, both on and off balance sheets, and the most noteworthy item on this slide is an action we took in early January. The Fed's Bank Term Funding Program has seen increased activity due to market sentiment of multiple rate cuts over the next 12 months. At the rate banks pay to use the BTFD, the Fed has a number of projects that are interest rates tied to future interest rate expectations.

Price wire fees, which with each of those clients and those were somewhat dynamic, but <unk> got some pick up there and then also were adding a couple of banks. This year I think we added at least three.

Four new banks to the portfolios that that picked up as well I think on the service fee line itself you could probably.

Estimate our model a double digit increase on the wire fees alone and then the gain on sale has been a little bit opportunistic I think we've closed one in January but our goal is to have more dollars on that line every quarter.

So I don't know if <unk>, if you want them and make any other comments, but I think it's going to be not materially higher but we are anticipating that to grow faster than our net interest income. So you can probably model, 15% in total for that line item for the year and I think that would be a good good placeholder and we'll see how we do against that.

Now that investors have priced in a series of rate cuts later this year, USCB and other banks are able to utilize this program at a lower cost than FHLB borrowers. USCB drew down 80 million and paid off a similar amount in overnight FHLB borrowings, saving the company 70 basis points or $560,000 annually. We'll see the impact of this action in 2024. So with that, let me turn it back to Lou to discuss our loan book. Thank you, Rob.

Speaker Change: Understood. That's helpful. Thanks for taking my question.

And our next question comes from Ross Haberman from <unk> investments. Please go ahead with your question.

Ross Haberman: Good morning, gentlemen.

I have a quick question could you describe your uninsured deposits a little more chunky is it is it is it 30 names or 200 names, but makeup the uninsured portion and are you actively trying to get that percentage down more than 24. Thank you.

Average loans increased 87.7 million, or 21.6% annualized compared to the prior quarter, and $241.8 million, or 16.6% compared to the fourth quarter of 2022. Directionally, portfolio loan yields have increased 97 basis points compared to the fourth quarter of 2022, a trend that will continue into the new year. The previously noted Q2 slowdown in loan demand initiated by the Sturgeon Bank sailors has abated.

I would say it did.

Uninsured bounced back up a little bit the conversations lately with the majority of our clients has been around the rate. So there are more a little a little bit more sensitive to rates and the insurance I think the conversations have quickly changed frankly, you know.

In my career talking with regulators. This was the first year, we've talked about insured deposits versus uninsured deposits I think we will follow what our clients are looking for we have the ability and the products to have them insured if they wish to do that I wouldn't be surprised if it hovers around this level.

Our loan production teams responded, and so did our clients. Loan production for 2023 totaled $446 million, and was well-diversified over various asset classes. As we see in the graphic, quarter-to-quarter, the Wage and Average Coupon on new production continues to increase from 560 basis points in Q4 2022 to 800 basis points in both Q3 and Q4 2023, or 221 basis points above the portfolio average in the fourth quarter. Its gross closings for $150 million, and the active pipeline is strong as we forecast similar activity, diversification, and pricing into the new year. Asset quality and continued portfolio diversification is an ongoing priority. Chief Credit Officer Bill Turner will be reviewing slide 17 of our loan portfolio mix as well as the growing production volume contributed by our non-CRE business verticals to our product lines, including association lending, SBA lending, lot loans, and course on advance. Okay, thank you, Lou.

Sure.

The insured improves slightly.

But it is somewhat granular I can't give you a specific amount, but again about 45 is insured 55 as uninsured.

And we do have a big commercial clients.

And some of those are not insured.

Are the regulators just one follow up or the regulators pushing you and everybody else to sort of.

Reduced that number or when they come in there.

With or satisfied I should say with your your amount of uninsured.

Well I'll answer that we have a safety and soundness exam that wrapped up in August and we had that discussion and they acknowledge that.

That.

This is a topic really never discussed it.

<unk> hundred 42 year career, and every examination I've had its ever been discussed so.

