Q1 2024 USCB Financial Holdings Inc Earnings Call

April 26, 2024

Operator: Good day, and welcome to the first quarter 2024 USCB Financial Holdings Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star again. Please note, this event is being recorded. I would now like to turn the conference over to Luis de la Aguilera, President and CEO. Please go ahead.

Good day and welcome to the first quarter 'twenty 'twenty four U S C B financial Holdings incorporated earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing that Starkey followed by zero.

Robert B. Anderson: First, our sales team delivered strong deposit growth in Q1, evidenced by both our average deposit growth and on an end-of-period basis. Deposit balances at the end of the quarter were $2.103 billion, which is $54 million above the average of $2.049 billion. More specifically, while our average non-interest-bearing deposits had a slight decrease in the first quarter of 2024, our end-of-period DDA balance increased $23.9 million, or 17.4% annually. While we expect rates to remain higher for longer, our ability to attract and retain DDA will be the focus of our sales strategies and bank offices. As Lou mentioned, we are gaining traction in our new business verticals, which we expect to attract additional operating accounts.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on Touchtone phone to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Luis did I agree there President and CEO. Please go ahead.

Luis F. de la Aguilera: Good morning, and thank you for joining us for USCB Financial Holdings' first quarter 2024 earnings call. With me today reviewing our Q1 highlights is CFO Rob Anderson and Director of Credit Sergio Garrido, who will provide an overview of the bank's performance, the highlights of which commence on slide three. Our Chief Credit Officer Bill Turner is not with us today as he is accompanying a family member who is undergoing surgery this morning.

Luis: Good morning, and thank you for joining us for U S. C. B financial Holdings first quarter 'twenty 'twenty four earnings call.

With me today, reviewing our Q1 highlights as CFO, Rob Anderson and director of credit Sergio Carrillo, who will provide an overview of the bank's performance the highlights of which commenced on slide three.

Speaker Change: Our Chief Credit Officer, Bill Turner is not with US today as he is accompanying a family member who is undergoing surgery. This morning.

Luis F. de la Aguilera: Bolstered by the strength of Florida's economy, USCB came off the blocks in the new year, posting strong growth in assets, deposits, diversified quality loans, and profitability. Our results reflect the diligent execution of a business plan that focuses on organic growth, supported by diversified commercial banking initiatives designed to deepen existing relationships and develop new ones. In 2023, we sourced new production hires, expanded our business lines, and added deposit aggregating verticals while carefully controlling expenses.

Speaker Change: Bolstered by the strength of Florida's economy, Uscb came off the blocks in the new year, posting strong growth in assets deposits diversified quality loans and profitability. Our results reflect the diligent execution of our business plan that focuses on organic growth supported by diversified commercial banking initiatives.

Robert B. Anderson: The additional deposit growth in Q1 put $126 million of cash on our balance sheet at quarter end, which negatively impacted our NIM in the quarter but positioned us well for Q2. With this additional funding, we paid down all high-priced overnight FHLB borrowings and rationalized some higher-priced public fund money. Furthermore, because public funds require collateral,

Speaker Change: Designed to deepen existing relationships and develop new ones in 2023, we source new production hires expanded our business lines added deposit aggregating verticals, while carefully controlling expenses. These efforts have delivered results and have well positioned the bank in 2024 and reviewing our press.

Luis F. de la Aguilera: These efforts have delivered results and have well-positioned the bank for 2024. In reviewing our press release and noted Q1 highlights, I will comment on a select few as CFO Anderson will further detail our growth, profitability, capital, and liquidity position. Net income was $4.6 million, or $0.23 per diluted share, an increase of $1.9 million compared to the fourth quarter of 2023.

Robert B. Anderson: Reducing balances in this funding bucket has also helped our liquidity. So with that, let's turn the page and look at our loan book. Average loans increased $82.9 million, or 19.6% annualized compared to the prior quarter, and $234.1 million, or 15.1% compared to the first quarter, 2023. On a spot or end-of-period basis, we ended the quarter at $1.821 billion, which is $39 million above our average loan balance for the quarter.

Speaker Change: Release, and noted Q1 highlights I will comment on a select few as CFO Anderson will further detail our growth profitability and capital and liquidity positions.

Speaker Change: Net income was $4 6 million or 23 cents per diluted share an increase of $1 9 million compared to the fourth quarter of 2023 also average deposits increased by $204 3 million or 11, 1% compared to the first quarter of 2023.

Luis F. de la Aguilera: Also, average deposits increased by $204.3 million, or 11.1% compared to the first quarter of 2023. Additionally, multiple deposit-focused initiatives continue to deliver results as deposits grew $165.7 million on an end-of-period basis this past quarter. While growth in deposits has rebounded, we judiciously price deposits based on relationship and profitability. This past quarter, we completed a comprehensive review of the deposit portfolio, taking actions that would immediately improve net interest margin. We will discuss these actions as we go through today's presentation.

Speaker Change: Multiple deposit focused initiatives continued to deliver results as deposits grew $165 7 million on an end of period basis this past quarter.

While growth in deposits has rebounded we judiciously price deposits based on relationship great relationship and profitability. This past quarter. We completed a comprehensive review of the deposit portfolio, taking actions that will immediately improve net interest margin. We will discuss these actions as we go through todays presentation.

Robert B. Anderson: The loan coupon increased 22 basis points compared to the prior quarter and 87 basis points compared to the first quarter of 2023. Our loan book will continue to grind higher, but much depends on our new loan originations as the refinance volume is diminishing. As for the guidance, we expect loan growth to continue in the low double digits.

Luis F. de la Aguilera: Average loans increased by 234.1 million, or 15.1%, compared to the first quarter of 2023. Our loan growth has moved in line with a creative quarter-over-quarter improvement on average loan coupon, which contributes to net interest income. To this end, the weighted average coupon on a quarterly loan production over the past six quarters has increased from 5.68% to 8.16%.

Speaker Change: Average loans increased $234 1 million or 15, 1% compared to the first quarter 2023, our loan growth has moved in line with accretive quarter over quarter improvement on average loan coupon, which contributes to net interest income to this end the weighted average coupon on.

Speaker Change: Our quarterly loan production over the past six quarters has increased from 568% to 816% this will be detailed shortly.

Robert B. Anderson: Turning to page 9, you can see that for the past three quarters, we have originated loans above 8%. We expect a similar amount of loan originations in Q2 with yields above 8% given the current pipeline. Additionally, our loan book has transitioned over time and is more diversified. As of quarter end, non-CRE loans are 29% of the total loan portfolio. With that, let's take a look at the margin on the next

Luis F. de la Aguilera: During the quarter, the company paid its first cash dividend to shareholders, with an aggregate amount distributed being $1 million. The cash dividend program is an important driver of shareholder value, and the Board of Directors is committed to returning capital to our investors while maintaining a strong balance sheet. As mentioned in the press release last night, the Board of Directors approved a new share repurchase program of up to 500,000 shares of Class A common stock, or approximately 2.5% of the company's issued and outstanding shares of common stock.

Speaker Change: During the quarter the company paid its first cash dividend to shareholders with an aggregate amount distributed being 1 million hours. The cash dividend program is an important driver to shareholder value and the board of directors is committed to return capital to our investors, while maintaining a strong balance sheet.

Speaker Change: As mentioned in the press release last night, the board of Directors approved a new share repurchase program up to 500000 shares of class a common stock or approximately two 5% of the company's issued and outstanding shares of common stock.

Luis F. de la Aguilera: The Stock Repurchase Program will provide flexibility in the event of market volatility, keeping in mind forward earnings, risk, and capital levels. Our intention and practice is to run a safe and sound institution, always maintaining well-capitalized levels. As of April 22, 2024, 572,980 shares remain authorized for repurchase under the company's share repurchase program. Moving on to slide four. The following slide is self-explanatory, showing 9 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 key performance indicators, which will be reviewed by our CFO, Rob Anderson.

