Q2 2024 USCB Financial Holdings Inc Earnings Call
Speaker Change: [inaudible]
Unknown Executive: Good morning and welcome to the USCB Financial Holdings and second quarter of 2024 earnings conference call. Participants will be in a listen-only mode. In should you need any assistance, please signal the conference specialist by pressing the star key followed by zero.
Operator: Good morning, and welcome to the USCB Financial Holdings Inc. second quarter of 2024 earnings conference call. All participants will be in a listen-only mode, and should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone, and to withdraw your question, please press star, then two. Please also note that this event is being recorded. I would now like to turn the conference over to Lou De La Aguilera, Chairman, President, and CEO of USCB Financial Holdings. Please go ahead, sir.
Speaker Change: Good morning, and welcome to the USCB Financial Holdings, Inc. second quarter of 2024 earnings conference call. All participants will be in a listen-only mode, and should you need any assistance, please signal a conference specialist by pressing the star key followed by zero.
Unknown Executive: After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. And to withdraw your question, please press star, then two. Please also note that this event is being recorded.
Speaker Change: After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. And to withdraw your question, please press star, then 2. Please also note that this event is being recorded.
Luis Aguilera: I would now like to turn the conference over to Lou De La Aguilera, Chairman, President and CEO of USCB Financial Holdings. Please go ahead, sir. Good morning. With me today reviewing our Q2 highlights is CFO Rob Anderson and Chief Credit Officer Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on slide three.
Speaker Change: I would now like to turn the conference over to Lou de la Aguilera, Chairman, President and CEO of USCB Financial Holdings. Please go ahead, sir.
Luis F. de la Aguilera: With me today, reviewing our Q2 highlights is CFO Rob Anderson and Chief Credit Officer Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on slide three. This past Tuesday, July 23rd, marked the third anniversary since USDB launched a successful IPO and went public, a clear milestone for our bank.
Speaker Change: Good morning.
Speaker Change: With me today reviewing our Q2 highlights is CFO Rob Anderson and Chief Credit Officer Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on slide 3.
Luis Aguilera: This past Tuesday, the 23rd marked the third anniversary since the USCB launched a successful IPO of one public, a clear milestone for our bank. Despite strong headwinds, including a prolonged inverted yield curve, growing inflation, and unprecedented rise in interest rates, our team has consistently executed a strategic plan with a sense of urgency, discipline, risk management practices, the nine credit metrics, and the support of an associate base committed to superior customer service. Over these three years, assets have grown 47% or 791 million, while loans in the deposits increase 63% or 724 million and 43% or 617 million, respectively.
Speaker Change: This past Tuesday, July 23rd, marked the third anniversary since USDB launched a successful IPO and went public, a clear milestone for our bank.
Luis F. de la Aguilera: Despite strong headwinds, including a prolonged inverted yield curve, growing inflation, and an unprecedented rise in interest rates, our team has consistently executed a strategic plan with a sense of urgency, disciplined risk management practices, benign credit metrics, and the support of an associate base committed to superior customer service. Over these three years, assets have grown 47%, or $791 million, while loans and deposits increased 63%, or $724 million, and 43%, or $617 million, respectively.
Speaker Change: Despite strong headwinds, including a prolonged inverted yield curve, growing inflation, and unprecedented rise in interest rates,
Speaker Change: Our team has consistently executed a strategic plan with a sense of urgency, disciplined risk management practices, benign credit metrics, and the support of an associate base committed to superior customer service.
Speaker Change: Over these three years, assets have grown 47%, or $791 million, while loans and deposits increased 63%, or $724 million, and 43%, or $617 million, respectively.
Luis Aguilera: Our clear actionable strategic plan and a motivated team of bankers have combined to deliver continued sustainable results. Again, this past quarter, the bank has delivered on all our key performance indicators. Our focused efforts to rationalize and lower deposit costs while growing them has led to strong name expansion in Q2. The diversified quality loan production with high coupons continues. Non-interest income has served and record profits in the quarter has led to notable improvement in efficiency, profitability, and our earnings per share. All of which Rob will review in detail in a moment. The backdrop to our results is the strength of the Florida economy, which continues to demonstrate remarkable resilience and growth, significantly outperforming the national average in 2024.
Luis F. de la Aguilera: Our clear, actionable strategic plan and a motivated team of bankers have combined to deliver continued sustainable results. Again, this past quarter, the bank delivered on all our key performance indicators. Our focused efforts to rationalize and lower deposit costs while growing them have led to strong NIM expansion in Q2. Diversified quality loan production with high coupons continues. Non-interest income has surged, and record profits in the quarter have led to a Notable Improvement in Efficiency, Profitability, and our Earnings per Share, all of which Rob will review in detail in a moment.
Speaker Change: Our clear, actionable, strategic plan and a motivated team of bankers have combined to deliver continued, sustainable results.
Speaker Change: Again, this past quarter, the bank has delivered on all our key performance indicators.
Speaker Change: Our focused efforts to rationalize and lower deposit costs while growing them has led to strong NIM expansion in Q2. Diversified quality loan production with high coupons continues. Non-interest income has surged and record profits in the quarter has led to
Speaker Change: Notable improvement in efficiency, profitability, and our earnings per share, all of which Rob will review in detail in a moment. The backdrop to our results is the strength of the Florida economy, which continues to demonstrate remarkable resilience and growth, significantly outperforming the national average in 2024.
Luis F. de la Aguilera: The backdrop to our results is the strength of the Florida economy, which continues to demonstrate remarkable resilience and growth, significantly outperforming the national average in 2024. The following page is self-explanatory, showing nine select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering. So now, we turn our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson.
Luis Aguilera: The following page is self-explanatory, directly showing nine select historical trends, sensory capitalization, profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering.
Rob: The following page is self-explanatory, directionally showing nine select historical trends since recapitalization.
Rob: 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 Anderson: 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: Thank you, Lou, and good morning everyone. Looking at pages 5 and 6, I would characterize Q2 as a fantastic quarter for USCB. Net income was $0.31 per diluted share and the highest since going public and simplifying our capital structure. Return on average assets was 1.01%, up from 0.76% in Q1. Return on average equity was 12.63%, up from 9.61% in Q1. NIM was 2.94% and up 32 basis points from the prior quarter. The efficiency ratio was 56.33%, down from 63.41% in the prior quarter. And the tangible book value per share grew to $10.24, up 13% annualized from the prior quarter. Driving this record performance was threefold.
Robert Anderson: Thank you, Lou, and good morning, everyone. Looking at pages five and six, I would characterize Q2 as a fantastic quarter for USCB. Net income was 31 cents per diluted share and the highest since going public and simplifying our capital structure. Return on average assets was 1.01% up from 0.76% in Q1. Return on average equity was 12.63% up from 9.61% in Q1. NIM was 2.94% and up 32 basis points from the prior quarter. The efficiency ratio was 56.33% down from 63.41% in the prior quarter. Intangible book value per share through to $10.24 cents, up 13% annualized from the prior quarter.
Robert B. Anderson: Thank you, Lou, and good morning, everyone. Looking at pages 5 and 6, I would characterize Q2 as a fantastic quarter for USCB.
Robert B. Anderson: Net income was $0.31 per diluted share and the highest since going public and simplifying our capital structure.
Robert B. Anderson: Return on Average Assets was 1.01%, up from .76% in Q1. Return on Average Equity was 12.63%, up from 9.61% in Q1. NIM was 2.94%, and up 32 basis points from the prior quarter.
Robert B. Anderson: The efficiency ratio is 56.33%, down from 63.41% in the prior quarter.
Robert B. Anderson: Intangible book value per share grew to $10.24, up 13% annualized from the prior quarter.
Robert Anderson: Driving this record performance was threefold. First, the most notably was the improvement in the net interest margin as average earning assets continue to reprise upwards and our overall funding costs saw a mark decrease.
Robert B. Anderson: The first and most notably was the improvement in the net interest margin as average earning assets continued to reprice upwards and our overall funding costs saw a marked decrease. Net interest income increased 2.2 million, or 57.1% annualized, compared to the prior quarter and 3.1 million, or 22.1%, compared to the second quarter of 2023. This momentum will benefit forward earnings as we enter the second half of the year. Next, non-interest income showed a marked uptick as our strategies mentioned over the past year continue to pay off. And last, credit metrics remain benign.
Speaker Change: Driving this record performance was threefold. First, and most notably, was the improvement in the net interest margin as average earning assets continued to reprice upwards and our overall funding costs saw a marked decrease.