We showed them the granularity we actually have hundreds of accounts, it's not like a big chunky blocks. They understood that our business model is.

Is what it is we showed them how we had moved it down how we had quickly educated our clients as to Ics and Cedars, how that number has moved up and they were fine with it there was no there was no issue.

On page 13, both net interest income and the MIM increased this quarter. While nominal, it does represent an inflection point, and we feel both will continue to improve over 2024 for the following reasons: slower increases in deposit costs; new loans coming on at higher rates. Lower cost of borrowings with the FHLB and VTFP transaction. However, the loan-to-deposit ratio is increasing. The mix of our interest-earning assets continues to improve, with $40 million of cash flows coming off our securities portfolio that can be reinvested in rate cuts in the second half of the year. According to our ALM model, we are slightly asset sensitive on a static model run, and this reflects the balance sheet changes and strategies we executed during 2023. While the model is loaded with conservative assumptions that result in low volatility to interest rate movements, we believe that we could beat these assumptions and see a margin improvement during 2024. This, however, is dependent on the yield curve state, normalization from an inverted to a more positive slope curve.

Just one.

Okay, sorry go on.

For example on our foreign correspondent aside all of those banks.

Ross Haberman: Not even a discussion.

They are here with low cost deposits because they want to have a U S bank, providing them service and its not a matter of are they are insured and that was one of the things that we shared with the regulators and they fully understood.

And just one follow up question about the loans.

Could you give us a rough sense, a rough breakdown of what percentage of the loans.

You would describe as.

Ross Haberman: D&C office or we described.

Most of them as a thank you very much.

Our office, our office portfolio is about $190 million.

It's spread out over a 129 loans.

32%, 32% of that.

As owner occupied and 68% of non owner occupied.

Furthermore, when we look at our deposit portfolio, we have reasons to believe that during 2024, we will see NEM expansion. As mentioned before, we have $262 million of deposits that are indexed with a beta of 100%. Taking into consideration index deposits, we have a remaining $750 million money market account, so it will reprice with a 44% beta. Thus, if the Fed cuts rates 25 basis points, the annual savings on the money market accounts will be $825,000. On the loan side, in 2024, we expect to reprice $330 million in variable rate loans and receive $118 million in cash flows from loan maturity. The current weighted average fund for both these buckets is 7.02%. If we reprice these buckets at $7.50 or above, this will result in an additional interest income of $2.2 million. Moving on to the next slide. A key component of our balance sheet and liquidity management is our security support FOIA. For the fourth quarter, the security support FOIA was $404 million, of which $56.7 million is classified as AFS, while the remaining 43.3% is classified as HTM.

And 93% of that is located in Florida.

I'm not I'm not a great I don't have a breakdown.

Class, but.

If I could I would say that the great majority.

Not all of it is solid D&C.

These are.

Think rarely would you have an office building here thats over five stories and.

None of them are really in the major metropolitan area, there they're out in the.

And the commercial section of the suburbs.

And none of the none of them are.

As to our non accrual or classified.

Great.

Thank you very much covenants weekend.

Thank you Ross.

And ladies and gentlemen at this time I'm showing no additional questions I'd like to turn the floor back over to Lewis for closing remarks.

Thank you so on behalf of the UCB.

I would like to thank you all for your attendance and look forward to meet again in our next earnings call.

Thank you.

Ladies and gentlemen that concludes today's conference call and presentation. We thank you for joining you may now disconnect your lines.

Bill Turner: By classifying 43.3% of our portfolio as HTM, we have saved approximately $28 million in unrealized losses, and this has helped preserve our tangible book value per share. Our portfolio has a modified duration of 5.5, and the average life is 6.9. Our duration has increased as a result of extended higher rates, which has resulted in lower prepayments. For the year, we expect to receive $40.5 million from the securities portfolio, and depending on our liquidity position and loan demand, we could reinvest these cash flows at considerably higher yields, as most of the securities portfolio was purchased when rates were at historical lows. We also saw an improvement in our AFS AOTI portfolio of $10.2 million from quarter to quarter, which translated into a higher tangible book value per share. So with that, I will turn it over to Bill to discuss asset quality. Thank you, Rob.

