Q4 2024 USCB Financial Holdings Inc Earnings Call
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Speaker Change: Good morning, and thank you for joining us for U S to be financial Holdings fourth quarter 2024 earnings call with me today, reviewing our Q4 highlights as CFO, Rob Anderson, and Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance the highlights of which commenced on slide three.
Speaker Change: Results in Q4, 2024 highlights a record year for the bank as team Uscb outperformed our internal budget and delivered impressive results for our shareholders a year ago, we posted 14 cents per share in diluted EPS.
Speaker Change: In Q4, 2023 and more than doubled these earnings this quarter to <unk> 34 per share. Our continued focus on reducing deposit costs has contributed to net interest margin expansion, helping us maintain solid profitability.
Speaker Change: Benefiting from Florida, strong resilient and growing economy Uscb continues to post strong gains in assets deposits diversified quality loan production and profitability our performance underscores our disciplined execution of our business plan focus on commercial banking initiatives designed to profitably expand existing client relationships and <unk>.
Speaker Change: <unk>, new ones and reviewing our Q4 highlights I will comment on a select few data points, our CFO Anderson will further detail our growth profitability and capital and liquidity positions.
Speaker Change: Driven by our various deposit focused business lines average deposits increased $225 million or 11, 8% compared to the fourth quarter of 2023.
Speaker Change: These business verticals, which target deposit rich private clients attorneys medical professionals as well as correspondent in association banking have grown to over $625 million, representing 30% of total deposits as of the end of the past quarter average loans increased $260 million or 15, 3% compare.
Speaker Change: To the fourth quarter of 2023.
Speaker Change: Our loan pricing has moved in line with the market as loan coupon rates decreased seven basis points compared to the prior quarter, while increasing 46 basis points compared to the fourth quarter of 2023.
Speaker Change: As we look at profitability net income was $6 9 million or <unk> 34 per diluted share an increase of $4 2 million or 153, 7% compared to the fourth quarter of 2023.
Similarly, net interest income before provision increased $5 million or <unk> 34, 7% for the past quarter in comparison to the fourth quarter of 2023 oral AA was one <unk> percent for the fourth quarter of 2024 compared to 48% for the fourth quarter of 2023, while.
Speaker Change: <unk> was 12, 73% for the past quarter again compared to five 8% for Q4 2023.
Speaker Change: Given the earnings power of the company our outlook for 2025, and our strong capital levels. The board approved on January 21, 2025 to double the quarterly cash dividend to <unk> 10 per share of the company's class a common stock the dividend will be paid on March five 2025.
Speaker Change: The cash dividend program is an important driver to shareholder value and the board of directors is committed to the return of capital to our investors, while maintaining a strong balance sheet.
Speaker Change: Following page is self explanatory.
Speaker Change: Directionally showing historical trends since recapitalization.
Speaker Change: Disciplined execution of our business plan focused on developing the best people products and processes has consistently delivered efficient profitable performance guided by conservative risk management practices. So now, let's turn our attention to our specific financial results and key performance indicators, which will be review.
<unk> by our CFO, Rob Anderson, Okay. Thank you Lou and good morning, everyone.
Rob Anderson: Looking at pages, five and six I would characterize Q4 as another fantastic quarter for USD net income was 34 per diluted share and absent. The nonrecurring expenses would have been 38 per share and another record quarter for USD.
Rob Anderson: However, as reported return on average assets was one 8% return on average equity was 12, 73%. The NIM was three 6% and up 13 basis points from the prior quarter. The efficiency ratio was 50, 592% and adjusted for the nonrecurring expenses would have been $51.
Rob Anderson: Or 1% tangible book value per share, we treated nine to $10 81, driven by a higher interest rate Mark and higher share count and last credit metrics remained benign so with that overview, let's discuss deposits on the next page.
Rob Anderson: Deposits continue to increase both on a linked quarter and year over year basis, we have used excess liquidity to fund loan volume and walk away from rate sensitive deposits and single service product clients.
Rob Anderson: Posit decreased 18 basis points this quarter and the reduction in our cost of funds has been a fundamental driver in our net interest margin improvement.
Rob Anderson: So with that lets look at the loan book.
Rob Anderson: Average loans increased $83 million or 17% annualized compared to the prior quarter and $260 million or 15, 3% compared to the fourth quarter of 'twenty three.
Rob Anderson: Additionally, as we book new loans at yields above the portfolio average our overall loan yields will remain stable or increase in the next couple of quarters. As we continue to book loans with coupons above 7% as a reminder, we book all loans with floors and prepayment penalties, which should help us in a down rate scenario as for guidance.
Rob Anderson: We expect loan growth to be in high single digits to low double digits going forward, particularly since we have experienced high interest rate volatility in the last couple of weeks turning.