Robert Anderson: Groups. Net interest income increased 2.2 million, or 57.1% annualized, compared to the prior quarter and 3.1 million, or 22.1%, compared to the second quarter of 2023. This momentum will benefit for earnings as we enter the second half of the year. Next, non-interest income showed a marked uptick as our strategies mentioned over the past year continue to pay off, and last credit metrics remained benign.
Speaker Change: Net interest income increased 2.2 million or 57.1% annualized compared to the prior quarter and 3.1 million or 22.1% compared to the second quarter of 2023.
Speaker Change: This momentum will benefit forward earnings as we enter the second half of the year. Next, non-interest income showed a marked uptick as our strategies mentioned over the past year continue to pay off. And last, credit metrics remain benign. So with that overview, let's discuss deposits on the next page.
Robert Anderson: So, with that overview, let's discuss deposits on the next page. First, we thought our average deposit balances continued to grow, and most notably was the DDA growth. Average DDA deposits increased 35.6 million or 24.9% annualized compared to the second quarter of 23 and comprised 29.3% of total average deposits for the second quarter. Second, and buoyed by the DDA growth, was the decrease in our overall deposit cost. This was driven by the pricing actions we mentioned on our previous call. Specifically, we're able to price down our interest-bearing deposits by 10 basis points through the quarter, and we continue to evaluate all relationship pricing based on the breadth and tenor of that relationship.
Robert B. Anderson: First, we saw our average deposit balances continue to grow, and most notably, the DDA growth. Average DDA deposits increased 35.6 million or 24.9% annualized compared to the second quarter of 23, and comprised 29.3% of total average deposits for the second quarter. Second, and buoyed by the DDA growth, was the decrease in our overall deposit costs.
Speaker Change: First, we saw our average deposit balances continue to grow and most notably was the DDA growth.
Speaker Change: Average DDA deposits increased $35.6 million, or 24.9% annualized compared to the second quarter of 2023, and comprised 29.3% of total average deposits for the second quarter.
Speaker Change: Second, and buoyed by the DDA growth, was the decrease in our overall deposit cost. This was driven by the pricing actions we mentioned on our previous call.
Robert B. Anderson: This was driven by the pricing actions we mentioned on our previous call. Specifically, we were able to price down our interest-bearing deposits by 10 basis points through the quarter, and we continue to evaluate all relationship pricing based on the breadth and tenor of that relationship. Going forward, we believe that we can hold the deposit book steady at these rates. The key for us will be to continue to grow the DDA book.
Speaker Change: Specifically, we're able to price down our interest bearing deposits by 10 basis points through the quarter, and we continue to evaluate all relationship pricing based on the breadth and tenor of that relationship.
Robert Anderson: Going forward, we believe that we can hold the deposit books steady at these rates. The key for us will be to continue to grow the DDA book.
Speaker Change: Going forward, we believe that we can hold the deposit book steady at these rates. The key for us will be to continue to grow the DDA book. With that, let's take a look at our loan portfolio.
Robert B. Anderson: With that, let's take a look at our loan portfolio. Average loans increased $47 million, or $10.6 million annualized, compared to the prior quarter and $259.2 million, or 16.5%, compared to the second quarter of 2023. Loan coupons increased 15 basis points compared to the prior quarter and 85 basis points compared to the second quarter of 2023. Driving this performance is really laid out on the next page.
Robert Anderson: With that, let's take a look at our loan portfolio. Average loans increased 47 million, or 10.6 million annualized, compared to the prior quarter and 259.2 million, or 16.5%, compared to the second quarter of 23. A loan coupon increased 15 basis points compared to the prior quarter and 85 basis points compared to the second quarter of 23.
Speaker Change: Average loans increased $47 million or $10.6 million annualized compared to the prior quarter and $259.2 million or 16.5% compared to the second quarter of 2023.
Speaker Change: Loan coupons increased 15 basis points compared to the prior quarter and 85 basis points compared to the second quarter of 23 Driving this performance is really laid out on the next page
Robert Anderson: Driving this performance is really laid out on the next page. First, for the past four quarters, we have originated 571 million of loans with a weighted average yield above 8%. That's over 30% of our total loan book. This is a critical component to the improvement in our net interest margin as we look to remix our balance sheet with assets at higher yields. Also, the majority of these loans are fixed rate with five to seven year terms and have embedded floors and prepayment penalties. This will provide protection in a down rate scenario. In terms of the pipeline, we have a steady pipeline with solid credits priced in a similar fashion.
Robert B. Anderson: First, for the past four quarters, we have originated $571 million in loans with a weighted average yield above 8%. That's over 30% of our total loan book. This is a critical component to the improvement in our net interest margin as we look to remix our balance sheet with assets at higher yields. Additionally, the majority of these loans are fixed rate with five to seven year terms and have embedded floors and prepayment penalties. This will provide protection in a downright scenario.
Speaker Change: First, for the past four quarters, we have originated $571 million of loans with a weighted average yield above 8%.
Speaker Change: That's over 30% of our total loan book. This is a critical component to the improvement in our net interest margin as we look to remix our balance sheet with assets at higher yields.
Speaker Change: Also, the majority of these loans are fixed rate with five to seven year terms and have embedded floors and prepayment penalties. This will provide protection in a down rate scenario.
Robert B. Anderson: In terms of the pipeline, we have a steady pipeline with solid credits priced in a similar fashion. Additionally, and very noteworthy, is the diversification we have achieved over the past four years. CRE loans, which are the predominant loan type opportunity in this market, now make up 56% of our total loan composition, and that's down from 63% just four years ago. Okay, let's turn the page and look at the merchandise.
Speaker Change: In terms of the pipeline, we have a steady pipeline with solid credits priced in a similar fashion. Additionally, and very noteworthy, is the diversification we have achieved over the past four years.
Robert Anderson: Additionally, and very noteworthy, is the diversification we have achieved over the past four years. CRE loans, which is the predominant loan type opportunity in this market now, makes up 56% of our total loan composition, and that's down from 63% just four years ago.
Speaker Change: CRE loans, which is the predominant loan type opportunity in this market, now makes up 56% of our total loan composition, and that's down from 63% just four years ago.
Robert Anderson: Okay, let's turn the page and look at the margin. Q2 showed a marked improvement in both net interest income and net interest margin. This is a direct result of all larger balance sheet improved earning asset yields and lower funding costs. We remain optimistic about maintaining the NIM around this level near term, but we have several reasons to believe the NIM will improve over time. So let me mention that. The positives have already been adjusted to a higher rate environment, so we don't expect material jumps in our interest-bearing deposit rates. In fact, this quarter, we lowered them.
Robert B. Anderson: Q2 showed a marked improvement in both net interest income and net interest margin. This is a direct result of a larger balance sheet, improved earnings asset yields, and lower funding costs. We remain optimistic about maintaining the NIM around this level in the near term, but we have several reasons to believe the NIM will improve over time.
Speaker Change: Okay, let's turn the page and look at the margin.
Speaker Change: Q2 showed a marked improvement in both net interest income and net interest margin. This is a direct result of a larger balance sheet, improved earning asset yields, and lower funding costs.
Speaker Change: We remain optimistic about maintaining the NIM around this level near term, but we have several reasons to believe the NIM will improve over time, so let me mention them.
Robert B. Anderson: Deposits have already been adjusted to a higher rate environment, so we don't expect material jumps in our interest-bearing deposit rates. In fact, this quarter, we lowered them. Next, if the Fed drops rates in September, as the market fully expects, we have over a billion dollars in money market accounts that can be immediately repriced. We have 175 million CDs maturing in the second half of this year at a weighted average rate of 4.62%, and currently all of our CD renewal rates are at or below this.
Speaker Change: Deposits have already been adjusted to a higher rate environment, so we don't expect material jumps in our interest-bearing deposit rates. In fact, this quarter we lowered them. Next, if the Fed drops rates in September , as the market fully expects, we have over a billion dollars in money market accounts that can be immediately repriced.
Robert Anderson: Next, if the Fed drops rates in September as the market fully expects, we have over a billion dollars in money market accounts that can be immediately repressed. We have 175 million of CDs maturing in the second half of this year at a weighted average rate of 4.62%, and currently all of our CD renewal rates are at or below this rate. New loan production has been above 8% for four straight quarters and has shown on the loan slide the yield on the loan book continues to grind higher. We fully expect this trend to continue.
Speaker Change: We have 175 million of CDs maturing in the second half of this year at a weighted average rate of 4.62%, and currently all of our CD renewal rates are at or below this rate.