Robert B. Anderson: For the first quarter of the year, our NIM contracted compared to the previous quarters. However, our net interest income increased $782,000, or 21.8% annualized, compared to the fourth quarter, 2023. This is a direct result of a larger balance sheet. As discussed on the deposit slide, the cost of funds remains one of the biggest challenges this year.

Speaker Change: Stock repurchase program will provide flexibility in the event of market volatility keeping in mind forward earnings risk and capital levels, our intention and practice is to run a safe and sound institution always maintaining well capitalized levels as of April 22020 for 572009.

Speaker Change: Hundred 80 shares remain authorized for repurchase under the Companys share repurchase program.

Speaker Change: Moving on to slide four.

Speaker Change: The following slide is self explanatory directionally, showing 90 select historical trends since recapitalization.

Robert B. Anderson: Although we grew deposits in the first quarter, the majority of the growth was in interest-bearing deposits, which resulted in higher-than-expected interest expense. As a response, we have adjusted deposit pricing and reduced higher-priced public funds. We expect the changes will have a positive impact on our NIM going forward, and, in short, we have several reasons to believe the NIM will improve. So, let me point those out. Since the end of the quarter, we have reduced our dependency on public funds by over $100 million, which are rate-sensitive deposits. We have additionally adjusted money market rates. Currently, we don't have any money market deposits paying above 5%.

Speaker Change: Ratable performance based on sound and Conservative risk management is what our team is focused on consistently delivering.

Speaker Change: So, let's now turn our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO Rob Anderson.

Robert B. Anderson: Okay, thank you Lou, and good morning everyone. Overall, I would characterize Q1 as a solid quarter for USCB despite a tough economic backdrop. As you look at pages 5 and 6, there are some positive trends to keep in mind when reviewing the quarter, including the following. Net income was 23 cents per share and higher than the past three consecutive quarters, demonstrating an upward trend. As it relates to the balance sheet, loans, deposits, and total assets were all up approximately 15% from the prior year.

Robert B. Anderson: Thank you Lou and good morning, everyone. Overall, I would characterize Q1 as a solid quarter for U S. CBD. Despite a tough economic backdrop as you look at pages five and six there are some positive trends to keep in mind, when reviewing the quarter, including the following.

Robert B. Anderson: Net income was 23 per share and higher than the past three consecutive quarters, demonstrating an upward trend.

Robert B. Anderson: As it relates to the balance sheet loans deposits and total assets were all up approximately 15% from the prior year.

Robert B. Anderson: Deposit growth was up 34% annualized from the prior quarter. This growth allowed us to pay down high-priced overnight FHLB borrowings and reprice higher cost deposits at quarter end. While we won't see the benefits until the second quarter, we do expect our net interest income and net interest margin to improve from this point. During Q1, we purchased an additional $34 million in securities with a yield of 5.85% and a duration of 2.08%. The intention was to provide and support the NIM while maintaining sound liquidity practices.

Robert B. Anderson: Deposit growth was up 34% annualized from the prior quarter. This growth allowed us to pay down high priced overnight <unk> borrowings and reprice higher cost deposits at quarter end, while we won't see the benefits until the second quarter. We do expect our net interest income and net interest margin to improve from this point.

Robert B. Anderson: During Q1, we purchased an additional $34 million in securities with a yield of 585% and a duration of 2.0 wait the intention was to provide and support the NIM, while maintaining sound liquidity practices, depending on the interest rates, we expect to receive 30% to $35 million in cash flows from our securities portfolio during.

Sergio Garrido: And finally, with the strong liquidity position beginning in Q2, we can pass on non-relationship rate-sensitive deposits. The bank is well positioned for rates to be higher for longer, however, as we navigate some uncertain times, i.e. The inverted yield curve, geopolitical conflicts, and the election year, among others, the challenge will be managing under uncertainty. So with that, let's take a look at our interest rate risk models on the next page. According to our ALM model, the bank's balance sheet remains slightly asset sensitive, but part of the asset sensitivity comes from a higher cash position at the end of the quarter.

Robert B. Anderson: Depending on the interest rates, we expect to receive $30 to $35 million in cash flows from the securities portfolio during 2024, which will be used to support loan growth. In Q1, net interest income increased $782,000 or 21.8% annualized compared to the fourth quarter of 2023. This is due to a larger balance. Non-interest income was up 19% over the prior year. Expenses were up in Q1 due to new hires, seasonal FICA taxes, and some operating expenses, but they remained low for our asset size, which is shown on page 6. We initiated and paid our first dividend, starting at $0.05 per share.

Robert B. Anderson: 2024, which will be used to support loan growth in.

Robert B. Anderson: In Q1, net interest income increased 782000, or 21, 8% annualized compared to the fourth quarter 2023.

Robert B. Anderson: This is due to a larger balance sheet.

Robert B. Anderson: Noninterest income was up 19% over the prior year expenses were up in Q1 due to new hires seasonal FICA taxes, and some operating expenses, but remained low for our asset size, which is shown on page six we initiated and paid our first dividend starting at <unk> <unk> per share and tangible book value.

Robert B. Anderson: Intangible book value per share grew to $9.92, and AOCI was up slightly from the prior quarter. NIM was 2.62% and down 3 basis points from the prior quarter driven by excess liquidity and higher funding costs. I'll discuss what we did and will continue to do with any excess funding in a bit. In terms of soundness, our credit metrics remain strong, and our loan loss reserve coverage remains at 1.18%. So let's discuss deposits on the next page. While we present this page on an average basis, a big part of the story for the quarter is what happened in the last month of the quarter.

Sergio Garrido: While some of these inflows are temporary, we believe that we are going to be able to reinvest the cash into longer-duration assets, which will protect our balance sheet from expected lower rates. Additionally, as rates remain higher for longer, our asset sensitivity may result in an improvement. If rates drop 100 basis points across all tenors, the model is telling us that NIM will contract. However, a 100 basis point drop across all tenors is highly unlikely.

Robert B. Anderson: <unk> per share grew to $9 92.

Robert B. Anderson: Aoc I was up slightly from the prior quarter.

Robert B. Anderson: NIM was 262% and down three basis points from the prior quarter, driven by excess liquidity and higher funding costs I'll discuss what we did and we will continue to do with any excess funding and a bit.

Robert B. Anderson: In terms of soundness, our credit metrics remained strong and our loan loss reserve coverage remained at 118%. So lets discuss deposits on the next page.

While we present this page on an average basis, a big part of the story for the quarter as what happened in the last month of the quarter first our sales team delivered strong deposit growth in Q1, evidenced by both our average deposit growth and on an end of period basis deposit balances at the end of the quarter were $2 103.

Sergio Garrido: A more likely scenario would be a drop in short-term rates, which would immediately allow us to reprice our $1 billion plus money market deposit. Additionally, we have had three consecutive quarters booking loans with a weighted average coupon above 8%. And while this may have a minimal impact on our current NIM, as rates drop, these longer-duration loans with embedded prepayment penalties and floors will help to protect our margin in a downrate scenario. So with that, let me turn it over to Sergio to discuss asset quality. Thank you, Robert.

Robert B. Anderson: $1 billion, which is $54 million above the average of 2.049 billion.

Robert B. Anderson: More specifically, while our average noninterest bearing deposits had a slight decrease in the first quarter 2020 for our end of period DDA balance increased $23 9 million or 17, 4% annualized while we expect rates to remain higher for longer our ability to attract and retain DD.

Robert B. Anderson: <unk> will be the focus of our sales strategies and bank officers as Lou mentioned, we are gaining traction in our new business verticals, which we expect to attract additional operating accounts.

Sergio Garrido: Thank you Rob. Please turn to page 12. As you can see from the first graph, the allowance for credit losses increased to $21.5 million. This was due to a $410,000 first quarter provision, and the ratio remained unchanged at an adequate 1.18%. The provision was driven by the $40 million net increase in the loan portfolio. Net losses remained near zero for the quarter.