Rob Anderson: Turning to page nine you can see for the past five quarters, we have originated $754 million in new loans and for the fourth quarter. We have originally a $161 million achieving a record quarter in terms of loan production with a loan coupon of 714% and in the last five quarters, our weighted average coupon was seven.
Rob Anderson: 79%, which helped to increase our yield on earning assets.
Rob Anderson: And while the loan coupon ticked down this quarter. It is still 89 basis points above the portfolio average.
Also worth noting is that we have been able to diversify our loan book over time as of quarter end non real estate loans are 27% of the total loan book.
Let's look at the margin.
Rob Anderson: One of the most impressive accolades. This year is the success story of the NIM in 2024, our NIM went from 262% to $3, one 6% an improvement of 54 basis points in a matter of three quarters equally.
Rob Anderson: Equally impressive has been the improvement on net interest income compared to the fourth quarter of 2023 net interest income increased $5 million or <unk> 34, 7% seven.
Rob Anderson: As we enter 2025 this increase will generate significant earnings power going forward. The drivers include a lower deposit costs larger balance sheet higher loan yields and an improvement in our earning asset mix going forward. We believe the NIM will hover around current levels near term, but we can expect further expansion in 2020.
Rob Anderson: Five given that more normalized yield curve.
Rob Anderson: Moving on to page 11, according to our model the bank's balance sheet is neutral for your <unk>.
Rob Anderson: One is we have made strategic changes in the last couple of quarters to prepare for a lower rate environment. Most notably we have favored money market retention rates over a long term CD rates. We are focused on three to six months CD terms. Moreover, we will adjust the term of our liabilities depending on the current and expected interest rate scenario.
Rob Anderson: For now we are aiming for a neutral balance sheet.
Rob Anderson: One of the benefits of having a neutral balance sheet is that the banks financial performance can be more predictable in an uncertain rate environment.
Rob Anderson: As mentioned on earlier calls we have also prune the balance sheet from rate sensitive deposits and single service product clients during.
Rob Anderson: During the last couple of quarters, we have adjusted down our deposit rates without losing meaningful relationships. This has translated into a more resilient balance sheet. Additionally, if the fed funds rate does drop this year that will help our deposit cost and with the rise in the five seven and 10 year rates will help new.
Rob Anderson: <unk> origination of loans at higher rates and short this will give us give us a more normalized yield curve, which is great for the banking industry in general, but we'll really benefit benefit us as we tend to book loans at five years fixed rate with a spread over the U S treasury rates.
Rob Anderson: With these changes we believe our NIM performance can hold at the current levels near term and expanded into 2025, especially if the yield curve normalizes with that let me turn it over to bill to discuss asset quality.
Bill Turner: Thank you Rob and good morning, everyone. Please turn to page 12, as you can see from the first graph the allowance for credit losses increased to $24 million in the fourth quarter. This was due to a $1 million provision and the ratio increased three basis points to an adequate 122% of the portfolio.
Bill Turner: $650000 of the provision is related to our consumer loan relationship consisting of a yacht tender vessel, which were repossessed during the fourth quarter.
Remaining provision was driven by the $38 million quarterly net loan growth net losses were zero for the quarter and the year.
Bill Turner: Remaining graphs on page 12 show the nonperforming loans as of quarter end, which remained unchanged from the third quarter at $2 7 million and represented one 4% of the portfolio.
Bill Turner: <unk> loans increased slightly to three 7% and represent less than 3% of capital.
Bill Turner: The bank continues to have no other real estate.
Bill Turner: On page 13, the first graph shows the loan portfolio mix at 12 31.
Bill Turner: The portfolio increased $38 million on a net basis in the fourth quarter to $1 97 billion. The composition continues to be well diversified.
Bill Turner: Commercial real estate represents 58% of the portfolio or $1 1 billion segmented between retail multifamily owner occupied office properties the.
The second graph is a breakout of the commercial real estate portfolios, where the non owner occupied and owner occupied loans, which also demonstrate their diversification.
The favorable to the right of the graph show the weighted average loan to values of the commercial real estate portfolio at less than 60% and the debt service coverage ratios are adequate for each portfolio segment.
Bill Turner: The loan quality and payment performances are good for all segments in the past due ratio remains at less than one half of a percent and below peer banks overall the quality of the portfolio remains good with pass through ratios below peer banks Rob.
Speaker Change: Thank you bill outside of the NIM fee businesses, where the other bright spot in the quarter and for the year. The standout this quarter as the teams repeated performance and interest rate swaps. Since Q1 of this year, we have seen an uptick in clients managing their debt obligations with interest rate swaps. Additionally, we had 160.
Speaker Change: 9000, and a prepayment penalties book and other service fees line item.