Robert B. Anderson: New loan production has been above 8% for four straight quarters, and as shown on the loan slide, the yield on the loan book continues to grind higher. We fully expect this trend to continue. Also, at the end of June, we executed the sale of $35.5 million of bonds at a net gain of $14,000. The bonds carried an average life of 2.4 years, and the funds were reinvested into new loan volume, effectively locking in an additional 275 basis points.
Speaker Change: New loan production has been above 8% for four straight quarters, and as shown on the loan slide, the yield on the loan book continues to grind higher. We fully expect this trend to continue.
Robert Anderson: Also at the end of June, we executed the sale of 35.5 million of bonds at a net gain of 14,000. The bonds carried an average life of 2.4 years, and the funds were reinvested into new loan volume, effectively locking in an additional 275 basis points. And with this transaction, we also extended our asset duration, which will protect our balance sheet from an expected lower rate. We expect 23.6 million of cash flows coming off the securities portfolio this year at a weighted average yield of 3.32%, which can be reinvested into higher earning assets. I would also note, with interest rates drifting lower, there may be additional opportunities to sell securities to reinvest into higher yielding assets.
Speaker Change: Also, at the end of June , we executed the sale of $35.5 million of bonds at a net gain of $14,000. The bonds carried an average life of 2.4 years, and the funds were reinvested into new loan volume, effectively locking in an additional 275 basis points.
Robert B. Anderson: And with this transaction, we also extended our asset duration, which will protect our balance sheet from an expected lower rate. We expect $23.6 million of cash flows coming off the securities portfolio this year at a weighted average yield of 3.32%, which can be reinvested into higher-earning assets.
Speaker Change: And with this transaction, we also extended our asset duration, which will protect our balance sheet from an expected lower rates.
Speaker Change: We expect $23.6 million of cash flows coming off the securities portfolio this year at a weighted average yield of 3.32%, which can be reinvested into higher earning assets.
Robert B. Anderson: I would also note with interest rates drifting lower, there may be additional opportunities to sell securities to reinvest in higher yielding assets. And finally, with a strong liquidity position beginning in Q3, we can pass a non-relationship rate-sensitive deposit. Let's go to the next page.
Speaker Change: I would also note with interest rates drifting lower, there may be additional opportunities to sell securities to reinvest into higher yielding assets. And finally, with a strong liquidity position beginning in Q3, we can pass on non-relationship rate-sensitive deposits.
Robert Anderson: And finally, with a strong liquidity position beginning in Q3, we can pass a non-relationship rate-sensitive deposits.
Robert Anderson: Let's go to the next page. According to our ALM model, the bank's balance sheet remains slightly asset sensitive. However, when compared to the previous quarter, our asset sensitivity has decreased. The reduction in asset sensitivity is the result of management efforts to better position the balance sheet for expected lower rates. As all of you are aware, these rate scenarios are run with parallel shocks across all tenors, which is highly unlikely. For transparency purposes, we show these scenarios as it is disclosed in our filings and regulatory requirements. For example, if rates crop 100 basis points across all tenors, which again is highly unlikely, the NIM will contract slightly according to our model assumptions.
Robert B. Anderson: According to our ALM model, the bank's balance sheet remains slightly asset-sensitive. However, when compared to the previous quarter, our asset sensitivity has decreased. The reduction in asset sensitivity is the result of management efforts to better position the balance sheet for expected lower rates. However, as all of you are aware, these rate scenarios are run with parallel shocks across all tenors, which is highly unlikely. For transparency purposes, we show these scenarios as it is disclosed in our filings and regulatory filings. However, a more likely scenario would be for the Fed to reduce short-term rates, and the longer-term rates, being the 5, 7, and 10-year rates, do not move down in an equal fashion. In these scenarios, we model more favorably. So, in short, we believe we are well-poised to capitalize on a rates-down scenario. So with that, let me turn it over to Bill to discuss asset quality.
Speaker Change: Let's go to the next page.
Speaker Change: According to our ALM model, the bank's balance sheet remains slightly asset-sensitive. However, when compared to the previous quarter, our asset sensitivity has decreased.
Speaker Change: The reduction in asset sensitivity is the result of management efforts to better position the balance sheet for expected lower rates.
Speaker Change: As all of you are aware, these rate scenarios are run with parallel shocks across all tenors, which is highly unlikely.
Speaker Change: For transparency purposes, we show these scenarios as it is disclosed in our filings and a regulatory requirement. For example, if rates drop 100 basis points across all centers, which again is highly unlikely, the NIM will contract slightly according to our modeled assumptions.
Robert Anderson: However, a more likely scenario would be for the Fed to reduce short-term rates, and the longer-term rates, being the 5, 7, and 10-year rates, do not move down in an equal fashion. In these scenarios, we model more fairer points. So, in short, we believe we are well-poised to capitalize on a rates down scenario.
Speaker Change: However, a more likely scenario would be for the Fed to reduce short-term rates and the longer-term rates, being the 5, 7, and 10-year rates, do not move down in an equal fashion.
Speaker Change: In these scenarios, we model more favorably. So in short, we believe we are well-poised to capitalize on a rates-down scenario. So with that, let me turn it over to Bill to discuss asset quality.
Bill Turner: So, with that, let me turn it over to Bill to discuss asset quality. Thank you, Rob. Please turn to page 12. As you can see from the first graph, the allowance for credit costs increased to $22.2 million. This was due to a $786,000 per vision in the second quarter. The allowance for credit costs raised to increase one basis point to a static with 1.19% of the portfolio. The provision was driven by the $40,000,000 increase in the loan portfolio, and net losses remained near zero for the quarter. The remaining graphs on page 12 show the non-performing loans as a quarter end, which increased one basis point to 0.04% of the portfolio, and classified loans also increased one basis point to second quarter to 0.45% of the portfolio and less than 5% of capital.
Bill Turner: Thank you, Rob. Please turn to page 12. As you can see from the first graph, the allowance for credit loss increased to $22.2 million. This was due to a $786,000 provision in the second quarter. The allowance for credit loss ratio increased one basis point to an adequate 1.19% of the portfolio. The provision was driven by the $48 million net increase in the loan portfolio, and net losses remained near zero for the quarter.
Bill: Thank you, Rob. Please turn to page 12. As you can see from the first graph, the allowance for credit loss increased to $22.2 million. This was due to a $786,000 provision in the second quarter.
Bill: The allowance for credit cost ratio increased one basis point to adequate 1.19% of the portfolio. The provision was driven by the $48 million net increase in the loan portfolio and net losses remain near zero for the quarter.
Bill Turner: The remaining graphs on page 12 show that non-performing loans at the quarter end, which increased one basis point to 0.04% of the portfolio, and classified loans also increased one basis point in the second quarter to 0.45% of the portfolio and less than 5% of capital. No losses are anticipated from these classified loans. The bank continues to have no other real estate.
Bill: The remaining graphs on page 12 show that non-performing loans at the quarter end, which increased one basis point to 0.04% of the portfolio, and classified loans also increased one basis point the second quarter to 0.45% of the portfolio and less than 5% of capital.
Bill Turner: No losses are anticipated from these classified loans. The bank continues to have no further real estate.
Bill: No losses are anticipated from these classified loans. The bank continues to have no other real estate.
Bill Turner: On page 13, the first graph shows the loan portfolio mix at 630. The portfolio increased $48 million on a net basis in the second quarter to $1.9 billion. As you can see, the composition remains well-diversified. Commercial real estate, both owner-occupied and non-owner-occupied, represents 56% of the portfolio, or just over a billion dollars, and is segmented between retail, both family owned, office, warehouse, hotel, and construction. The second graph is a breakout of the commercial real estate portfolios for owner-occupied and non-owner-occupied loans, which also demonstrates these portfolios' diversification.
Bill Turner: On page 13, the first graph shows the loan portfolio makes at 630. The portfolio increased $48 million on a net basis in the second quarter to $1.9 billion. As you can see, the composition remains well diverse. of Florida. Commercial real estate, both owner-occupied and non-owner-occupied, represents 66% of the portfolio, or just over a billion dollars in its segmented between retail, local family, owner-occupied, office, warehouse, hotel, and construction. The second graph is a breakout of the commercial real estate portfolio for non-owner-occupied loans, for owner-occupied and non-owner-occupied loans, which also demonstrates the portfolio's diversification. The table to the right of the graph shows the commercial real estate weighted average loans and values that are less than 60%, and the debt-service coverage ratio is adequate for each portfolio segment.