The additional deposit growth in Q1 put $126 million of cash on our balance sheet at quarter end, which negatively impacted our NIM in the quarter, but positions us well for Q2 with this additional funding we paid down all high priced overnight <unk> borrowings and rationalize some higher priced public fund money further.

Robert B. Anderson: More because public bonds require collateral reducing balances in this funding bucket also helped our liquidity.

Robert B. Anderson: So with that let's turn the page and look at our loan book.

Sergio Garrido: The remaining graphs on page 12 show the non-performing loans as of the quarter end were on change at 0.03% of the portfolio, and classified loans improved from the fourth quarter to 0.44% of the portfolio. No losses are anticipated from these classified loans. Also, the bank continues to have no other real estate owners. On page 13, the first graph shows the loan portfolio mixed at $331. The portfolio increased $40 million on a net basis in the first quarter to a little more than $1.8 billion.

Robert B. Anderson: Average loans increased $82 9 million or 19, 6% annualized compared to the prior quarter and $234 1 million or 15, 1% compared to the first quarter 2023.

Robert B. Anderson: On a spot or end of period basis, we ended the quarter at one $8 billion to $1 billion, which is $39 million above our average loan balance for the quarter.

Robert B. Anderson: The loan coupon increased 22 basis points compared to the prior quarter and 87 basis points compared to the first quarter of 2023. Our loan book will continue to grind higher, but much depends on our new loan originations as the refinance volume is diminished. As for the guidance, we expect loan growth to continue in the low double digits.

Robert B. Anderson: Loan coupon increased 22 basis points compared to the prior quarter and 87 basis points compared to the first quarter of 'twenty three our loan book will continue to grind higher but much depends on our new loan originations as the refinance volume is de Minimis.

Robert B. Anderson: As for the guidance, we expect loan growth to continue in the low double digits.

Turning to page nine you can see for the past three quarters, we have originated loans above 8%, we expect a similar amount of loan originations in Q2 with yields above 8% given the current pipeline. Additionally, our loan book has transitioned over time and is more diversified as of quarter end non CRE loans are too.

Sergio Garrido: The composition continues to be well diversified. Commercial real estate represents 58%, a little over a billion dollars. Commercial real estate is segmented between retail, multifamily, owner-occupied, and office property. The second graph represents a breakdown of the commercial real estate portfolios for the non-owner-occupied and owner-occupied loans, which also demonstrate that this portfolio is diversified. The table to the right of the graph shows that the weighted average loan values are at 60% or less, and the debt service coverage ratios are adequate for each portfolio segment. The loan quality and payment performance are good for all segments, as the pass-through loan percentage remains less than 1.

Robert B. Anderson: 99% of the total loan portfolio.

Robert B. Anderson: With that let's take a look at the margin on the next page.

Robert B. Anderson: For the first quarter of the year, our NIM contracted compared to the previous quarters. However, our net interest income increased 782000, or 21, 8% annualized compared to the fourth quarter 2023. This is a direct result of a larger balance sheet as discussed on the deposit slide the cost of funds remains one of the biggest challenges.

Robert B. Anderson: This year, although we grew deposits in the first quarter. The majority of the growth was in interest bearing deposits, which resulted in higher than expected interest expense as a response, we have adjusted deposit pricing and reduced higher price public funds. We expect the changes will have a positive impact on our NIM going forward and in short.

Robert B. Anderson: We have several reasons to believe the NIM will improve so let me point those out.

Robert B. Anderson: Since the end of the quarter, we have reduced our dependency on public bonds by over $100 million, which are rate sensitive deposits. We have adjusted money market rates. Additionally, currently we don't have any money market deposits paying above 5%.

Sergio Garrido: On page 14, we discuss the bank's office portfolio. Our portfolio of quarter ends consists of 128 loans, totaling $187 million, with almost all being B and C properties, with over 75% located in South Florida. The average loan amount is $1.5 million, with an average loan-to-value of 57%. The average debt service coverage... stands at almost 2 times. The first grab shows that owner-occupied offices make up 34% of the office segment, with 63% of those loans being occupied by professionals and medical businesses.

Robert B. Anderson: Deposits also have already adjusted to a higher rate environment. So we don't expect material jumps in our interest expense new loan production has been above 8% for three straight quarters and we expect this trend to continue in 'twenty, four and with a higher for longer rate environment. We expect our interest rate swaps to generate $2 million of additional interest income.

Robert B. Anderson: For the year and finally with a strong liquidity position beginning in Q2, we can pass on non-religious ship rate sensitive deposits.

Robert B. Anderson: The bank is well positioned for rates to be higher for longer. However, as we navigate some uncertain times I E. The inverted yield curve geopolitical conflicts in the election year among others. The challenge will be managing under uncertainty so with that let's take a look at our interest rate risk models on the next page.

Robert B. Anderson: According to our model the bank's balance sheet.

Robert B. Anderson: The deposits also have already adjusted to a higher rate environment, so we don't expect material jumps in our interest expense. New loan production has been above 8% for three straight quarters, and we expect this trend to continue in 2024. And with a higher for longer rate environment, we expect our interest rate swaps to generate $2 million of additional interest income for the year. And finally, with a strong liquidity position beginning in Q2, we can pass on non-relationship rate-sensitive deposits. The bank is well positioned for rates to be higher for longer. However, as we navigate some uncertain times, i.e.

Remains slightly asset sensitive part of the asset sensitivity comes from a higher cash position at the end of the quarter. While some of these inflows are temporary we believe that we are going to be able to reinvest the cash into longer duration assets, which will protect our balance sheet from expected lower rates. Additionally, as.

Sergio Garrido: The second graph represents the non-owner-occupied office loans, which comprise 66% of the office portfolio, with 84% of their use being multi-tenant and medical. The quality of the office portfolio is satisfactory, with all loans paying as agreed, with no classifieds. We're especially vigilant about the upcoming 2024 loan repricing and maturing schedule. We monitor, we model the loan repayment, and the ability to service our loans to proactively act as needed. Overall, the quality and performance of the loan portfolio remain excellent.

Robert B. Anderson: Rates remained higher for longer our assets sensitivity may result in an improvement in NIM, if rates drop 100 basis points across all tenors and the model is telling us that the NIM will contract. However, 100 basis point drop across all tenors as highly unlikely a more likely scenario would be a drop in short term rates, which was.

Robert B. Anderson: Immediately allow us to reprice, our $1 billion plus money market deposit book. Additionally, we had three consecutive quarters booking loans with a weighted average coupon above 8% and while this may have a minimal impact in our current NIM as rates drops.

Robert B. Anderson: The inverted yield curve, geopolitical conflicts, and the election year, among others, the challenge will be managing under uncertainty. So with that, let's take a look at our interest rate risk models on the next page. According to our ALM model, the bank's balance sheet remains slightly asset sensitive, but part of the asset sensitivity comes from a higher cash position at the end of the quarter. While some of these inflows are temporary, we believe that we are going to be able to reinvest the cash into longer-duration assets, which will protect our balance sheet from expected lower rates.

Longer duration loans with embedded prepayment penalties and floors will help to protect our margin in a down rate scenario. So with that let me turn it over to Sergio to discuss asset quality. Thank.

Luis F. de la Aguilera: Okay. Thank you, Sergio.

Luis F. de la Aguilera: Let's go to page 15. There are a couple items to point out here. First, you'll notice the nice upward quarterly trend in service fees. We have been speaking for some time about how we are gaining traction, differentiating ourselves from our competitors, and becoming our clients' go-to bank for their operational wire needs. We are gaining new foreign correspondent banks, doing more business with current clients, and modifying our approach to wire fees with clients across the board. All these strategies have yielded new business.

Sergio: Thank you Rob Please turn to page 12, as you can see from the first graph the allowance for credit losses increased to $21 5 million.

Sergio: This was due to $410 in the first quarter provision and the ratio remain unchanged at an adequate of one 8%.