Speaker Change: With other line items straightforward, let's look at expenses.
Speaker Change: Our total expense base was $12 9 million and contained over $1 million in nonrecurring expenses.
Speaker Change: Salaries and benefits increased 730000 and contained 620000 of expenses related to an accelerated restricted stock award.
Speaker Change: These shares have a three year ratable vesting period, but for a couple of executives first vesting period was recognized or invested in the last two months of the year. In 2025, we will have a more normalized vesting period on this stock grant. Additionally.
Speaker Change: Additionally, legal expenses increased to 173000 for various items and other operating expenses increased 174000 related to forest placed insurance, we expect reimbursement for both items in the coming quarters.
Speaker Change: As noted on the slide these nonrecurring expenses had a negative <unk> <unk> per share impact on our fully diluted earnings per share for the quarter on an adjusted basis. The efficiency ratio would've been 50, 141%, which is more in line with our guidance and run rate improvement. This year looking forward, we expect Q1 expense base to be around <unk>.
Speaker Change: $12 million and move up from there throughout 2025, so with that let's turn to capital.
Speaker Change: Three things to note on capital first we doubled the dividend at <unk> 10 per share. This increase is a direct result of the current performance and expected future performance of the bank next a OCI increase to a negative $44 5 million with an increase in interest rates across the five seven and 10 year.
Speaker Change: Year tenor points and as you know this negatively impacts our tangible book value per share and last the end of period share count increased with a restricted share grant in Q4, and individuals' exercising options in the quarter.
Louis: So with that let me turn it back to Louis for some closing comments.
Speaker Change: Thanks, Rob our plans for 2020 fiber rooted on the ongoing strength of Florida's economy, which continues to attract industry entrepreneurs and consumers to a state which offers a welcoming tax climate global accessibility and a highly skilled workforce. This past year, Florida was again ranked the second in the nation as the best.
State for business as we have seen this economic fuel propels our growth and homes our strategies since launching our IPO in 2021, both total assets and deposits have grown by 47% while loans increased 75% expanding our balance sheet by $825 million.
Speaker Change: Florida was a country it would be the 15th largest economy in the world, which is forecasted to grow by two 2% in 2025 slightly ahead of the national economies growth forecast consistent.
Speaker Change: <unk> of new residents and business continues as the state population approaches $24 million.
U S century services, the strong diversified and dynamic market, we forecast growth in 2025 to be in the high single digit to low double digit range as we continue to optimize operational efficiency maximize profitability and maintain pristine credit quality with that said I would like to open the floor.
Speaker Change: Q&A.
Speaker Change: We will now begin the question and answer session to.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Woody Lay: The first question comes from Woody lay with <unk>. Please go ahead.
Speaker Change: Hey, good morning, guys.
Good morning.
Speaker Change: Wanted to start on the loan production and specifically slide nine where you sort of outlined the weighted average coupon on new production.
Speaker Change: <unk> were down a little bit.
Fourth quarter, I know rates, where we're moving but is that also a reflection of increased competition impacting pricing.
Speaker Change: Any thoughts there.
Speaker Change: What do you think it's a combination of both clearly rates went down and our portion of the book that is variable one dealt with it.
Speaker Change: Competition here in Miami Dade County is a sporty, let's say and.
Speaker Change: But again, we have our we.
Speaker Change: We have our our focus on where we want to be in pricing and.
Speaker Change: If it's not a fully banked relationship with deposits and the possibility for growth the way we want it we will pass on.
Speaker Change: Yes, the other thing.
Speaker Change: Add to that would be we did have a chunk of that new loan production in the fourth quarter and our correspondent banking group and those are typically 180 day lines of credit and those are typically a little thinner than our commercial real estate loans are C&I loans as well so.
Speaker Change: That brought down.
Speaker Change: That quarter's origination yield.
Speaker Change: Got it that's helpful and then.
Speaker Change: It does feel like expectations for loan growth across the industry are picking up.
Speaker Change: South Florida is a very competitive market.
How do you think about deposit growth in the year ahead and does it pick up in competition does that impact the ability at all to lower deposit costs going forward.
Speaker Change: Good.
Speaker Change: <unk> I mean, we've talked for probably quarters and maybe years that we have a very good.
Speaker Change: Loan engine here at <unk> I think the.
Speaker Change: The market.
Speaker Change: <unk> is very strong and it really comes down to the funding and our challenge and how we're gearing. The sales team is that we have to have strong bankers that can produce on both sides of the balance sheet.
Speaker Change: But the deposits will be.
Speaker Change: The challenge and I think if you asked any bank that would.
Speaker Change: Would be the response, but.
Speaker Change: Right now we're growing the deposit book in line with our loans and we fully expect that to happen in the coming year.
Speaker Change: And then lastly.