Bill: On page 13, the first graph shows the loan portfolio mix at 630.
Bill: The portfolio increased $48 million on a net basis in the second quarter to $1.9 billion. As you can see, the composition remains well diversified.
Speaker Change: Commercial real estate, both owner-occupied and non-owner-occupied, represents 56% of the portfolio, or just over a billion dollars, and is segmented between retail, both family, owner-occupied, office, warehouse, hotel, and construction.
Speaker Change: The second graph is a breakout of the commercial real estate portfolio for owner-occupied and non-owner-occupied loans, which also demonstrates the portfolio diversification.
Bill Turner: The table to the right of the graph shows the commercial real estate weighted average loan-to-values at less than 60% and debt service coverage ratios adequate for each portfolio segment. The loan quality and payment performance is good for all segments, and the bank's past due percentage is less than one-half of one percent. On page 14, we discuss the office portfolio. Our portfolio at quarter end consists of 123 loans but only $179 million, or less than 10% of total loans.
Speaker Change: The table to the right of the graph shows the commercial real estate weighted average loans of values at less than 60% and debt service coverage ratios adequate for each portfolio segment.
Bill Turner: The loan quality and payment performance is good for all segments, and the banks has two percentages: less than one half or one percent.
Speaker Change: The loan quality and payment performance is good for all segments, and the bank's past due percentage is less than one-half of one percent.
Bill Turner: On page 14, we discussed the office portfolio. Our portfolio at quarter-end consists of 123 loans, but only $179 million, or less than 10% of total loans. Almost all properties are B&C, with 94% located in Florida. The average loan amount is 1.5 million with an average loan value of 56% and an average debt-service coverage of 1.79. The quality of the office portfolio is good, with all loan payments agreed and no past two loans are classified loans. The first graph shows the owner-occupied office is making up 32% of the office segments, with 57% of these loans being occupied by professionals and medical businesses.
Speaker Change: On page 14, we discuss the office portfolio.
Speaker Change: Our portfolio at quarter-end consists of 123 loans, but only $179 million, or less than 10% of total loans.
Bill Turner: Almost all properties are B and C, with 94% located in Florida. The average loan amount is $1.5 million, with an average loan-to-value of 56% and an average debt service coverage of 1.79%. The quality of the office portfolio is good, with all loans paying as agreed, and no past due loans are classified. The first graph shows owner-occupied offices making up 32% of the office segment, with 57% of these loans being occupied by professionals and medical businesses.
Speaker Change: Almost all properties are B&C with 94% located in Florida.
Speaker Change: The average loan amount is 1.5 million with an average loan to value of 56% and an average debt service covered to 1.79 The quality of the office portfolio is good with all loan payments agreed and no past due loans or classified loans
Speaker Change: The first graph shows the owner-occupied offices making up 32% of the office segment, with 57% of these loans being occupied by professionals and medical businesses.
Bill Turner: The second graph is a non-owner-occupied office loan comprising 68% of the office portfolio, with 85% of their usage being multi-tenant and medical. We are especially vigilant of the upcoming loan reprising, maturing schedule for all portfolio segments and monitoring and model the loan repayment ability during annual reviews to respond proactively as needed. Overall, the quality and performance of the loan portfolio remains good.
Bill Turner: The second graph is a non-owner-occupied office loan comprising 68% of the office portfolio, with 85% of their usage being multi-tenant and medical. We are especially vigilant about the upcoming loan repricing and maturing schedule for all portfolio segments and monitor and model the loan repayment ability during annual reviews to respond proactively if needed. Overall, the quality and performance of the loan portfolio remain good. Rob? Okay.
Speaker Change: The second graph is a non-owner-occupied office loan comprising 68% of the office portfolio with 85% of their usage being multi-tenant and medical.
Robert B. Anderson: We are especially vigilant of the upcoming loan repricing maturing schedule for all portfolio segments and monitor and model the loan repayment ability during annual reviews to respond proactively if needed. Overall, the quality and performance of the loan portfolio remains good. Rob?
Bill Turner: Okay, thank you, Bill. Outside of the net interest margin, our fee businesses were the other bright spot in the quarter. First, you'll 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 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. Additionally, we have seen several clients prefer interest rate swaps at this point in the cycle and was one of the main drivers for the overall increase in fees this quarter.
Robert B. Anderson: Okay. Thank you, Bill. Outside of the net interest margin, our fee businesses were the other bright spot in the quarter. 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 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.
Robert B. Anderson: Okay, thank you Bill. Outside of the net interest margin, our fee businesses were the other bright spot in the quarter. First, you'll 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.
Robert B. Anderson: We are gaining new 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.
Robert B. Anderson: Additionally, we have seen several clients prefer interest rate swaps at this point in the cycle, and this was one of the main drivers for the overall increase in fees. We have a nice pipeline of interest rate swaps with clients for Q3 and Q4, but these can be lumpy quarter to quarter and interest rate-dependent. We had a solid quarter for SBA loan sales, and again, we have a nice pipeline for Q3 and Q4. Other non-interest income increased due to the BOLI restructuring we did back in Q3 of 2023 and steady increases in Treasury management. Well, the feed lines can be lumpy from quarter to quarter.
Robert B. Anderson: Additionally, we have seen several clients prefer interest rate swaps at this point in the cycle and was one of the main drivers for the overall increase in fees this quarter.
Bill Turner: We have a nice pipeline of interest rate swaps with clients for Q3 and Q4, but these can be lumpy quarter to quarter and interest rate dependent. We had a solid quarter for SBA loan sale, and again have a nice pipeline for Q3 and Q4. Other non-interest income increase due to the bully restructuring we did back in Q3 of 2023, and steady increases in treasury management fees. While the fee lines can be lumpy quarter to quarter, we do expect future quarters to be above the previous run rate.
Robert B. Anderson: We have a nice pipeline of interest rate swaps with clients for Q3 and Q4, but these can be lumpy quarter to quarter and interest rate dependent.
Robert B. Anderson: We had a solid quarter for SBA loan sales and again have a nice pipeline for Q3 and Q4. Other non-interest income increased due to the bully restructuring we did back in Q3 of 2023 and steady increases in Treasury management fees.
Robert B. Anderson: We do expect future quarters to be above the previous run rate. So with that, let's take a look at our expenses. Our total expense base was $11.6 million, and salaries and benefits are predominantly up due to additional dollars set aside for sales and management incentives. As mentioned previously, all incentive programs are based on company performance, so when the company does well, our team shares in that success.
Speaker Change: Well, the feed lines can be lumpy quarter to quarter. We do expect future quarters to be above the previous run rate. So with that, let's take a look at our expenses.
Robert B. Anderson: Other line items were fairly in line with prior quarters, so stepping back and looking at the overall expense trend, we can point to the incentive accruals as the main driver for the increase. Last year, the accruals were low because the company performance in this quarter moved up with improved performance. This meant adding additional dollars to the accrual in Q2 and catching up the accrual from Q1. Even with the increase in expenses, the efficiency ratio was 56.3, which is very good compared to peers.
Bill Turner: So, with that, let's take a look at our expenses. Our total expense base was $11.6 million and up from the prior quarter. Salaries and benefits are predominantly up due to additional dollar set aside for sales and management incentives. As mentioned previously, all incentive programs are based on company performance. So when the company does well, our team shares in that success. Other line-ins were fairly in line with prior quarters, so stepping back and looking at overall expense trend, we can point to the incentive of rules as the main driver for the increase. Last year, the accruals were low because of company performance, and this quarter has moved up with improved performance.
Speaker Change: Our total expense base was $11.6 million and up from the prior quarter. Salaries and benefits are predominantly up due to additional dollars set aside for sales and management incentives.
Speaker Change: As mentioned previously, all incentive programs are based on company performance. So when the company does well, our team shares in that success.
Speaker Change: Other line items were fairly in line with prior quarters, so stepping back and looking at overall expense trend, we can point to the incentive accruals as the main driver for the increase.
Speaker Change: Last year the accruals were low because of company performance and this quarter it has moved up with improved performance. This meant adding additional dollars to the accrual in Q2 and catching up the accrual from Q1.
Bill Turner: This meant adding additional dollars to the accrual in Q2 and catching up the accrual from Q1. Even with the increase in expenses, the efficiency ratio was 56.3, which benchmarks well compared to peers. If you prefer looking at non-interest expense average assets, the ratio was 1.88% and in line with prior quarters and again, benchmarks well appears. Looking forward, we would expect future quarters to be around this dollar amount level.