Sergio: The provision was driven by the $40 million net increase in the loan portfolio net losses remain near zero for the quarter.

Robert B. Anderson: Additionally, as rates remain higher for longer, our asset sensitivity may result in an improvement. For example, if rates drop 100 basis points across all tenors, the model is telling us that the NIM will contract. However, a 100 basis point drop across all tenors is highly unlikely. A more likely scenario would be a drop in short-term rates, which would immediately allow us to reprice our $1 billion-plus money market deposit. Additionally, we had three consecutive quarters booking loans with a weighted average coupon above 8%.

Sergio: A remaining graphs on page 12 shows the nonperforming loans at quarter end were unchanged at two point to 3% of the portfolio and classified loans improved.

Robert B. Anderson: Other non-interest income increased due to the BOLI restructuring we did last year, increases in treasury management fees, and an increase in swap fees with clients. On a go-forward basis, we believe $2.5 million or slightly higher is a good quarterly run rate for the non-interest income line item. So with that, let's take a look at expenses on the next page. Our total expense base was $11.2 million, and it was up from the prior quarter.

Sergio: During the fourth quarter due to a 44% of the portfolio no losses are anticipated from these classified loans.

Sergio: Also the bank continues to have no other real estate owned.

Sergio: On page 13, the first graph shows the loan portfolio make at 331.

Sergio: The portfolio increased $40 million on a net basis in the first quarter to a little more than $1 8 billion. The competition continues to be well diversified.

Robert B. Anderson: And while this may have a minimal impact on our current NIM, as rates drop, these longer-duration loans with embedded prepayment penalties and floors will help to protect our margin in a downrate scenario. So with that, let me turn it over to Sergio to discuss asset quality.

Sergio: Commercial real estate represents 58% a little over $1 billion.

Sergio: Commercial real estate is segmented between retail multifamily owner occupied and office properties.

Robert B. Anderson: Salaries and benefits are up due to three net new FTEs, seasonal payroll taxes, and stock-based compensation. Other operating expenses were up $271,000 due to a $67,000 increase in promotional expenses to support our business verticals. $60,000 increase in forced-placed insurance and $40,000 increase in property insurance. I would note that the non-interest expense to average assets improved 11 basis points year over year and has been below 190 basis points for three quarters in a row. Going forward, we expect the quarterly expense base to grind upwards from this point. So with that, let's take a look at capital. USDB capital levels remain comfortably above well-capitalized guidelines.

The second graph represent the breakdown of the commercial real estate portfolios for the non owner occupied and owner occupied loans, which also demonstrate that this portfolio diversification.

Sergio: The table to the right of the graph shows had a weighted average loan values are 60% or less and the desktop with coverage ratios are adequate for each portfolio segment.

The loan quality and payment performance are good for all segments as the past due loan percentage remained less than one.

Sergio: On page 14, we discuss the bank's office portfolio, our portfolio of quarter and consist of 128 loans totaling $187 million with almost all being b and C properties with over 75% located in South Florida.

Sergio: The average loan amount is $1 5 million when the average loan to value of 57% the average debt service coverage.

Sergio: <unk> had almost two types.

Sergio: The first graph shows that owner occupied office make up 34% of the office segment with 63% of those loans being occupied by professionals and medical businesses. This.

Robert B. Anderson: Also worth noting is that the company repurchased 7,100 shares of common stock at a weighted average price per share of $11.15 during the quarter. As mentioned in the press release last night, the board of directors approved a new share repurchase program. Up to 500,000 shares, or approximately 2.5% of the company's issued and outstanding shares of common stock. As of the end of, or as of April 22nd, 2024, 572,980 shares remain authorized for repurchase under the company's share repurchase program. So with that, let me turn it back to Lou for some closing remarks.

Sergio: Second graph represent the non owner occupied office loans, which.

Sergio: Which comprised 66% of the office portfolio with 84% of their use the multi tenant medical.

Sergio: Quality of the office portfolio satisfactory with all loans paying as agreed with no classified.

Sergio Garrido: The composition continues to be well diversified. Commercial real estate represents 58%, a little over a billion dollars. Commercial real estate is segmented between retail, multifamily, owner-occupied, and office properties. The second graph represents a breakdown of the commercial real estate portfolios for the non-owner-occupied and owner-occupied loans, which also demonstrate these portfolios' diversification. The table to the right of the graph shows that the weighted average loan values are 60% or less, and the debt service coverage ratios are adequate for each portfolio segment.

Sergio: We're especially vigilant of the upcoming 2024 loan repricing or maturing schedule. We monitor we model the loan repayment the ability to service our loans to proactively act as needed overall, the quality and performance of the loan portfolio remains pristine.

Sergio: Okay.

Speaker Change: Thank you Sergio let's go to page 15 couple of items to point out here first you will notice the nice upward quarterly trend in service fees. We have been speaking for some time that we are gaining traction differentiating ourselves from our competitors and becoming our clients go to bank for their operational wire needs, we are gaining new for corn.

Sergio Garrido: The loan quality and payment performance are good for all segments as the pass-through loan percentage remains less than 1. On page 14, we discuss the bank's office portfolio. Our portfolio of quarter ends consists of 128 loans, totaling $187 million, with almost all being B and C properties, with over 75% located in South Florida. The average loan amount is $1.5 million, with an average loan-to-value of 57%. The average debt service coverage stands at almost 2 times.

New foreign correspondent banks doing more business with current clients and modifying our approach to wire fees with clients across the board. All of these strategies have yielded new business. Other noninterest income increased due to the bully restructuring we did last year increases in Treasury management fees and an increase in swap fees.

Luis F. de la Aguilera: Thanks, Rob. US Century's performance this past quarter is squarely on track with our expectations and budget. Five new production hires brought on board in late 2023 and early 2024 are hitting their stride and contributing to both loan and deposit growth. This past January, we launched another business line, MD Advantage, a new deposit aggregating vertical focusing on servicing medical professionals and led by two experienced bankers having over 30 years of combined experience in the field.

Speaker Change: These with clients.

Speaker Change: On a go forward basis, we believe a $2 $5 million or slightly higher is a good quarterly run rate for the non interest income line item.

Speaker Change: So with that let's take a look at expenses on the next page.

Sergio Garrido: The first graph shows that owner-occupied offices make up 34% of the office segment, with 63% of those loans being occupied by professionals and medical businesses. The second graph represents the non-owner-occupied office loans, which comprise 66% of the office portfolio, with 84% of their use being multi-tenant and medical. The quality of the office portfolio is satisfactory, with all loans paying as agreed, with no classifieds. We're especially vigilant about the upcoming 2024 loan repricing and maturing schedule. We monitor, we model the loan repayment, and the ability to service our loans to proactively act as needed. Overall, the quality and performance of the loan portfolio remain pristine.

Speaker Change: Our total expense base was $11 2 million and up from the prior quarter salaries and benefits are up due to three net new FTE seasonal payroll taxes and stock based compensation.

Luis F. de la Aguilera: We now have seven non-CRE business lines, including Association Banking, SBA Lending, Yacht Lending, and New MD Advantage Initiatives, which respectively focus on supporting both the attorney and medical professionals market. Collectively, these business lines account for $554 million, or 26% of total deposits. These business verticals have also contributed greatly to the diversification of the loan portfolio, of which 29% of $528 million is now non-CRE. By comparison, only 9% of the bank's loan portfolio was classified as non-CRE as of June 30, 2020.

Speaker Change: Other operating expenses were up 271000 due to 67000 increase in promotional expense to support our business verticals 60000 increase in force placed insurance and 40000 increase in property insurance I would note that the noninterest expense to average assets improved to less 11 basis points.

Speaker Change: Year over year and has been below a 190 basis points for three quarters in a row going forward, we expect the quarterly expense base to grind upwards from this point, so with that let's take a look at capital.

Speaker Change: Uscb capital levels remain comfortably above well capitalized guidelines also worth noting is the company repurchased 7100 shares of common stock at a weighted average price per share about $11 15 during the quarter as mentioned in the press release last night the board of directors approved a new share repurchase program.