Speaker Change: The time deposit portfolio.
Speaker Change: 15% of deposits thats not overly large but any color you can provide on the maturity schedule, there and repricing dynamics.
Speaker Change: Yes, I don't have specifics on the repricing, but I think it's about 180 and the next one.
Speaker Change: In the next year My Treasurer is giving me the answer there. So we will have opportunity there where pricing that lower I think that's actually a good opportunity we are pricing I would say.
Speaker Change: Along with the fed funds line or fed funds curve.
Speaker Change: So we would expect that book to come down over time, especially if we get one or two rate drops in 2025.
Speaker Change: Alright, Thanks for taking my question and congrats on the nice quarter.
Speaker Change: Thank you.
Speaker Change: The next question is from Michael Rose with Raymond James. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking my questions Lou in the opening comments, you mentioned that the specialty verticals.
Speaker Change: I think 30% or so of deposits.
Speaker Change: So if you think about south, Florida and some of.
Speaker Change: The challenges from the Hurricanes in insurance and things like that and specifically related to the the association deposits any any sort of concern there is that something you plan to maybe deemphasize.
Speaker Change: We as we move forward just given the challenges.
Speaker Change: Related to some of those associations that we've all read about and then.
Just broadly as it relates to deposit competition down there is it all fir fairly rationale just holistically.
Speaker Change: Sure.
Speaker Change: I'm bullish on the association banking.
Speaker Change: If you look at the.
Speaker Change: At the data I think it's over 30% of the population of the state leaves us in a condominium.
Speaker Change: So.
Speaker Change: The thing is to choose them wisely, we really look at associations that are professionally managed when we do our analysis, we really focus on the number.
Speaker Change: That our owners versus.
Speaker Change: Versus renters.
Speaker Change: Don't go after every single one we look for ones that have the.
Speaker Change: The credit qualifiers that we want.
Speaker Change: And I think there is plenty of those.
Speaker Change: It is it is in our best interest to be choosy as we've been from the very beginning.
Speaker Change: I believe that the volume is still going to be.
Speaker Change: Going to be significant.
Speaker Change: We have a clear focus on this area.
Speaker Change: So I believe that these verticals that I mentioned at the beginning are going to continue growing.
Speaker Change: Our jurist advantage, which is focused on the <unk>.
Speaker Change: Turning business, which is a deposit rich.
Speaker Change: Market, we service it well.
Speaker Change: Clients are responding.
Speaker Change: So I believe that both of these areas and the others.
Speaker Change: MD advantage, which is focus on.
Speaker Change: On the medical business is are all scalable and we have plans to develop to develop on wall.
Speaker Change: Okay.
Speaker Change: Okay helpful. Thanks for that.
Speaker Change: Rob maybe just on slide 14.
Speaker Change: When you look at the <unk>.
Speaker Change: The service fees.
Speaker Change: What is that other category that drove that increased fairly meaningfully Q on Q, yes that was the prepayment penalties. So like we said we book loss of Florida prepayment penalties and we did get paid off on <unk> and then we get paid for it so.
Speaker Change: That was in the other line item in service fees.
Speaker Change: Got it.
Speaker Change: Thanks, I appreciate that sorry, if I missed it and then maybe just finally for me appreciate the.
Speaker Change: The outlook on expenses, obviously, some some nonrecurring.
Speaker Change: Items this quarter can.
Speaker Change: Can you just discuss what the what the hiring plans are for this year.
Speaker Change: And what's baked into your assumptions for expense growth and maybe what the market looks like for competition for for those sorts of lending hires just just wanted to see if you plan to be a little bit more opportunistic. This year, just given the relative strength of the south Florida markets. Thanks.
Speaker Change: As we prepare the budget we closely look at this and we feel that we are properly staffed for our plans for 2025.
Speaker Change: Being opportunistic as something that is is what we do and we've been good at it so when those.
Speaker Change: Individuals become available we will move on them, but it's nothing that we're really budgeting for just in case. It happens we feel very comfortable that our staffing levels are proper and R. R.
Speaker Change: Our production teams are prime correct.
Speaker Change: Okay, Great I appreciate you taking my questions.
Speaker Change: Thank you Michael.
Speaker Change: The next question is from <unk> Strickland with the half the group. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Wanted to start drilling down on fees a little bit here.
Speaker Change: Specifically the swap fee income came in pretty good as you guys indicated it would last quarter and Rob I think you mentioned, there's still a decent pipeline there.
Speaker Change: What should we expect in the next couple of quarters from that line item.
Speaker Change: Yes that one is going to move around.
Speaker Change: A little bit I mean, this year I think the market and where interest rates were definitely favored swap activity I think that could quiet down into 2025, and we will be looking if that does go down we'll be looking to offset that decrease with increases in our wire fees or Tms.