Bill Turner: I look forward to working with you and the rest of the team here at the U.S. Census Bureau. As you can see from the first graph on page 16, the allowance for credit loss has increased two basis points to 1.18% of the loan portfolio. This increase was a result of a $1.6 million provision to the allowance driven mainly by the increase of over $100 million in new loans booked during the fourth quarter. The remaining graphs on page 16 show the non-performing loans at quarter end were unchanged at 0.03% of the portfolio. The classified loans increased by basis points from the third quarter to 0.32% of the portfolio and 2.49% of capital. However, no losses are expected from the unclassified loans.

Bill Turner: The bank continues to have no other users on page 17. The first draft shows the loan portfolio will make a year. The economy increased over $100 million on a net basis in the fourth quarter to almost $1.8 billion. Working real estate represents 59% or a little over $130 and is segmented between retail, multifamily, and owner-occupied properties. The second graph is a breakdown of the Commercial Real Estate Portfolios for the Non-Owner-Occupied and Owner-Occupied Loans, which demonstrates the diversified makeup of the system, shows the weighted average loan devalues are less than 60%, and the depth-to-area coverage ratio is adequate. Thank you. The loan quality and payment performance is good for all segments, as the past due loan percentages remain below the peer.

We're especially vigilant about the upcoming 2024 repricing of the assuring schedule for all portfolios and monitor and model the repayment ability in order to respond proactively to the overall quality and performance of the portfolio. Thank you, Bill. A couple of items to point out on page 18: first, service fees increase year over year due to new foreign correspondent banks being added to the portfolio, doing more business with current clients, and modifying our approach to wire fees. Second, which has already been discussed, is the securities loss sale. While we did two of these in 2023, we will be opportunistic about doing further loss sales going forward. Moving on to page 19, our total expense base was $10.7 million, and it was up slightly from the prior quarter.

Salaries and benefits were relatively flat as we made a few hires in the quarter and made final adjustments to our incentive accrual. On this front, our incentive program is aligned with shareholders, so when the performance of the company is good, the incentive accrual is larger, and when the company's performance is lower, the incentive accrual is lower. In short, we win together, and we lose together.

Our associate base is aligned with our shareholders. Looking forward to 2024, we'll be resetting the Incentive Approval and predicting new hires in Q1, so you should expect our expense base to move up from this point. With that, let's turn to Capital. While capital levels retreated some with strong loan growth in the quarter, USDB remains comfortably above well-capitalized guidelines. Also worth noting is that the company repurchased 92,317 shares of common stock at a weighted average price of $10.45 during this quarter. And for the full year of 2023, the company repurchased 669,920 shares of its common stock at a weighted average price of $11.28 per share. As of year end, 80,000 shares remain authorized for repurchase under the current program.

So with that, let me turn it back to Lou for some closing comments. Thanks, Rob. Florida's economy is forecasted to grow by a solid 3.3% in 2024, more than doubling the national economic growth of 1.5%. The strong migration of new residents and businesses continued as the state's population approached 23 million, adding over 300,000 new residents last year.

We service a strong, diversified, and growing market and project annualized loan growth of approximately 12% and 10% deposit growth to support our lending activities with a focus on non-interest mailing deposits. In the past four quarters, we have onboarded five new veteran bankers who collectively managed over $315 million in deposits at their prior institutions and expect to hire two more in the first quarter of 2024. We have launched a new business vertical supporting the medical healthcare market.

This will be our fourth specialized deposit aggregating business line. With that said, I would like to open the floor to Q&A. Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touchscreen telephone. For all your questions, you may press star and two.