Luis F. de la Aguilera: Okay. Thank you, Sergio.

Luis F. de la Aguilera: Furthermore, these business lines have driven non-interest income, which was 14% of total income this past quarter, up from 11.5% of total income in Q1 2023. Growth and wire activity, gain on sale of SBA 780 loans, swap fees, as well as greater demand for treasury services have steadily contributed to increases in non-interest income.

Speaker Change: Up to 500000 shares were approximately two 5% like company's issued and outstanding shares of common stock. So as of the end of or as of April 22nd 2020 for 572980 shares remain authorized for repurchase under the company's share repurchase programs.

Rob Anderson: Other non-interest income increased due to the BOLI restructuring we did last year, increases in treasury management fees, and an increase in swap fees with clients. On a go-forward basis, we believe a $2.5 million or slightly higher is a good quarterly run rate for the non-interest income line item. So with that, let's take a look at expenses on the next page. Our total expense base was $11.2 million and up from the prior quarter.

Speaker Change: So with that let me turn it back to Louis for some closing comments.

Louis: Thanks, Rob USF fees performance. This past quarter is squarely on track with our expectations and budget.

Louis: Five new production hires brought on board in late 2023 in early 2024 are hitting their stride and contributing to both loan and deposit growth.

Luis F. de la Aguilera: The bank's performance is supported by the overall robust economy of Florida, which is forecasted to grow by a solid 3% in 2024, more than double the projected national economic growth of 1.4%. Florida's statewide unemployment rate has been lower than the national rate for 39 consecutive months. The national unemployment rate was 3.7% in January 2024, or 0.6% points higher than Florida's rate. In short, Florida's strong economy serves as a foundation from which we continue to grow our franchise.

Louis: This past January we launched another business line branded MD advantage, a new deposit aggregating vertical focusing on servicing medical professionals and led by two experienced bankers, having over 30 years of combined experience in the field.

We now have seven non CRE business lines, including Association banking SBA lending yacht lending foreign correspondent banking private client group as well as our jurors.

Louis: And new MD advantage initiatives, which were up with respectively focus on supporting both the attorney and medical professionals to market.

Louis: Collectively these business lines have account account for $554 million or 26% of total deposits. These business verticals have also contributed greatly to the diversification of the loan portfolio of which 29% or $528 million is now non CRE by.

Luis F. de la Aguilera: These factors, along with the longstanding draws of low taxes, warm weather, and housing that's more affordable than in the Northeast, are expected to contribute to another solid year of population gains for the state and further growth opportunities for the bank. With that said, I would like to open the floor for Q&A.

Louis: Comparison, only 9% of the bank's loan portfolio was classified as non CRE as of June 32020.

Louis: Furthermore, these business lines have driven non interest income, which was 14% of total income this past quarter.

Louis: 11, 5% of total income in Q1 2023.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael Rose, with Raymond James. Please go ahead.

Louis: Growth in wire activity gain on sale of SBA seven loans swap fees as well as greater demand for Treasury services have steadily contributed to increases in noninterest income. The bank's performance is supported by the overall robust economy of Florida, which is forecasted to grow by a solid 3% in 2020.

Louis: For more than double the projected national economies growth of one 4%.

Louis: Florida State wide unemployment rate has been lower than the national rate for 39 consecutive months. The national unemployment rate was three 7% for January 2024, or 6% points higher then Florida's rate in short, Florida strong economy serves as a foundation from which we continue to grow our franchise.

Michael Edward Rose: Hey, good morning, everyone. Thanks for taking my questions. Good morning.

Louis: These factors along with longstanding draws of low taxes warm weather and housing thats more affordable than in the North east are expected to contribute to another solid year of population gains for the state and further growth opportunities for the bank with that said I would like to open the floor for Q&A.

Michael Edward Rose: I just wanted to dig into deposit growth and expectations. Obviously, very good this quarter, and it was good to see DDA balances up, which is good. And Luis, you talked about one of the new verticals, the MD Advantage, coming online. And I just wanted to get a sense for now that the loan to deposit ratio is kind of back in the mid 80 range after this quarter's growth. And it sounds like there's some hopeful remixing opportunities as we move forward.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Michael Rose with Raymond James. Please go ahead.

Michael Edward Rose: Can you just talk about expectations for the need to continue to grow deposits? It seems like you could probably dial back on some of the higher cost funding as some of the specialty verticals and their deposit growth kind of ramp up. Is that the way to think about it? And then, given this quarter's start, you're probably going to blow past the 10% that you talked about last quarter, but just wanted to kind of see the expectations for measured growth as we move forward. Thanks.

Michael Edward Rose: Hey, good morning, everyone. Thanks for taking my questions.

Just wanted to good morning, just wanted to dig into the deposit growth and expectations, obviously very good.

Michael Edward Rose: This quarter and it was good to see DDA balances up which is good and Luis you talked about.

One of the new verticals.

Michael Edward Rose: The <unk> advantage coming online.

Michael Edward Rose: Just wanted to get a sense for.

Now that the loan to deposit ratio is kind of back in the mid 80 range. After this quarter's growth and it sounds like there is some.

Luis F. de la Aguilera: Well, as I reported in the last quarter and I'm kind of re-emphasizing in today's call, you know, we hired two teams that came in late 2023 and early 2024 and then again hired one that joined us in February of this year. These teams are very much focused on deposits. They're coming in from other banks where they no longer had any kind of non-compete situations. Collectively, these teams handled about $315 million in a deposit book, and they're really focused on bringing in their clients without any real issues.

Michael Edward Rose: Full remixing opportunity as we move forward.

Michael Edward Rose: Forward.

Michael Edward Rose: Can you just talk about expectations for the need to continue to grow deposits. It seems like you could probably dialed back on some of the higher cost funding as.

Michael Edward Rose: Some of the specialty verticals in their deposit growth kind of ramps that the way to think about it and then.

Speaker Change: I know given this quarter start youre going to probably blow past the 10% that you had talked about last quarter, but just wanted to kind of see the expectations for measured growth as we move forward. Thanks.

Speaker Change: Sure.

Speaker Change: As I reported in the last quarter and Im kind of re emphasizing.

Speaker Change: In today's call we hired.

Speaker Change: Two teams that came in late 2023 early 2024, and then again hired one that joined US in February of this year. These.

Luis F. de la Aguilera: So all of these are part of these verticals, the MD advantage, the jurist advantage, the private client group. So they're moving very established relationships that we don't believe are going to be subject to high interest rates. They're coming over with bankers that have served them for many, many years, and we are taking advantage of that.

Speaker Change: These teams are very much focused on deposits.

Speaker Change: They're coming in from other banks, where they no longer had any kind of noncompete situations collectively these teams handled about $315 million in.

Speaker Change: The deposit book.

Speaker Change: And they are really focused on bringing in their clients without any any real issues. So all of these are part of these verticals the MD advantage the jurist advantage.

Speaker Change: Private client group, so theyre moving very established relationships that we don't believe are going to be subject to a high interest rates that are coming over with bankers that have served them for many many years and we were taking advantage of that.

Robert B. Anderson: I appreciate the call, Luis. And as it relates, Rob, to kind of how the margins should trend from here, you know, obviously, the bringing on the deposit growth this quarter, obviously, you know, was a step down, but I think you did a really good job kind of pointing out all the factors that, you know, will help support, you know, margin expansion, you know, from here, can you just talk about expectations with and without rate cuts and what the delta could be, you know, just as we move forward as you continue to grow deposits, but also have, you know, continued pretty healthy loan growth, you know, above 8%, you know, ongoing coupons. Thanks.

Speaker Change: I appreciate the color Luis and as it relates to Rob to kind of how the margin should trend from here, obviously, the bringing on the deposit growth this quarter obviously.

Speaker Change: With the step down, but I think you did a really good job kind of pointing out all the factors that.