Speaker Change: Even with the increase in expenses, the efficiency ratio was 56.3, which benchmarks well compared to peers. And if you prefer looking at non-interest expense to average assets, the ratio was 1.88% and in line with prior quarters, and again, benchmarks well to peers.
Robert B. Anderson: And if you prefer looking at non-interest expense to average assets, the ratio was 1.88% and in line with prior quarters, and again, benchmarks well with peers. Looking forward, we would expect future quarters to be around this dollar amount level. So with that, let's go on to capital. USCB's capital levels remain comfortably well above well-capitalized guidelines.
Speaker Change: Looking forward, we would expect future quarters to be around this dollar amount level. So with that, let's go on to capital.
Robert Anderson: So with that, let's go on to capital. USCB capital levels remain comfortably well above capitalized guidelines. We paid 5 cents per share dividend in the quarter, and the company repurchased 25,000 shares of common stock at a weighted average cost per share for $12.04 during the quarter. Since putting the repurchased programs in place back in January of 2023, we have repurchased 702,000 in 20 shares with an average weighted cost of $11.30. As of June 30, 2024, 547,980 shares remain authorized for repurchase under the company's share repurchase programs. So with that, let me turn it back to Lou for some closing comments.
Speaker Change: USCB capital levels remain comfortably well above well-capitalized guidelines. We paid $0.05 per share dividend in the quarter, and the company repurchased 25,000 shares of common stock at a weighted average cost per share of $12.04 during the quarter.
Robert B. Anderson: We paid a $0.05 per share dividend in the quarter, and the company repurchased 25,000 shares of common stock at a weighted average cost per share of $12.04 during the quarter. Since putting the repurchase programs in place back in January of 2023, we have repurchased 702,020 shares at an average weighted cost of $11.34. As of June 30, 2024, 547,980 shares remain authorized for repurchase under the Company's Share Repurchase Program. Now, with that, let me turn it back to Lou for some closing comments.
Speaker Change: Since putting the repurchase programs in place back in January of 2023, we have repurchased 702,020 shares with an average weighted cost of $11.34 per share.
Lou: As of June 30th, 2024, 547,980 shares remain authorized for repurchase under the Company's Share Repurchase Programs. So with that, let me turn it back to Lou for some closing comments.
Luis Aguilera: Thanks, Rob. The results of the second quarter are strong and on course with a budget expectations and strategic plan and sustainable. It's contrasted with the growth trajectory of the past three years. As we reported on our last earnings call, new production hires have been sourced, on boarded, and are well contributing to our loan deposit and fee generation efforts. Our bankers promoted a variety of non-CRE loan offerings, which have supported the continued diversification of a conservative quality, well-priced loan portfolio. Again, lenders have generated over 570 million in new loan production over the past four quarters, with a weighted average coupon of 8% or higher.
Luis F. de la Aguilera: Thanks Rob. The results of the second quarter are strong and on course with our budget expectations and strategic plan, and sustainable as contrasted with the growth trajectory of the past three years. As we reported on our last earnings call, new production hires have been sourced, onboarded, and are contributing well to our loan deposit and fee generation efforts. Our bankers promote a variety of non-CRE loan offerings, which have supported the continued diversification of a conservative quality, well-priced loan portfolio. Again, lenders have generated over 570 million in new loan production over the past four quarters with a weighted average coupon of 8% or higher.
Lou: Thanks Rob. The results of the second quarter are strong and on course with our budget expectations and strategic plan and sustainable as contrasted with the growth trajectory of the past three years.
Lou: As we reported on our last earnings call, new production hires have been sourced, onboarded, and are well-contributing to our loan deposit and fee generation efforts.
Lou: Our bankers promote a variety of non-CRE loan offerings, which have supported
Lou: The Continued Diversification
Lou: of a conservative quality, well-priced loan portfolio. Again.
Lou: Lenders have generated over $570 million in new loan production over the past four quarters with a weighted average coupon of 8% or higher. These loans have floors, which will positively impact NIM expansion when rates adjust downward.
Luis F. de la Aguilera: These loans have floors, which will positively impact NIM expansion when rates adjust downward. Our planned management of concentration risk has led to a loan portfolio that has increased by 97% to 1.9 billion since June 2020 and which is now 44% non-CRE. We anticipate further diversification as we continue growing our loans. Organic deposit growth is key to franchise value, and all production units are focused on this goal. Average deposits increased $35.3 million, or 6.9% annualized compared to prior quarters and increased 11.3% compared to the second quarter of 2023. Average DDA balances comprised 29.3% of total average deposits for the second quarter of 2024.
Luis Aguilera: These loans have floors which will positively impact an expansion when rates adjust downward. A planned management of concentration risk has led to a loan portfolio which is increased by 97% to 1.9 billion since June 2020 and which is now 44% non-CRE. We anticipate further diversification as we continue growing our loans. Organic deposit growth is key to franchise value, and all production units are focused on this goal. Average deposits increase 35.3 million or 6.9% annualized compared to prior quarters and increased 11.3% compared to the second quarter of 2023. Average DDA balances comprise 29.3% of total average deposits for the second quarter of 2024.
Lou: Our planned management of concentration risk has led to a loan portfolio which has increased by 97% to $1.9 billion since June 2020, and which is now 44% non-CRE. We anticipate further diversification as we continue growing our loans.
Lou: Organic deposit growth is key to franchise value and all production units are focused on this goal.
Lou: Average deposits increased $35.3 million, or 6.9% annualized compared to prior quarters, and increased 11.3% compared to the second quarter of 2023. Average DDA balances comprised 29.3% of total average deposits for the second quarter of 2024.
Luis Aguilera: Again, a variety of deposit aggregating business verticals, including association banking, correspondent banking, and a private client group, are focused on developing local deposit-rich submarkets, which include legal and medical professionals. As we have seen, our efforts to rationalize deposit costs and a highly competitive market has delivered meaningful results as name increased to 2.94%, up 32 basis points from Q1. Another bright spot in our overall production efforts can be seen in the growth of non-interest income, which is 3.2 million for the three months ended June 30th, 2024, an increase of 1.4 million or 74% compared to 1.8 million for the same period in 2023.
Luis F. de la Aguilera: Again, a variety of deposit aggregating business verticals, including association banking, correspondent banking, and our private client group are focused on developing local deposit-rich submarkets, which include legal and medical professionals. We have seen our efforts to rationalize deposit costs in a highly competitive market have delivered meaningful results as NIM increased to 2.94%, up 32 basis points from Q1. Another bright spot in our overall production efforts can be seen in the growth of non-interest income, which was 3.2 million for the three months ended June 30, 2024, an increase of 1.4 million or 74% compared to 1.8 million for the same period in 2023.
Lou: Again, a variety of deposit aggregating business verticals including Association Banking, Correspondent Banking, and our private client group are focused on developing local deposit-rich submarkets which include legal and medical professionals.
Lou: As we have seen our efforts to rationalize deposit costs.
Lou: and a highly competitive market have delivered meaningful results as NIM increased.
Lou: to 2.94% up 32 basis points from Q1.
Lou: Another bright spot in our overall production efforts can be seen in the growth of non-interest income, which is $3.2 million for the three months ended June 30, 2024, an increase of $1.4 million, or 74%, compared to $1.8 million for the same period in 2023.
Luis F. de la Aguilera: The results posted this quarter are clearly strong, and as I said before, they are anchored in the strength and resiliency of the Florida economy. The state's positive economic outlook is bolstered by GDP and private sector job growth that is nearly double the national rate. Florida leads the nation with over 3 million new businesses formed since 2019, with more than 266,000 already established in 2024. As a commercially focused bank, it is these small to medium enterprises that are our primary target market, which we work hard to cultivate, serve, and grow with. With that said, I would like to open the floor for Q&A. We will now begin the question and answer session.
Luis Aguilera: The results posted this quarter are clearly strong, and as I said before, they are anchored in the strength and resiliency of the Florida economy. The state's positive economic outlook is bolstered by a GDP and private sector job growth that is nearly double the national rates. Florida leads the nation with over 3 million in new businesses forms since 2019, with more than 266,000 already established in 2024. As a commercially focused bank, it is these small to medium enterprises that are a primary target market which we work hard to cultivate, serve and grow with.
Speaker Change: The results posted this quarter are clearly strong and as I said before they are anchored in the strength and resiliency of the Florida economy
Speaker Change: The state's positive economic outlook is bolstered by a GDP and private sector job growth that is nearly double the national rates.