Unnamed Host: If you are using a speakerphone, we do ask that you please stick up your handset prior to pressing the numbers to ensure the best sound quality. Again, that is the star and then one to join the question queue. We'll pause here momentarily to assemble the rock. Our first question today comes from Will Jones from KBW. Please go ahead with your question. Hey, great. Good morning, guys. Morning, Will.

Will Jones: Hey, so I wanted to start with a margin. I noticed, you know, a ton of moving pieces there. And right now, on paper, you might screen the last that's sensitive. But, you know, it feels like just with deposit betas that they're expecting on the way down and then just the growth you guys are experiencing directly, you will see expansion again next year. Is there any way to, you know, kind of bring a sense of range and where you feel like the MIM could ultimately end the year as we move through 2024? Yeah, it can be a little challenging.

I mean, I think this quarter we did hit an inflection point on the margin, and I think I pointed out a number of reasons why we think it will increase even without rate cuts. And if we do get rate cuts in the second half of the year, I think our margin will expand even a little further. Our profile is neutral to slightly asset sensitive in the market right now, but I would point out that deposit costs are slowing in a great state where they are today on data on the deposit. We shouldn't see too many more increases going forward... And plus, on the way down, we would anticipate 40% of the betas on the deposits and books, and then also we have $262 million that's indexed, uh... to like prime and Fed funds, and that could have a hundred percent base. So I would say for margins specifically for modeling purposes, I think it's going to grind up slowly until we get rate cuts, and then it Okay, perfect.

That's very helpful there. And then, I mean, 18% loan growth in a year like this is, you know, really pretty impressive. And, you know, the look back is really on CIPO.

You guys... BigBro, and loans are at this kind of mid to upper teens pace. I guess the question is the expectation is that you will continue to, can you see that demand, and we can see that same pace of loan growth moving into next year. And then just to converse, deposits have grown, but you're not quite at that pace and passing that little over 90 percent loan to deposit ratio. Is that a constraint to you guys moving forward? Well, I think I answered that. I shared with the group what we're doing strategically.

We were setting the bank up next year to really focus on the deposit growth side by continuing to support the deposit aggregating verticals that we have. We've hired five new team members throughout the course of 2023. We were looking for teams that had deposits both and the 10% deposit growth to support our lending activities with a focus on interest-bearing deposits. And as I stated, I believe the annual loan growth that we are going to be having is about 12%. Okay, that makes sense, and you know the MD Advantage program, and that's an exciting vertical for you guys. You call up the 315 million or so book that you know all the winners currently have is the initial expectation that you know those deposits you will ultimately be able to attain at some point in time.

Well, we're definitely going to be working on it. The good thing is that when you have veteran bankers, and in this case, one particular banker has been handling that book of business for 30 years, so his relationship with those clients is very, very deep. I've already met with a few of them in these doctor groups.

The first one I met with had a very significant high seven-figure depository balance, and they were just waiting to come on board, so they're being onboarded as we speak. The newest hire that we have, which actually starts in a week, again, has a deposit book of $110 million, which she has handled for the last 30 years. Almost 15 years.

So, again, we believe that when you've got that kind of banker that has a very loyal following, they will follow that. Okay, great. Well, exciting things ahead, guys, and congratulations to Ben on a great career. Our next question comes from Michael Rose from Raymond James. Please go ahead with your question. Hey, good morning guys.

Michael Edward Rose: Thanks for taking my questions. Just following up on the positive discussion on slide nine, you know, these specialty, you know, verticals, that's kind of range in the low to mid 20% range in terms of total deposits. Just with the, uh, medical group, you know, coming on, I mean, how comfortable are you letting that percentage, you know, drip higher? And just, uh, are there any other verticals that, you know, you guys are exploring that are out there, maybe other licensed professionals or, or things like that? Thanks. Well, we feel, I feel very strongly that we're going to see faster growth on the Juris Advantage side, I'm the one that's focused on attorneys, because we have hired two new individuals to work on that. The medical one has just started, again; we announced the launch on January 18th of this year. I think that one is going to get traction quickly.