Speaker Change: It will help support margin expansion from here can you just talk about expectations with and without rate cuts and what the delta could be.

Speaker Change: As we move forward as you continue to grow deposits, but also have continued pretty healthy loan growth above 8%.

Speaker Change: Ongoing coupons.

Robert B. Anderson: Yeah, sure. And just picking up on what Lou mentioned, you know, with our deposit aggregating teams that came on, typically, what would happen is that as they bring customers on, they bring over the money market first, and then the DDA comes a little bit later as they move those funds. So you did see the DDA come in towards the end of the quarter. With that additional funding, we did reprice down some high-priced public funds, which are collateralized. We will see some of that move off our balance sheet in April, which, you know, we fully expected. That was not a surprise.

Speaker Change: Yeah, sure and just pick and picking up on what Lou mentioned with our deposit aggregating teams that came on typically what would happen is that as they bring customers on theyre, bringing over the money market first and then the DTA comes a little bit later as they move those funds. So you did see the DDA come into.

<unk> ended the quarter.

Speaker Change: With that additional funding, we did reprice down some high priced public funds, which is collateralized, we will see some of that move off our balance sheet in April which we.

Speaker Change: And we fully expected that that was not a surprise.

Robert B. Anderson: But we are bringing in lower-cost funding. So if we can replace, you know, 100 to 200 million of funding from, let's say, something above five with something with a four-handle on it, you know, in the mid-fours with some DDA, you know, that's going to help the margin. Plus, you know, multiple quarters with loans above 8%, those originations will start helping the NIM. I think what we're anticipating, absent any rate cuts, is that deposit costs will start to plateau.

Speaker Change: But we are bringing in lower cost funding. So if we can replace a $100 million to $200 million of funding from let's say, it's something above five with something with a four handle on it in the mid force with some DDA, that's going to help the margin plus multiple quarters with loans above 8% those originations will start helping the.

Speaker Change: And I think what we're anticipating absent any rate cuts that the deposit costs will start to plateau. The loan yields will continue to grind higher and we could be anywhere up five hopefully 10 basis points, we'll know in April, but we're very optimistic about the things we did in.

Robert B. Anderson: The loan yields will continue to grind higher, and we could be anywhere up five, hopefully 10 basis points; we'll know in April. But we're very optimistic about the things we did in the early part of April and the end of March on the deposit side to curtail the deposit cost. And I think you'll see the loan yield continue to pick up. I mean, if you look at the slide on page eight, you can say the loan yields have increased by at least 20 basis points per quarter.

Speaker Change: In the early part of April end of March on the deposit side to curtail the deposit costs and I think youll see the loan yield continued to pick up I mean, if you look at the slides.

Speaker Change: On page eight you can see the loan yields or increase in at least 20 basis points per quarter. We expect that to continue and if you go back to page seven were going to stop the deposit costs going up 20 basis points a quarter or so so that will help the margin and we will know.

Robert B. Anderson: We expect that to continue. And if you go back to page seven, we're going to stop the deposit cost going up 20 basis points a quarter or so. So that will help the margin, and we'll know within the next week how we did in April, and we've got another round of deposit cuts coming because we still have cash on the balance sheet.

Speaker Change: Within the next week on on how we did on April and we got another round of deposit Cup cuts coming because we are still have the cash on the balance sheet, which is good.

Robert B. Anderson: Just to clarify, Rob, is that 5 to 10 basis points in the second quarter or is that through year-end? No, just in the second quarter. I'd conservatively say 5. But, you know, we could see on the upper end of it, maybe 10. Okay, and then just, I'm sorry to drive this home.

Speaker Change: Just Dan just to clarify Ravi get five to 10 basis points in the second quarter or is that through year end.

Speaker Change: Just in the second quarter, just in the second quarter.

Speaker Change: That's conservatively say five.

Speaker Change: But.

Ravi: We could see on the upper end of that May be 10.

Speaker Change: Okay and then.

Speaker Change: Yes.

Speaker Change: I'm sorry to drive this home, but if we do have rate cuts, maybe one or two I think that's where the forward curve is now it's changing by the minute. It saying, yes, and then if we don't know how big is that Delta and I understand that you have some.

Robert B. Anderson: But you know, if we do have rate cuts, maybe one or two, I think that's where the forward curve is now. It's changing by the minute, it seems. And then if we don't, how big is the delta? And I understand that you have some NII sensitivity, but I know it's, you know, static. So things change. Thanks.

Speaker Change: Sensitivity, but I know its static.

Speaker Change: So things change thanks.

Robert B. Anderson: I think with rate cuts, if you get one to two, depending upon when they come, that could help us maybe another five to 10 basis points above what we just mentioned. It could be, you know, the low teens, but it depends on when they come. If they come in like November and December, then it's going to be higher. It's going to be harder to get the margin back up.

With rate cuts if you get one to two depending upon when they come that could help us maybe another <unk>.

Speaker Change: Five to 10 basis points.

Above what we just mentioned.

Speaker Change: It could be low teens, but it depends on when they come in they come in like November and December then it's going to be higher than it is about.

Speaker Change: Can be harder to get the margin back up.

Robert B. Anderson: It should grind higher, but with cuts, we believe that we have, you know, our billion-dollar plus money market book, and there's some opportunities in there with rate cuts to have a more aggressive beta that I think we modeled in the model, like a 40 percent margin. Deposit Beta, I think we can outperform them, so.

Speaker Change: It should grind higher but with cuts we believe that we have our $1 billion plus money market book and there are some opportunities in there with rate cuts to have a more aggressive betas I think we modeled in the model like up 40%.

Speaker Change: Deposit beta I think we can outperformance.

Michael Edward Rose: So, I got it. Rob, it's very helpful. And maybe just finally, for me, you know, the expenses were roughly in line with what you kind of talked about last quarter. I'm sorry if I missed it in the preamble. But, you know, Luis, maybe how do you think about balancing, you know, what looks to be a pretty good NII margin inflection point here with also, you know, controlling costs, which I think he's done a really good job at despite the growth?

Speaker Change: Got it Thats very helpful and maybe just finally for me.

Speaker Change: The expenses were roughly in line with what you had kind of talked about last quarter I'm, sorry, if I missed it in the in.

Speaker Change: In the preamble, but.

Speaker Change: Luis maybe how do you think about balancing.

Speaker Change: What looks to be a pretty good NII.

Speaker Change: NII margin.

Speaker Change: Inflection point here.

Speaker Change: <unk> also controlling costs, which I think he has done a really good job at despite the growth.

Michael Edward Rose: Are there incremental opportunities now that, you know, NII is going to inflect, you know, decently higher to go out and continue to press in terms of hiring now that, you know, the run rate for revenue looks to be a little bit stronger? Thanks.

Speaker Change: Are there incremental opportunities.

Speaker Change: Now that it looks like NII is going to inflect decently higher.

Speaker Change: To go out and continue to press in terms of hiring now.

Speaker Change: The run rate for revenue looks to be a little bit stronger.

Robert B. Anderson: Yeah, maybe I'll start with that, Michael. But I think our expenses will go a little higher. And then we're always opportunistic about, you know, getting good salespeople in the market. You know, there has been a lot of disruption in South Florida with a couple of acquisitions; we are having ongoing conversations with people. But you know, periodically, we'll be able to have, you know, small, what I'd say small teams, like we picked up right. Five people in the last, what, six months, something like that.

Speaker Change: Yes, maybe I'll start with that.

Speaker Change: Michael but I think our expenses will grind a little higher and then we're always opportunistic about getting good salespeople in the market. There has been a lot of disruption in south Florida with a couple of the acquisitions, we are having ongoing conversations with with people, but periodically we will be able to have.

Speaker Change: Small what I'd say small teams like we picked up.

Speaker Change: Alright, five people in the last.

Speaker Change: Six months something like that so we're continuing to look to pick up strong salespeople. We're beginning our verticals on MD advantages, that's really hitting our stride and we expect that to increase as well, but we will see a slight uptick in our expenses, but we'll be mindful of that and I'd also point to the noninterest expense to average ASP.