Speaker Change: Florida leads the nation with over $3 million in new businesses formed since 2019, with more than 266,000 already established in 2024. As a commercially focused bank, it is these small to medium enterprises that are our primary target market.
Unknown Executive: With that said, I would like to open the floor for Q&A. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw a question, you may press star, then two. At this time, we will pause momentarily to assemble a roster.
Speaker Change: which we work hard to cultivate, serve, and grow with. With that said, I would like to open the floor for Q&A.
Operator: To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys, and to withdraw a question, you may press star, then 2.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star, then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, you may press star then 2.
Operator: At this time, we will pause momentarily to assemble our roster, and our first question today will come from Woody Lay with KBW. Please go ahead.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Wood Lay: In our first question today, we'll come from Wood Lay with KBW. Please go ahead. Hey, good morning, guys. Morning, good morning. Wanted to start on non-interest bearing friends on the average basis, really encouraging. It was like average levels were a little bit ahead of the end of the period, just any comment on the trends you saw during the quarter. Yeah, so we did a lot of the pricing action on our deposits at the end of the first quarter and into the first month of the second quarter. We did see some movement at the end of the quarter, but you typically can see some movement on the last two weeks of the quarter, whether it's companies doing window addressing. We feel strong about growing our deposit book.
Speaker Change: And our first question today will come from Woody Lay with KBW. Please go ahead.
Wood Neblett Lay: Morning, guys. Morning, wanted to start on non-interest bearing trends. You know, on an average basis, really encouraging it looks like it looks like average levels were a little bit of a head a little bit ahead of the end of the period. Just any comment on the trends you saw during the quarter?
Wood Neblett Lay: Hey, good morning guys. Morning. Morning.
Wood Neblett Lay: Wanted to start on non-interest bearing trends, you know, on an average basis really encouraging. It looks like it looks like average levels were a little bit ahead of the end of period. Just any comment on the trends you saw during the quarter?
Robert B. Anderson: Yeah, so we did a lot of pricing action on our deposits at the end of the first quarter and into the first month of the second quarter. We did see some movement at the end of the quarter, but you typically can see some movement in the last two weeks of the quarter, whether it's companies doing window dressing. We feel strong about growing our deposit book. So there's a little bit of ups and downs, but the average really drives the net interest income and the net interest margin. So I think we're going to be fine. We expect to fully continue to grow in the second quarter as well.
Speaker Change: Yeah, so we
Speaker Change: We did a lot of the pricing action on our deposits at the end of the first quarter and into the first month of the second quarter.
Speaker Change: We did see some movement at the end of the quarter, but you typically can see some movement on the last two weeks of the quarter, whether it's companies doing window dressing. We feel strong about growing our deposit book.
Wood Lay: So there's a little bit ups and downs, but you know, the average really drives the net interest income and the net interest margin. So I think we're going to be fine. We expect to fully continue to grow in the second quarter as well. Yeah. And the margin expansion in the second quarter, I mean, was really great to see. There's some more pull through that we'll see in the third quarter, or was the margin like relatively stable throughout the second quarter? It was relatively stable throughout the second quarter. Like I said, we did a lot of deposit pricing actions at the end of the first quarter and the first month of the second quarter.
Speaker Change: So there's a little bit ups and downs, but the average really drives the net interest income and the net interest margin. So I think we're gonna be fine and we expect to fully continue to grow in the second quarter as well.
Robert B. Anderson: Yeah, and the margin expansion in the second quarter, I mean, was really great to see if there's some more pull through that we'll see in the third quarter, or was the margin relatively stable throughout the second quarter?
Speaker Change: Yeah and the margin expansion in the second quarter I mean was really great to see. Is there some more pull through that we'll see in the third quarter or was the margin like relatively stable throughout the second quarter?
Robert B. Anderson: It was relatively stable throughout the second quarter. Like I said, we did a lot of deposit pricing actions at the end of the first quarter and in the first month of the second quarter, so March and April. So we saw kind of a 294-ish margin for all three months, basically. We expect, you know, that to be stable maybe near-term to start grinding forward, but certainly it was nice to see, and it was mainly on the deposit side that we were able to gain traction.
Speaker Change: It was relatively stable throughout the second quarter. Like I said, we did a lot of deposit pricing actions at the end of the first quarter in the first month of the second quarter. So March and April . So we saw kind of a, you know, 294-ish.
Wood Lay: So March and April. So we saw kind of a 2.94-ish margin for all three months, basically. We expect, you know, that to be stable, maybe near term to start grinding forward, but certainly it was nice, nice to see. It was mainly on the deposit side that we were able to gain the traction. Yeah, definitely.
Speaker Change: You know margin for all three months, basically We expect you know that to be stable maybe near-term to start grinding forward but certainly it was it was a nice nice to see it was mainly on the Deposit side that we were able to gain the traction
Robert B. Anderson: Definitely. And then last, maybe just shifting over to the C&I segment, I mean, you saw pretty strong growth within that segment. Can you just talk about sort of how you developed that, how you have developed the C&I segment, and sort of your expectations going forward?
Wood Lay: And then last, maybe just shifting over to the CNI segment. I mean, you saw pretty strong growth within that segment. Can you just talk about sort of how you developed that, how you had developed the CNI segment and sort of your expectations going forward? Certainly. Over a number of years, we've developed a number of verticals to diversify away from the CRE concentration that this bank historically had before the recapitalization. We developed verticals on association lending, on yacht lending, and on SBA lending, which are probably the three main drivers. Also, we continue on the residential side.
Speaker Change: Yeah, definitely. And then last, maybe just shifting over to the C&I segment. I mean, you saw pretty strong growth within that segment. Can you just talk about sort of how you've developed that, how you have developed the C&I segment and sort of your expectations going forward?
Luis F. de la Aguilera: Certainly, over a number of years, we've developed a number of verticals to diversify away from the CRE concentration that this bank historically had before the recapitalization. We have developed verticals on association lending, on yacht lending, and on SBA lending, which are probably the three main drivers. We also continue on the residential side.
Speaker Change: Certainly, over a number of years we've developed a number of verticals to diversify away from the CRE concentration.
Speaker Change: that this bank historically had before the recapitalization.
Speaker Change: We've developed verticals on association lending, on yacht lending.
Speaker Change: on SBA lending, which are probably the three main drivers.
Luis F. de la Aguilera: So as we focus, and South Florida, Miami specifically, is not a big C&I town, but we focused our people on those areas, and they've done a very good job developing them. Each one of these verticals has a senior product specialist, which we brought in. They have, over time, not only helped create our marketing strategies but also trained our lenders. So we've been able to leverage the existing sales team and not necessarily have to hire additional teams to be able to do the job. They are very proficient at what they do, and I believe that they're going to continue doing exactly what you've seen over the last three years.
Wood Lay: So, you know, as we focus and South Florida, Miami specifically is not a big CNI town, but we've focused our people on those areas, and they've done a very good job in developing them. Each one of these verticals has a senior product specialist, which we've brought in. They, over time, have not only helped create our marketing strategies, but also training our lenders. So, we've been able to leverage the existing sales team, and not necessarily have the higher additional teams to be able to do the job. They are very proficient in what they do, and I believe that they're going to continue doing exactly what you've seen over the last three years.
Speaker Change: Also, we continue on the residential side. So as we focus, and South Florida, Miami specifically, is not a big C&I town.
Speaker Change: but we've focused our people on those areas and they've done a very good job in...
Speaker Change: and developing them, each one of these verticals has a senior.
Speaker Change: Product Specialist, which we've brought in.
Speaker Change: They over time have not only helped
Speaker Change: Create our marketing strategies, but also training our lenders. So we've been able to leverage the existing sales team
Speaker Change: and not necessarily have to hire additional teams to be able to do the job. They are very proficient in what they do and I believe that they're going to continue doing exactly what you've seen over the last three years.
Wood Lay: All right, that's all for me. Congrats on the great quarter. Thank you. Thank you, Woodie.
Wood Neblett Lay: All right, that's all for me. Congratulations on a great quarter. Thank you.
Luis F. de la Aguilera: Thank you. Thank you, Woody.
Speaker Change: Alright, that's all from me, congrats on the great quarter.
Michael Rose: And our next question will come from Michael Rose with Raymond James. Please go ahead. Hey, good morning, guys. Thanks for taking my questions. You know, good morning.
Operator: And our next question will come from Michael Rose with Raymond James. Please go ahead.