Speaker Change: Fees and SBA gain on sale, so that could trend down into 2025 I think.
Speaker Change: For the year, we booked over $3 million.
Speaker Change: I would not anticipate that level of activity in 2025.
Speaker Change: That's fair and I was going to ask what the opportunity was on SBA, just kind of what youre, what youre seeing in terms of pipelines looking forward.
Speaker Change: How much we could see that grow over the course of the year potentially.
Speaker Change: What we have.
Speaker Change: We're planning to more than double what we did in this past year, we have the.
Speaker Change: Our strategy that we actually shared with our board.
Speaker Change: This past.
Speaker Change: This past meeting our focus is going to be on.
Speaker Change: On a certain business segment that we're gearing up for our all of our lenders are adept on the SBA seven program. This is something that we've been training them on now for three years since we launched the program where initially it was led by the Department head every single every.
Speaker Change: Lender that we have has been participating.
Speaker Change: They have good marketing support and they know their goals and their strategy. So.
Speaker Change: I think we're in good shape for for this year and for that SBA fee volume to increase.
Speaker Change: Thank you for that that's helpful and just last for me.
Speaker Change: Just thinking about the specialty lending segments.
Speaker Change: Financing and some of the other other areas.
Speaker Change: Where do you see the most green shoots for 2025.
Speaker Change: I think the financing is going to be steady as it's been the last few years.
We're entering the <unk>.
Speaker Change: The yacht.
Speaker Change: Actually the <unk> season, with our boat shows coming up.
Let me add the international boat show in the Palm Beach et cetera, all throughout the state so that usually.
Speaker Change: <unk> volume I think everything else is going to be steady.
Speaker Change: <unk>.
Speaker Change: And and growing.
Speaker Change: Our.
Speaker Change: On the global side, we have visited all of our <unk>.
Speaker Change: All are.
Speaker Change: Bank customers that are on the.
Speaker Change: On the lending side every single one of them was visited in the last two quarters.
Speaker Change: Good feedback from those visitations, we expect that they're going to continue borrowing and growing the relationships and it's not necessarily adding new clients, there, but expanding on the relationships that we already have so we feel very comfortable that it's going to be a very productive year with them.
Speaker Change: And HOA as I said also.
Speaker Change: Is going to continue.
Speaker Change: Is going to continue moving forward I forget exactly what the percentages, but its almost I am going to say, it's near 50% of the HOA is in the state of Florida are over 30 years old. So they have to be going through the 30% to 40 year certifications theyre going to be looking for.
Speaker Change: Four reduce on roofs on windows, and there's going to be I think tremendous opportunities there.
Speaker Change: Got it. Thank you so much that's it for me.
Betty: Thanks Betty.
Speaker Change: The next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten: Hi, good morning, everyone, sorry, I hopped on a few minutes late but.
Speaker Change: Wondering if you can talk about and apologies if I missed it but.
Speaker Change: Loan growth obviously, it was still good this quarter, but maybe a little bit light of what it has been in the recent past and just if that was just elevated pay downs or any other trends youre seeing and kind of how you think about.
Speaker Change: Trend line, what could be the best case scenario of growth for you guys in 'twenty five or maybe a lower end if things don't don't quite pan out like we all hoped.
Speaker Change: Well this past quarter, there was quite a bit of payoff activity.
Speaker Change: Probably more than you normally see on a quarterly basis, especially on our.
Speaker Change: Our correspondent banking section, which as we mentioned earlier these are 180.
Speaker Change: <unk> terms, so but again, we believe that the borrowing is going to continue in that area. We don't really have any any issues there.
Speaker Change: As far as.
Speaker Change: We have prepayments on the on the commercial side.
Speaker Change: And all pipeline meetings as those Rob and Bill on a weekly basis, we are constantly in communication with our lenders we know what the competition is doing.
The pipeline going forward I think is as strong as any one that we've had in the past four quarters.
Speaker Change: So I think that the loan demand.
Speaker Change: Is going to be there.
Speaker Change: As I said earlier, we believe that it's going to be.
Speaker Change: High single digit low double digit growth that's what we're that's what we're planning for.
Speaker Change: Okay, great very helpful.
Speaker Change: And then I know, Rob you had kind of said hey.
Speaker Change: Posit growth that really helps to fuel the potential maximization of the loan opportunities and maximizing the team's potential are there any new deposit verticals potentially out on the horizon or any new initiatives from a deposit front that you guys would endeavor towards.
Speaker Change: To drive even higher deposit growth or is it just a continuation of working what you guys have built in maximizing.
Speaker Change: Those platforms.
Speaker Change: Yes, I think it's optimizing what we have I think we have a lot of talented people on the team that are sophisticated in their area of expertise.