Robert B. Anderson: So we're continuing to look to pick up strong salespeople. You know, we're beginning our verticals on MD advantages. That's really hitting a stride.

Robert B. Anderson: We expect that to increase as well. But we will see a slight uptick in our expenses, but we'll be mindful of that. And I'd also point to the non-interest expense to average assets. I think, you know, a marker below 2% is always regarded well. We're at 184. I think that that's going to show well, and I'd leave it at that for right now.

Speaker Change: That's I think a marker.

Speaker Change: Mark or below.

Speaker Change: 2% is always.

Speaker Change: Regarded well we're at 184.

Speaker Change: That's going to show well and.

Michael Edward Rose: Great. I appreciate all the color. Thanks. Thank you, Michael.

Speaker Change: I would leave it at that for right now.

Speaker Change: Great.

Speaker Change: All the color. Thanks.

Operator: The next question comes from Woody Lay with KBW. Please go ahead.

Speaker Change: Thank you Michael.

Speaker Change: The next question comes from Woody lay with K BW. Please go ahead.

Woody Lay: Hey, good morning, guys.

Wood Neblett Lay: So I believe you touched on this in the opening remarks, but how much of the deposit growth in the first quarter was related to these deposit verticals that you've added over the past couple months?

Woody Lay: It would.

Woody Lay: So I believe you touched on it in the opening remarks, but how much of it.

Woody Lay: The deposit growth in the first quarter was related to these.

Woody Lay: Deposit verticals that you've added over the past couple of months.

Luis F. de la Aguilera: I would say it was maybe $40 to $50 million in that first quarter, kind of contributed from the private client group, the Juris Advantage, and the new hires. So we're very bullish on that. There's been a couple of new hires that have come in roaring, and so we're very excited to see that continue. The response from their clients has been better than expected. So, you know. We think we're very much in line to continue hitting our numbers.

Woody Lay: I'd say it was 40% maybe $40 million to $50 million in the.

Woody Lay: And that first quarter.

Woody Lay: Kind of contributed from the from the private client group the jurist advantage and the new hires so.

Woody Lay: We're very bullish on that.

Woody Lay: There has been a couple of new hires that have come in here Roaring and so we're very excited to see that continue the response.

Woody Lay: From their clients has been better than expected.

Woody Lay: So.

Woody Lay: We think we're very much in line too.

Woody Lay: Two to continue hitting our numbers.

Robert B. Anderson: Yeah, and how do those deposit pipelines look heading into the second quarter? I mean, they obviously have larger books of business that it feels like you could continue to make headway in those verticals.

Speaker Change: Yeah, and how did the deposit.

Speaker Change: Pipelines look heading into the second quarter I mean, they obviously had larger books of business. It feels like you could continue to make headway in those verticals.

Robert B. Anderson: Yeah, I think it's We're going to, in the second quarter, I mean, even as of, we still have plenty of cash sitting on the balance sheet, and we've had some higher-priced PUP funds move off. So those teams will continue to bring good, solid deposits in. I think we have the right teams to support the loan growth that we have. I think the loan-to-deposit ratio will tick up as we price down some of the higher-priced non-relationship funding.

Speaker Change: Yes, I think it's.

Speaker Change: We're going to in the second quarter, I mean, even as of now.

Speaker Change: We still have plenty of cash sitting on the balance sheet and we've had some higher priced pub funds move off so those teams will continue to bring.

Good solid deposits in.

Speaker Change: We have the right teams to support the loan growth that we have I think the loan to deposit ratio will tick up as we are pricing down some of the higher priced non relationship funding. If you recall when we were back in December of last year, we had probably over $100 million of fundings.

Robert B. Anderson: You know, if you recall, when we were back in December of last year, we had probably over 100 million in funding in December alone, and to fund that, you know, we had to, one, get some borrowings, but also get some higher-priced PUP fund money to do that. Now that we have the teams generating relationship funding, we can let that other stuff go. So I think what you're going to see is that we have the teams capable of supporting the loan growth, which has been robust here, over 15% per year, and then we're supporting that with deposits around the same number.

Speaker Change: In December alone and to fund that we had one get on some borrowings, but also get some higher priced pub fund money to do that now that we have the teams generating relationship funding. We can let that other stuff go. So I think what youre going to see is that we have the teams capable of supporting the loan growth, which has been robust here.

Speaker Change: Over 15% per year, and then we're supporting that with deposits around the same number.

Wood Neblett Lay: Yeah, that's helpful, Collar. And then I did want to shift over to loan growth and just interested in how the pipelines were looking into the second quarter. Are there any specific segments that you expect to drive strong growth in the year?

Speaker Change: Yes, that's helpful color and then I did want to shift over to loan growth.

Speaker Change: Interested on how the pipelines were looking into the second quarter are there any specific segments that you expect to drive the strong growth in the year.

Luis F. de la Aguilera: I believe we check our pipelines on an ongoing basis; management works very closely with the lending teams. We do this on a weekly basis, and it's a deep dive.

Speaker Change: I believe we check our pipelines on an ongoing basis management works very closely with the lending teams. We do this on a weekly basis and it's a deep dive the pipeline right now is very much on track to hit our numbers for the quarter I think we're going to continue seeing.

Luis F. de la Aguilera: The pipeline right now is very much on track to hit our numbers for the quarter. I think we're going to continue seeing very strong activity on our HOA side, on the yacht lending side. On the multifamily side, it's pretty diversified, and I think it's going to continue to be in line with what we've been seeing that probably about 40% of what's coming in is from non-CRE sources. I think we're going to continue seeing more of the same, and I'm very excited and pleased that we've been able to, in a three and a half year period of time, really move the portfolio in the way that it has.

Speaker Change: Very strong activity from our HOA side on the yacht lending side.

Speaker Change: We have on the multifamily side, it's pretty diversified and I think it is going to continue to be in line with what we've been seeing that.

Speaker Change: Probably about 40% of what's coming in is non CRE.

Speaker Change: Sources. So I think we're going to continue seeing more of the same and I'm very excited and pleased that we've been able to in the three and a half year period of time really move the portfolio and the way that it has so we're almost at 30% non CRE, where this bank at one point in time was probably 98% so it's going to be.

Speaker Change: It's going to be more of the same a lot of this is also coming in from these diversified.

Luis F. de la Aguilera: So we're almost at 30% non-CRE where this bank was at one point in time probably 98%. So it's going to be more of the same. A lot of this is also coming in from these diversified business verticals. Of the seven that we have, four were created as deposit aggregators, but the HOA one in particular also brings in a lot of business on the loan side.

Speaker Change: Business verticals of the seven that we have for our were created as deposit aggregators.

Speaker Change: But the HOA one in particular also brings in a lot of business on the loan side.

Speaker Change: Perfect. Thanks for taking my question.

Speaker Change: The next question comes from steady Strickland with Janney Montgomery Scott. Please go ahead.

Feddie Justin Strickland: Hey, good morning.

Feddie Justin Strickland: To start with.

Feddie Justin Strickland: The discussion around our cash uses to pay off some of the wholesale borrowings.

Wood Neblett Lay: Perfect. Thanks for taking my question.

Feddie Justin Strickland: And how that effects, earning assets I mean, I know, we're going to have continued strong loan growth here, but can we see earning assets potentially.

Operator: The next question comes from Feddie Strickland with Jannie Montgomery Scott. Please go ahead.

Feddie Justin Strickland: A good bit, earning asset growth was a bit slower or maybe even down.

Feddie Justin Strickland: Hey, good morning. Just wanted to start with, you know, the discussion around the cash used to pay off some of the wholesale borrowing. [inaudible] a good bit, earning asset growth a good bit slower, maybe even down one quarter just with some of that, some of the paydown of those wholesale borrowings. I don't think you're going to see it go down, Freddy.

Feddie Justin Strickland: Linked quarter, just with some of that.