Speaker Change: Thank you. Thank you, Woody.
Speaker Change: And our next question will come from Michael Rose with Raymond James. Please go ahead.
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. Good morning.
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions.
Michael Edward Rose: What stuck out to me was the growth in swap fees. I think that's kind of contrary to what we've seen. And I think you mentioned, Lou, that the pipeline was, with solidity as we think about it going forward. Can you just explain, maybe, why swap fees are strong? I mean, maybe your customers are just a little bit later to actually, you know, kind of locking in, but it seems like the activity at other banks has kind of slowed down. Thanks.
Michael Rose: What stuck out to me was the growth in Schwapese. I think that's kind of contrary to what we've seen. I think you mentioned, Lou, that the pipeline was with solid as we think about it going forward. Can you just explain maybe why Schwapese is strong? I mean, maybe your customers are just a little bit later to actually, you know, kind of locking in, but it seems like these, the activity at other banks is kind of slowed. Thanks. Our clients and our, again, our sales force on the lending side, you know, are very adept and trained to offer the Schwapese client to explain it to them.
Michael Edward Rose: Good morning. What stuck out to me was the growth in swap fees. I think that's kind of contrary to what we've seen. And I think you mentioned, Lou, that the pipeline was
Michael Edward Rose: was solid as we think about it going forward. Can you just explain maybe why swap fees are strong? I mean, maybe your customers are just a little bit later to actually, you know, kind of locking in, but it seems like the activity at other banks has kind of slowed. Thanks.
Luis F. de la Aguilera: are, you know, our clients and, again, our Sales Force on the lending side are very adept and trained to offer the spots to the client, to explain them to them. And there are a lot of people that when you take the time to explain the benefits of it, they see the value, and they want to move in that direction. So when we have a loan of a special type, term, and size, that conversation happens.
Michael Edward Rose: Our, you know, our clients and our, again, our
Michael Edward Rose: Benigno Pazos, Robert Anderson, Benigno Pazos, Robert Anderson, Benigno Pazos, Benigno Pazos,
Michael Rose: And there's a lot of people that, when you take the time to explain the benefits of it, they see the value and they want to move in that direction. So, when we have a loan of a special type in term and size, that conversation happens. So, we take the time to educate our clients in it, and they're the ones who make the decision. So, the decisions have been favorable, and we have capitalized on them. We not only look at our future growth in our loan portfolio by what we have in it as far as size; we also identify the Schwap deals that the clients have requested and the letters of intent that have been issued and the commitment letters that have been accepted.
Speaker Change: of a special type and term and size, that conversation happens. So we take the time to educate our clients in it.
Luis F. de la Aguilera: So we take the time to educate our clients about it, and they're the ones who make the decisions. As a result, the decisions have been favorable, and we have capitalized on them. We not only look at our future growth in our loan portfolio by what we have in it as far as size, but we also identify the swap deals that the clients have requested and the letters of intent that have been issued, and the commitment letters that have been accepted. So when we track that, we feel very comfortable that the swap activity is going to continue into Q3 and Q4.
Speaker Change: And they're the ones who make the decisions. So the decisions have been.
Speaker Change: favorable, and we have capitalized on them.
Speaker Change: We not only look at our
Speaker Change: future growth in our loan portfolio by what we have in it as far as size. We also identify the swap deals that the clients have requested and the letters of intent that have been issued and the commitment letters that have been accepted. So when we track that, we feel very comfortable that
Michael Rose: So, when we track that, we feel very comfortable that the Schwab activity is going to continue into Q3 and Q4.
Speaker Change: The swap activity is going to continue into Q3 and Q4.
Michael Rose: Very helpful.
Luis F. de la Aguilera: Very helpful. And then maybe just as a follow-up to that, do you have a sense for kind of like what percentage of your customer base is actually using swaps? I mean, you're just trying to size the opportunity that is already on the balance sheet. And then obviously, as you grow, I assume there'll be more opportunities, but just would love to have some color there. Thanks.
Michael Rose: And then maybe just as a follow-up to that, do you have a sense for what percentage your customer base is actually using Schwapese? I mean, just trying to size the opportunity that is already on the balance sheet, and then obviously, as you grow, I assume there'll be more opportunities, but just would love to have some color there. Thanks. I think that the opportunity is very significant. It's not a huge percentage. We've probably started getting active on the Schwap market many three years ago. So, I can get back to you with the exact number, but again, it's a growing number based on the production and the pipeline we have, and I think the key has been educating our folks. But I just was given the information here that it's about 3% of the portfolio right now.
Luis F. de la Aguilera: I think that the opportunity is very significant. It's not a huge number. We probably started getting active on the swap market maybe three years ago. So I can get back to you with the exact number, but again, it's a growing number based on the production and the pipeline we have, and I think the key has been educating our folks, but I just was given the information here that it's about 3% of the portfolio right now.
Speaker Change: Very helpful and then maybe just as a follow-up to that, do you have a sense for kind of like what percentage of your customer base is actually you know using swaps? I mean you're just trying to size the the opportunity that is already on the balance sheet and then obviously as you grow I assume there'll be more opportunities but just would love to have some color there. Thanks.
Speaker Change: I think that the opportunity is very significant. It's not a huge percentage. We probably started getting active on the swap market maybe three years ago.
Speaker Change: So, I can get back to you with the exact number, but again, it's a growing number based on the production and the pipeline we have, and I think the key has been, has been,
Speaker Change: has been educating our folks. But I just was given the information here that it's about 3% of the portfolio right now.
Robert B. Anderson: Yeah, I was gonna say Michael, I mean you got a handful of clients that may seek the swap. I mean if you think about you know why a client may want that right now let's say if you're doing a balance sheet rate that might be let's call it you know 750 you know the swap rates plus a reasonable spread can be below that and you know if they want a longer tenor and let's say 10 years we may not want the fixed rate for the 10 years and then we'll be getting a variable like SOFR plus you know a spread 200-300 basis points and the client gets the fixed rate so it would come to them a little bit lower but we are seeing a little bit more activity from clients asking for that we have a pipeline but you know those can be lumpy from quarter to quarter you know this quarter it was 650 the last quarter was 285 so you know but we are we all we are seeing the activity and we do have a pipeline for Q3 and Q4 is what I'd say.
Michael Rose: Yeah, I was going to say my question is pretty low. I mean, you've got ample clients that may seek the Schwap. I mean, if you think about why a client may want that right now, let's say if you're doing a balance sheet rate, that might be, let's call it 750. The Schwap rates plus a reasonable spread can be below that, and if they want a longer tenor, let's say 10 years, we may not want the fixed rate for the 10 years, and then we'll be getting a variable like so for plus a spread, 200, 300 basis points, and the client gets the fixed rate.
Benigno Pazos: and Benigno Pazos.
Benigno Pazos: And, you know, if they want a longer tenor, let's say 10 years, we may not want the fixed rate for the 10 years, and then we'll be getting a variable like SOFR plus.
Michael Rose: So, it would come to them a little bit lower, but we are seeing a little bit more activity from clients asking for that. We have a pipeline, but those can be too lumpy from quarter to quarter. This quarter was 6.50; the last quarter was 285. But we are seeing the activity, and we do have a pipeline for Q3 and Q4s, what I see.
Benigno Pazos: you know, a spread 200, 300 basis points.
Speaker Change: and the client gets the fixed rate. So it come to them a little bit lower, but we are seeing a little bit more activity from clients asking for that. We have a pipeline, but you know, those can be lumpy from quarter to quarter. You know, this quarter it was 650. The last quarter was 285.
Speaker Change: So, you know, but we are, we all, we are seeing the activity and we do have a pipeline for Q3 and Q4 is what I would say.
Michael Rose: website. Got it. Makes a lot of sense. Thanks for the color.
Michael Edward Rose: Got it. It makes a lot of sense. Thanks for thanks for the call there.
Michael Rose: Maybe just switching over to the balance sheet. Obviously, loan growth has been really strong. I know you have a prior outlook of around 10 percent. You're tracking over that. It seems like maybe there's some near-term medicines, but just macro wise, but you guys are in really good economies. You have momentum. Any reason that that number wouldn't end the year higher than that, and then just separately on deposits, certainly appreciate the reduction rates. You kind of talked previously about also growing. I think deposits are around 10 percent. You just wanted to get a sense for an update on both loans and deposits.