The course-funded banking, we onboarded in the fourth quarter four new banks, and we plan to probably do another four by the end of the second, so all of these are going to be accretive to moving these numbers higher. We are, for the first time in the last five years, really adding much more personnel focused on these areas, and I think, you know, because they're very experienced, they have proven records, there's no restraints on non-solicitation or non-compete, we should be seeing these areas move forward. We have a total of six business verticals; four are now focused on deposits, while the others are in lending. We identify opportunities and create them, especially when we find the senior person to lead them, so I don't have any others in mind right now; we just want to focus on expanding and maximizing the growth of the ones we have. Okay, that was helpful.

Michael Edward Rose: And then it was good to see the loan production, the new loan production yield hold steady at 80%. If you guys are thinking about your modeling and, you know, as it relates to the margin, what are you guys assuming for new production loan yields as we move through the year? Assuming we do get a couple cuts this year, do you guys think you can hold it, or do you think as rates come down, there'll be more, you know, kind of competition, and we'll put more pressure on those yields? Thanks.

Until rates are lowered, I think we're going to be able to hold it again. You know, our focus on the non-CRE business lines gives us the ability to hold it. They're not as competitive as the CRE market here in Miami. This is a real estate-denominated economy, and every bank in town is competing for CRE. But when you get into all these other business lines, you've got more flexibility on a higher price. And Mike, the other thing I would say is, you know, I think we've proven year after year that we have very long, strong loan demand, and I think we can probably be a little bit more selective on the ones that are priced a little higher with good relationship deposits and still have a good growth number on the loan side.

And as Lou mentioned, we're putting a lot of resources right now into the deposit aggregating verticals and growing our deposit book to support the loan growth. I'm sorry if I missed this, but what is your base case for rates as it relates to the previous margin commentary? Yeah, I mean, when we went through our strategic plan this fall, I think, you know, anywhere from two to three rate cuts could happen in the second half of the year, as mentioned in Will's question around the margin. I think we can grind the margin a little higher until rate cuts do materialize, and then I think the margin expands a little further from there. Okay, great.

Michael Edward Rose: And then maybe finally for me, you mentioned some new hires, and expenses moved a little higher in the first quarter. But you guys had a deceleration in expense growth, though, in 23. Any other initiatives on the horizon that would cause a re-acceleration of expense growth as we move through the year? Or is a mid-single-digit range something we should be contemplating for the year? Thanks. Yeah, on the expenses, I mentioned it's going to move up some with the new hires and then reset the incentive accrual a little bit. You know, you want to start off closer to $11 million.

We ran $10.7 million this past quarter. We had a one-time item in there, but you know, we could move that up starting in 2024. But again, you know, we're going to be watching our expenses. And the major hires right now are around deposit aggregating people. And we got a couple of them in the funnel, but nothing materially above that for the near term. Okay, great. Thanks for taking my question. Our next question comes from Steffi Strickland on Jimmy Malcolm Hitchcock. Please go ahead with your question. Hey, good morning.

Just wondering if you could provide a little more detail on the yield of the securities that were sold versus what came on or just generally what the pickup and yield was on that security trade. Yeah, I'm looking at my treasurer right now. I think the 10 million was roughly around 2%, and I think we had about a 700 basis point pickup in some of those securities. With this 10 million, I mean, we originated loans at eight. We did pick up a couple pieces of sub-debt, I think that were above 10, but nothing material, but I would say 700 basis points. Got it.

So with that, the loan growth, the bank term funding program, you know, paying off that HLB funding, I mean, it seems like maybe we see a little bit more of a pickup maybe in the first quarter in margin, but that slows down a bit. And then, if we get rate cuts in the back half of the year, it starts to accelerate again. Is that a fair way to look at it? Yeah, Freddy, that's very fair.