Feddie Justin Strickland: So on the pay down of those.

Feddie Justin Strickland: Wholesale borrowings.

Speaker Change: And I don't think youre going to see it.

Speaker Change: Go down Freddie.

Speaker Change: I think it might.

Speaker Change: Slow on the earning asset growth will slow a little bit like I said, we had some of the pub fund money run off in early April but we quickly.

Speaker Change: Got.

Speaker Change: Client money in to replace that probably at 80 basis point spread.

Robert B. Anderson: I think it might, you know, slow down on the earning assets; the growth will slow a little bit. Like I said, we had some of the pub fund money run off in early April, but we quickly got client money in to replace that, probably at an 80 basis point spread improvement. So if you think about that over 100 million, 125 million, you know, on a big balance sheet, it takes a lot to move the numbers there, but it's the little things that really matter. But I think the overall average earning assets will continue to grow, but maybe at a little bit slower. That's helpful. And then just, Rob, did I hear you correctly?

Speaker Change: Spread improvement. So if you think about that over 100 million $125 million on a big balance sheet. It takes a lot to move the numbers there, but it's the little things.

Speaker Change: That really matter, but I think the overall average, earning assets will continue to grow but maybe at a little bit slower pace.

Speaker Change: Got it that's helpful and then just.

Speaker Change: Rob did I hear correctly I think you.

Robert B. Anderson: You were talking to Michael about five to 10 basis points was that downward movement on the cost of funds from from everything Youre doing or just trying to get clarity on what exactly that discussion.

Speaker Change: If you look at page seven.

Robert B. Anderson: And just the general trend on our cost of funds are in cost of deposits. What I think is going to happen and what we're modeling with the changes is that youre going to see that deposit costs start to plateau every quarter, it's been going up.

Feddie Justin Strickland: I think you were talking to Michael about 5 to 10 basis points. Was that a downward movement on the cost of funds from everything you're doing, or just trying to get clarity on what exactly that discussion was about? Yeah, I think if you look at page 7.

Robert B. Anderson: Proximately in the last few around 20 basis points. If we can hold that at $2 75, and then on the following page the loans continue to go up grind higher about 20 basis points, then that will impact the NIM positively an additional five basis points.

Robert B. Anderson: And just the general trend on our cost of funds or in the cost of deposits, what I think is going to happen and what we're modeling with the changes is that you're going to see that deposit costs start to plateau. Every quarter, it's been going up approximately in the last few, around 20, basically. If we can hold that at 275 and then, on the following page, the loans continue to go up, grind higher by about 20 basis points, then that will impact NIM positively by an additional five basis points. You know, we're saying five to 10 on the range.

Robert B. Anderson: We're saying five to 10 on the range. So I think it is.

Robert B. Anderson: Not necessarily deposit costs going down, but plateauing and hopefully leveling off.

Speaker Change: Got it that's helpful. So you're talking about the actual potential upside of the margin that makes sense, yes.

Speaker Change: Okay, and then just lastly, I know, it's not a huge contributor today, but.

Speaker Change: I know maybe in the future take till after we get rate cuts SBA.

Speaker Change: Could present, a potential opportunity I was wondering if you could talk a little bit more detail about what youre seeing there both in terms of credit in terms of potential future volume.

Speaker Change: Where we could ADC that go if we get a little bit more favorable environment down the road.

Speaker Change: We're putting a lot of emphasis on our SBA activities and actually have the largest pie.

Robert B. Anderson: So I think it's not necessarily deposit costs going down but plateauing and, hopefully, leveling off. Got it. That's helpful. So you're talking about the actual, you know, potential upside of the margin that Yeah. Okay. And then, just lastly, I know it's not a huge contributor today, but I think, you know, maybe in the future, particularly after we get rate cuts, SBA could present a potential opportunity. I was wondering if you could talk a little bit more detail about just what you're seeing there, both in terms of credit and in terms of potential future volume, where we could maybe see that go if we get a little bit more favorable environment down the road.

Speaker Change: Pipeline that we've ever had in the first quarter as a matter of fact, if we close what we have in the first quarter, we beat what we did in the entire.

Speaker Change: Year last year.

Speaker Change: So we have contributions.

Speaker Change: From all of our lenders and and I believe that we will see in the second quarter really strong activity.

Sure.

Speaker Change: Looking to close what we have and we're very focused on it and I think that there's going to be the plan for the rest of the year.

We are perfect typically are typical SBA.

Seven eight.

They are capped at about $5 million I think ours is about $2 million on average, but we also launched last year a program with a digital partner to source a small ticket SBA.

Speaker Change: It was launched in September our banking centers are very active with it. So that's also going to be contributing so the entire bank is really really focused on the opportunity for <unk>.

Luis F. de la Aguilera: We're putting a lot of emphasis on our SBA activities and actually have the largest pipeline that we've ever had in the first quarter. As a matter of fact, if we close what we have in the first quarter, we beat what we did the entire year last year.

Speaker Change: Got it and just one more for me just just curious.

Speaker Change: On the deposit front are you seeing anything incrementally different from competitors.

Speaker Change: Has the market gotten a little bit less competitive for deposits or is it still pretty.

Luis F. de la Aguilera: So we have contributions from all our lenders, and I believe that we will see really strong activity in the second quarter looking to close what we have, and we're very focused on it, and I think that it's going to be the plan for the rest of the year. We are our typical SBA 7A, you know; they're capped at about $5 million. I think ours is about $2 million on average. But we also launched last year a program with a digital partner to source small-ticket SBAs. It was launched in September. Our banking centers are very active with it, so that's also going to be contributing. So the entire bank is really, really focused on the opportunity for 7A.

Speaker Change: Pretty intense competition.

Speaker Change: I would say it's pretty sporty.

Speaker Change: Our banking centers report.

Speaker Change: On a daily basis, what's happening.

Speaker Change: As far as the competition and also on the loan side, we're seeing we're seeing deals with six handles where our average coupon is in the <unk>. There is a lot of business that out that we turned down.

Speaker Change: We're being very disciplined on our lending.

Speaker Change: Our team understands it we source relationship not transactional deals.

But it is serving us well and we're going to keep that discipline, but.

Speaker Change: The market here in South, Florida is very competitive.

Speaker Change: It's very competitive on loans and deposits that hasnt changed.

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

Speaker Change: The next question comes from Ross Haberman with <unk> investments. Please go ahead.

Feddie Justin Strickland: I've got it. And just one more for me.

Feddie Justin Strickland: Just curious, you know, on the deposit front, are you seeing anything incrementally different from competitors? Has the market gotten a little bit less competitive for deposits, or is it still pretty intense competition?

Ross Haberman: Ross Your line may be muted.

Ross Haberman: Alright.

Ross Haberman: This concludes our question and answer session I would now like to turn the conference back over to abuse I agree that for any closing remarks.

Abuse: Thank you so on behalf of the U S century team I would like to thank you all for your attendance and look forward to meet again in our next earnings call in July.

Luis F. de la Aguilera: I would say it's pretty sporty. You know, our banking standards report on a daily basis what's happening as far as the competition and also on the loan side. We're seeing deals with six handles where our average coupon is in the eights. There's a lot of business that we turn down. We're being very disciplined in our lending. Our team understands it. You know, we source relationships, not transactional deals, but it's serving us well, and we're going to keep to that discipline. But the market here in South Florida is very competitive, very competitive on loans and deposits. That hasn't changed.

Speaker Change: Have a great day.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Feddie Justin Strickland: I understand. That's helpful. Thanks for taking my question.

Operator: The next question comes from Ross Haberman with RLH Investments. Please go ahead. Ross, your line may be muted. This concludes our question and answer session. I would like to turn the conference back over to Luis de la Aguilera for any closing remarks. Thank you.

Luis F. de la Aguilera: So, on behalf of the US Century team, I would like to thank you all for your attendance and look forward to meeting again for our next earnings call in July. Have a great day.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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