Speaker Change: Started MD advantage this past year I think there's a lot of opportunity there.
Speaker Change: Our private client group is seeing a lot of activity and continued growth and I think it's just.
Speaker Change: Growing what we have and giving our team.
Speaker Change: The right tools and the products and I think they're doing a fantastic job in the market. So I think we will continue to grow our deposit book in line with our loan book and part of the key will making sure we get the operating accounts and.
Speaker Change: We can tweak maybe incentive plans at or two on the deposit side.
Speaker Change: But I don't think we need.
Speaker Change: New new verticals, our new teams that add to the expense I think it's working with what we have.
Speaker Change: If I if I can we chose and develop the.
Speaker Change: The association banking correspondent banking, the attorney business and the medical because we believe that they are incredibly scalable in this market. So it's not really about adding new lines, it's about maximizing what we have and within the strategies there.
Speaker Change: There are opportunities to bring in new teams, we have done that very successfully.
Speaker Change: And we will continue to look for those opportunities, but I believe that the ones that we've chosen the ones that we've developed in the market and trained our people to execute on our very scalable and with a lot of demand.
Speaker Change: That's great commentary on the scalability appreciate that and then just last thing for me would be loan loss reserve kind of levels.
Speaker Change: Obviously, you guys have a fantastic credit book de Minimis.
Speaker Change: Non accruals, but the reserve continues to build as a percentage of loans.
Speaker Change: As we move forward if credit holds where it is could we see those existing dollars of reserved kind of be more flat and just.
Speaker Change: Cover the incremental loan growth versus building as a percentage of loans or how do you guys think about that loan loss reserve percentage relative to year exemplary credit.
Speaker Change: Thank you for the exemplary credit covenant.
Yes.
Speaker Change: We will probably grow in relation to the growth in the portfolio.
Speaker Change: Net loan growth.
Speaker Change: B.
Speaker Change: The reserve a pickup.
Speaker Change: At this point or two as we grow.
Speaker Change: As long as there is no no no.
Speaker Change: Hiccups in credit quality, we should see slow steady.
Speaker Change: One basis point to two basis point growth or even holding steady.
Speaker Change: Each quarter as we go forward.
Speaker Change: And I think maybe just adding onto that I think we were I don't know around 119 last quarter. We moved up to 122 I think part of that is the Bill mentioned the yacht in the vessel that we put a provision on other than that I think that general pools by around 119, that's certainly adequate bench.
Speaker Change: Benchmark that compared to some of the credit quality. So I don't think it will move materially maybe in dollars I think.
Speaker Change: Bill's mentioning was certainly with loan growth but.
Speaker Change: Think we're very adequately reserved.
Speaker Change: Yes for sure Okay that makes a lot of sense. Thank you guys for all the color and congrats on a great quarter and great year.
Thanks Steven.
Speaker Change: This concludes our question and answer session.
Speaker Change: I would like to turn the conference back over to Luke Daily Aguilera for any closing remarks.
Speaker Change: Okay. Thank you very much for your attendance on behalf of the U S.
Speaker Change: The U S century team I would like to thank you all for your attendance and look forward to meet again at our next earnings call.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good morning, and welcome to the U S C B financial Holdings fourth quarter 2024 earnings Conference call.
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Speaker Change: I would now like to turn the conference over to Lou Daily Aguilera, President and CEO. Please go ahead.
Speaker Change: Good morning, and thank you for joining us for USB financial Holdings fourth quarter 2024 earnings call with me today, reviewing our Q4 highlights as CFO, Rob Anderson, and Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance the highlights of which commenced on slide three.
Speaker Change: Our results in Q4, 2024 highlights a record year for the bank as team Uscb outperformed our internal budget and delivered impressive results for our shareholders a year ago, we posted 14 cents per share and diluted EPS in Q4, 2023 and more than doubled these earnings this quarter to 34.
Speaker Change: <unk> per share our continued focus on reducing deposit costs has contributed to net interest margin expansion, helping us maintain solid profitability benefiting from Florida strong resilient and growing economy Uscb continues to post strong gains in assets deposits diversified quality loan production and profitability.
Speaker Change: Our performance underscores our disciplined execution of our business plan focus on commercial banking initiatives designed to profitably expand existing client relationships and grow new ones and reviewing our Q4 highlights I will comment on a select few data points as CFO Anderson, who will further detail our growth profitability and capital.
And liquidity positions.
Speaker Change: Driven by our various deposit focused business lines average deposits increased $225 million or 11, 8% compared to the fourth quarter of 2023.
Speaker Change: These business verticals, which target deposit rich private clients attorneys medical professionals as well as correspondent in association banking have grown to over $625 million, representing 30% of total deposits as of the end of the past quarter average loans increased $260 million or 15, 3% compared.