Robert B. Anderson: Maybe just switching over to the balance sheet. Obviously, loan growth has been, you know, really strong. And, you know, I know you have a kind of prior outlook of around 10%. You're tracking over that seems like, you know, maybe there's some maybe nearer term reticence, but, you know, just macro-wise, but you guys are in really good economies; you have momentum. Any reason that that number wouldn't wouldn't end the year higher than that?
Speaker Change: Got it. Makes a lot of sense. Thanks for the call there. Maybe just switching over to the balance sheet. Obviously, loan growth has been, you know, really strong.
Speaker Change: I know you have a kind of a prior outlook of around 10%. You're tracking over that. Seems like maybe there's some maybe nearer term reticence, but just macro wise, but you guys are in really good economies. You have momentum.
Speaker Change: Any reason that that number wouldn't end the year higher than that and then just separately on deposits, certainly appreciate the reduction rates. You'd kind of talked previously about also growing.
Robert B. Anderson: And then just separately on, on deposits, certainly appreciate the reduction rates. You'd kind of talked previously about also growing, I think deposits are around 10%. You just wanted to get a sense for an update on both, growth rate, I think, in future quarters, as you saw this quarter. Right now, we'd like to fund kind of the loan growth with existing deposit growth, relationship, low cost, low cost deposits. So, as I mentioned, we're going to have some cash flows from the securities portfolio.
Speaker Change: I think the positive is around 10%. I just wanted to get a sense for an update on both.
Michael Rose: Thanks. Yeah, both loans and deposits, I think. You're going to see a similar growth rate, I think, in the future quarters as you saw this quarter. Right now, we'd like to fund the loan growth with the existing deposit growth, relationship, low cost deposits. As I mentioned, we're going to have some cash flows off the securities portfolio. We'll have some opportunistic, maybe to look at selling a few more securities here and there to fund some stuff, but overall, I would say it's going to be in the low double digits for both. Very helpful.
Speaker Change: Both loans and deposits. Thanks. Yeah, both loans and deposits. I think you're going to see a similar growth rate, I think, in the future quarters as you saw this quarter.
Speaker Change: right now.
Speaker Change: We'd like to fund kind of the loan growth with existing deposit growth, relationship, low cost, cost deposit. So as I mentioned, we're going to have some.
Robert B. Anderson: We'll have some opportunistic opportunities maybe to look at, you know, selling a few more securities here and there to fund some stuff. But overall, I would say it's going to be in the low double digits for both. Very helpful. I'll shut up. Thanks guys.
Speaker Change: Benigno Pazos, Robert Anderson, Benigno Pazos, Robert Anderson, Benigno Pazos, Robert Anderson,
Unknown Executive: I'll set back. Thanks, guys. Thank you. Again, if you have a question or follow-up, please press star or the one.
Speaker Change: For both
Speaker Change: Very helpful. I'll step back. Thanks, guys. Thank you.
Operator: Again, if you have a question or follow-up, please press star, the one. Our next question will come from Christopher Marinak with JANI. Please go ahead.
Christopher Marinac: Our next question will come from Christopher Maranac with Jenny. Please go ahead. Thanks. Good morning.
Speaker Change: Again, if you have a question or follow-up, please press star, the one.
Christopher Marinak: Thanks. Good morning. I wanted to ask a little bit more about the cost of funds and the fact that you had a little bit of a rollover this quarter. Do you see that continuing, and do you see any sort of new funding sources that could lower costs going forward?
Speaker Change: Our next question will come from Christopher Marinak with JANI. Please go ahead.
Christopher Marinac: I wanted to ask a little bit more about the cost of funds, and the fact that you had a little bit of roll over this quarter. Do you see that continuing, and do you see any new funding bases that can lower costs going forward? Yeah, let me start. I would say from a cost standpoint, even looking at the month of June and the three months in the quarter, we're probably going to be a little steady on our deposit cost. We did lose a little bit of funding at the end of the quarter, and that was kind of rate-sensitive.
Christopher Marinak: Thanks. Good morning. I wanted to ask a little bit more about the cost of funds and the fact that you had a little bit of a rollover this quarter. Do you see that continuing and do you see any sort of new funding bases that can lower costs going forward?
Robert B. Anderson: Yeah, let me start. I would say, you know, from a cost standpoint, even looking at the month of June and the three months in the quarter, we're probably going to be a little steady on our deposit cost. You know, we did lose a little bit of funding at the end of the quarter, and that was kind of rate sensitive. When we did drop the rates, they stuck around for a little bit, but some of it moved.
Speaker Change: Yeah, let me start. I would say, you know, from a cost standpoint, even looking at, you know, the month of June and the three months in the quarter, we're probably going to be a little steady on our deposit costs.
Christopher Marinac: When we did drop the rates, they stuck around for a little bit, but some of it moved. We anticipated that movement. I think for us, growing our DDA growth and keeping the DDAs in there will be key. But the expectation is that we have hold at kind of the current level on our deposit cost, because we did do a pretty sizable push on the end of the first quarter in April to really reprise some deposits and looking through that. Now, we're doing more of that.
Speaker Change: You know, we did lose a little bit of funding at the end of the quarter and that was kind of rate sensitive when we did drop the rates, they stuck around for a little bit, but some of it moved. We anticipated that movement.
Robert B. Anderson: We anticipated that movement. I think for us, growing our DDA growth and keeping the DDAs in there will be key, but the expectation is that we hold at kind of the current level on our deposit cost because we did do a pretty sizable push at the end of the first quarter in April to really reprice some deposits and look through that. Now, we're doing more of that. We do that every day, but I would expect, you know, the future quarters to be right around the current level, not up or down materially without any, you know, rate movements from the Fed.
Speaker Change: I think for us, growing our DDA growth and keeping the DDAs in there will be key. But the expectation is that we hold at kind of the current level on our deposit cost, because we did do a pretty sizable push.
Speaker Change: on the end of the first quarter in April to really reprice some deposits and looking through that. Now, we're doing more of that. We do that every day. But I would expect the future quarters to be
Christopher Marinac: We do that every day, but I would expect the future quarters to be right around the current level, not up or down materially without any rate movement from the Fed. Great, Rob. That's helpful.
Speaker Change: Right around the current level, not up or down materially without any, you know, rate movement movements from the Fed.
Robert B. Anderson: Great, Rob, that's helpful. And then just a quick credit follow-up. What do you see out there in terms of, you know, special mention and criticism, just want to go a little bit deeper than what you had in the presentation? Is there anything sort of pending on that front, either good or bad on the inflows for credit?
Christopher Marinac: And then just a quick credit follow-up. What do you see out there in terms of be a special mention to criticize? Just want to go a little bit deeper than what you had in the presentation. Is there anything sort of pending on that front, either good or bad on the inflow for credit? No, we monitor the portfolio very closely and react quickly to the problems as we see them. There's nothing out there specifically that is concerned right now. Great, thank you for all the disclosure this morning. Thank you, Chris.
Speaker Change: Great, Rob. That's helpful. And then just a quick credit follow-up. What do you see out there in terms of special mention, criticized? I just want to go a little bit deeper than what you had in the presentation. Is there anything sort of pending on that front, either good or bad, on the inflows for credit?
Bill Turner: No, we monitor the portfolio very closely and react and react quickly to the problems as we see them. And there's nothing There's nothing out there specifically that is of concern right now.
Speaker Change: No, we we monitor the portfolio very closely and and react and react quickly to the problems as we see them and there's nothing there's nothing out there specifically that is of concern right now.
Christopher Marinak: Great. Thank you for all the disclosures this morning.
Speaker Change: Great. Thank you for all the disclosure this morning.
Unknown Executive: And this concludes our question-and-answer session.
Operator: And this concludes our question and answer session. I would now turn the conference back over to Lu de la Aguilera for any closing remarks. Well, thank you all very much.
Chris: Thank you, Chris.
Luis Aguilera: I would like to now turn the conference back over to Lou, Dela Aguilera, for any closing remarks. Well, thank you all very much. On behalf of the US Century team, I would like to thank you all for your attendance and look forward to meeting again in our next earnings call.
Speaker Change: And this concludes our question and answer session. I would like to now turn the conference back over to Lu de la Aguilera for any closing remarks.
Luis F. de la Aguilera: Well, thank you all very much. On behalf of the US Century team, I would like to thank you all for your attendance and look forward to meeting again during our next earnings call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: Well, thank you all very much. On behalf of the US Century team, I would like to thank you all for your attendance and look forward to meet again in our next earnings call.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: Unknown Executive, Benigno Pazos, Luis Aguilera, US Century Bank, Unknown Executive, Benigno