I know you talked a little bit about non-interest income earlier, but can you talk about how much opportunity you see to grow that line, and then, more specifically, SBA longer term? Okay, I'll start with one on the service fees, which is predominantly wire fees. This past year, we worked on that a little bit.

You know, we have our foreign correspondent business that really has the predominant share of the wire fees, and the leader there. One, we did more business with our current clients. We just asked for more business. We also were working on how we priced wire fees with each of those clients, and those were somewhat dynamic, but we got some pickup there. And we're also adding a couple banks this year. I think we have added at least three, four new banks to our portfolios. That picked up as well. I think on the service fee line itself, you could probably estimate or model a double-digit increase on the wire fees alone. And then the gain on sales has been a little bit opportunistic.

I think we closed one in January, but our goal is to have more dollars on that line every quarter. So I don't know if Louis, if you want to make any other comments, but you know, I think it's going to be not materially higher, but we are anticipating that to grow faster than our net interest income. So you could probably model 15% in total for that line item for the year. I think that would be a good placeholder, and we'll see how we do against that.

And our next question comes from Rob Haperman from RLH Investments. Go ahead with your question. Good morning, gentlemen. I have a quick question. Could you describe your uninsured deposits a little more? How chunky is it?

Is it 30 names or 200 names that make up the uninsured portion? And are you actively trying to get that percentage down more in 24? Thank you. You know, I would say it did the uninsured bounce back a little bit. The conversations lately with the majority of our clients have been around the rate. So they're a little bit more sensitive to the rate than the insurance. I think the conversations have quickly changed.

You know, frankly, in my career, you know, talking with regulators, this is the first year we've talked about insured deposits versus uninsured deposits. I think we will follow what our clients are looking for. We have the ability and the product to have them insured if they wish to do that. I wouldn't be surprised if it hovers around, you know, this level, or the insured improves slightly, but it is somewhat granular. I can't give you a specific amount, but again, about 45 is insured, and 55 is uninsured.

And we do have, you know, big commercial planes, you know, and some of those are not insured. Are the regulators, just one follow-up question, are the regulators pushing you and everybody else to sort of reduce that number, or when they come in, are they happy with, or satisfied, I should say, your amount of uninsured? I'll answer that. We had a safety and soundness exam that wraps up in August, and we had that discussion, and they acknowledged that this is a topic really never discussed. In my 42-year career, and every examination I've had, this has never been discussed.

So we showed them the granularity. We actually have hundreds of accounts. It's not like a big, chunky block.

They understood that our business model is what it is. We showed them how we had moved it down, how we had quickly educated our clients as to ICS and CDERs, how that number had moved up, and they were fine with it. There was no issue. As an example, on our foreign correspondent side, all those banks, it's not even a discussion. They're here with low-cost deposits because they want to have a U.S. bank providing them services, and it's not a matter of whether they are insured.

And that was one of the things that we shared with the regulators, and they fully understood. I just want to follow up with a question about the loans. Could you give us a rough sense, a rough breakdown of what percentage of the loans you would describe as B and C offices or would describe most of them as A's?

Thank you very much. Our office portfolio is about $190 million, spread out over 129 locations. 32% of that is owner-occupied, and 68% is non-owner-occupied, and 93% of that is located in Florida. I'm not. I don't have a breakdown by class, but... If I could, I would say that the great majority, if not all of it, is solid B&C. You would rarely have an office building here that's over five stories. And none of them are really in a major metropolitan area.

They're out in the... Commercial Session of the Public, and none of them are past due or non-accrual or classified. Thank you very much. Thank you very much, guys. Have a nice weekend.

Thank you, Robert. And ladies and gentlemen, at this time, and with no additional questions, I'd like to turn the floor back over to Lewis for closing remarks. Thank you. So, on behalf of the USCB team, I would like to thank you all for your attendance and look forward to meeting again during our next earnings call. Thank you. Ladies and gentlemen, that concludes today's conference call and presentation. We thank you for joining. You may now disconnect your lines.