Speaker Change: For the fourth quarter of 2023.
Speaker Change: Our loan pricing has moved in line with the market as loan coupon rates decreased seven basis points compared to the prior quarter, while increasing 46 basis points compared to the fourth quarter of 2023.
Speaker Change: As we look at profitability net income was $6 9 million or <unk> 34 per diluted share an increase of $4 2 million or 153, 7% compared to the fourth quarter of 2023.
Speaker Change: Similarly, net interest income before provision increased $5 million or 34, 7% for the past quarter in comparison to the fourth quarter of 2023 oral AA was one <unk> percent for the fourth quarter of 2024 compared to 48% for the fourth quarter of 2023, while.
Speaker Change: ROE was 12, 73% for the past quarter again compared to five 8% for Q4 2023.
Speaker Change: Given the earnings power of the company our outlook for 2025, and the strong capital levels. The board approved on January 21, 2025 to double the quarterly cash dividend to <unk> 10 per share of the company's class a common stock the dividend will be paid on March five 2025.
Speaker Change: The cash dividend program is an important driver to shareholder value and the board of directors is committed to the return of capital to our investors, while maintaining a strong balance sheet.
Speaker Change: Following page is self explanatory.
Speaker Change: Directionally showing historical trends since recapitalization.
Speaker Change: The disciplined execution of our business plan focused on developing the best people products and processes that has consistently delivered efficient profitable performance guided by conservative risk management practices. So now, let's turn our attention to our specific financial results and key performance indicators, which will be read.
Speaker Change: Viewed by our CFO, Rob Anderson, Okay. Thank you Lou and good morning, everyone looking at pages, five and six I would characterize Q4 as another fantastic quarter for USD net income was 34 per diluted share and absent. The nonrecurring expenses would have been 38 per share and another record quarter for USD.
Speaker Change: However, as reported return on average assets was one 8% return on average equity was 12, 73%. The NIM was three 6% and up 13 basis points from the prior quarter. The efficiency ratio was 50, 592% and adjusted for the nonrecurring expenses would've been 50 <unk>.
Speaker Change: 141% tangible book value per share, we treated nine to $10 81, driven by a higher interest rate Mark and higher share count and last credit metrics remained benign so with that overview, let's discuss deposits on the next page.
Speaker Change: Deposits continue to increase both on a linked quarter and year over year basis, we have used excess liquidity to fund loan volume and walk away from rate sensitive deposits and single service product clients.
Deposit decreased 18 basis points this quarter and the reduction in our cost of funds has been a fundamental driver in our net interest margin improvement.
So with that lets look at the loan book.
Speaker Change: Average loans increased $83 million or 17% annualized compared to the prior quarter, and 260 million or 15, 3% compared to the fourth quarter of 'twenty. Three. Additionally, as we book new loans at yields above the portfolio average our overall loan yields will remain stable or increase in the next couple of quarters.
Speaker Change: As we continue to book loans with coupons above 7% as a reminder, we book all loans with floors and prepayment penalties, which should help us in a down rate scenario as for guidance, we expect loan growth to be in high single digits to low double digits going forward, particularly since we have experienced high interest rate volatility.
Speaker Change: And the last couple of weeks.
Speaker Change: Turning to page nine you can see for the past five quarters, we have originated $754 million in new loans and for the fourth quarter. We have originally a $161 million achieving a record quarter in terms of loan production with a loan coupon of 714% and in the last five quarters, our weighted average coupon was seven.
Speaker Change: Seven, 9%, which helped to increase our yield on earning assets and.
Speaker Change: And while the loan coupon ticked down this quarter. It is still 89 basis points above the portfolio average.
Speaker Change: Also worth noting is that we have been able to diversify our loan book over time as of quarter end non real estate loans are 27% of the total loan book.
Speaker Change: Let's look at the margin.
Speaker Change: One of the most impressive accolades. This year's the success story of the NIM in 2024, our NIM went from 262% to $3, one 6% an improvement of 54 basis points in a matter of three quarters.
Speaker Change: <unk> impressive has been the improvement on net interest income compared to the fourth quarter of 2023 net interest income increased $5 million or <unk> 34, 7%, 7% as we enter 2025. This increase will generate significant earnings power going forward. The drivers include a lower deposit costs larger.
Speaker Change: Once sheet higher loan yields and an improvement in our earning asset mix going forward. We believe the NIM will hover around current levels near term, but we can expect further expansion in 2025, given that more normalized yield curve.
Speaker Change: Moving on to page 11, according to our model the bank's balance sheet is neutral for year. One as we have made strategic changes in the last couple of quarters to prepare for a lower rate environment. Most notably we have favored money market retention rates over a long term CD rates. We are focused on three to six months CD terms.
Speaker Change: Moreover, we will adjust the term of our liabilities depending on the current and expected interest rate scenario for now we are aiming for a neutral balance sheet one.
Speaker Change: One of the benefits of having a neutral balance sheet is that the banks financial performance can be more predictable in an uncertain rate environment.
Speaker Change: As mentioned on earlier calls we have also pruned the balance sheet from rate sensitive deposits and single service product clients during.
Speaker Change: During the last couple of quarters, we have adjusted down our deposit rates without losing meaningful relationships. This has translated into a more resilient balance sheet. Additionally, if the fed funds rate does drop this year that will help our deposit cost and with the rise in the five seven and 10 year rates will help new.
Speaker Change: Origination of loans at higher rates and short this will give give us a more normalized yield curve, which is great for the banking industry in general, but we'll really benefit benefit us as we tend to book loans at five years fixed rate with a spread over the U S treasury rates.
Speaker Change: With these changes we believe our NIM performance can hold at the current levels near term and expanded the 2025, especially if the yield curve normalizes with that let me turn it over to bill to discuss asset quality.
Bill Turner: Thank you Rob and good morning, everyone. Please turn to page 12, as you can see from the first graph the allowance for credit losses increased to $24 million in the fourth quarter.
This was due to a $1 million provision and the ratio increased three basis points to an adequate 122% of the portfolio.
Bill Turner: <unk> hundred $50000 of the provision is related to our consumer loan relationship consisting of a yacht tender vessel, which were repossessed during the fourth quarter. The remaining provision was driven by the $38 million quarterly net loan growth net losses for zero for the quarter and the year.
Bill Turner: The remaining graphs on page 12 show the nonperforming loans as of quarter end, which remained unchanged from the third quarter at $2 7 million and represented one 4% of the portfolio.
Bill Turner: Classified loans increased slightly to three 7% and represent less than 3% of capital the.
Bill Turner: The bank continues to have no other real estate.
Bill Turner: On page 13, the first graph shows the loan portfolio mix at 12 31.
Bill Turner: The portfolio increased $38 million on a net basis in the fourth quarter to $1 97 billion. The composition continues to be well diversified.
Bill Turner: Commercial real estate represents 58% of the portfolio or $1 1 billion segmented between retail multifamily owner occupied office properties the.
Bill Turner: The second graph is a breakout of the commercial real estate portfolios, where the non owner occupied and owner occupied loans, which also demonstrate their diversification.
Bill Turner: The favorable to the right of the graph show the weighted average loan to values of the commercial real estate portfolio at less than 60% and the debt service coverage ratios are adequate for each portfolio segment.
Rob Anderson: Our loan quality and payment performances are good for all segments in the past due ratio remains at less than one half of a percent and below peer banks overall the quality of the portfolio remains good with pass through ratios below peer banks Rob.
Rob Anderson: Thank you bill outside of the NIM fee businesses, where the other bright spot in the quarter and for the year. The standout this quarter as the teams repeated performance and interest rate swaps. Since Q1 of this year, we have seen an uptick in clients managing their debt obligations with interest rate swaps. Additionally, we had 160.
Rob Anderson: 9000, and a prepayment penalties book and other service fees line item.
Rob Anderson: With other line items straightforward, let's look at expenses.
Rob Anderson: Our total expense base was $12 9 million and contained over $1 million in nonrecurring expenses.
Rob Anderson: Salaries and benefits increased 730000 and contained 620000 of expenses related to an accelerated restricted stock award.
Rob Anderson: These shares have a three year ratable vesting period, but for a couple of executives first vesting period was recognized our bested in the last two months of the year in 2025, we will have a more normalized vesting period on the stock grant. Additionally.
Rob Anderson: Additionally, legal expenses increased 173000 for various items and other operating expenses increased 174000 related to forest placed insurance, we expect reimbursement for both items in the coming quarters.
Rob Anderson: As noted on the slide these nonrecurring expenses had a negative <unk> <unk> per share impact on our fully diluted earnings per share for the quarter on an adjusted basis. The efficiency ratio would've been 50, 141%, which is more in line with our guidance and run rate improvement. This year looking forward, we expect Q1 expense base to be around <unk>.
Rob Anderson: $12 million and move up from there throughout 2025, so with that let's turn to capital.
Rob Anderson: Three things to note on capital first we doubled the dividend at <unk> 10 per share. This increase is a direct result of the current performance and expected future performance of the bank next <unk> increase to a negative $44 5 million with an increase in interest rates across the five seven and 10 year.
Rob Anderson: Year tenor points and as you know this negatively impacts our tangible book value per share and last at the end of period share count increased with a restricted share grant in Q4, and individuals' exercising options in the quarter.
Louis: So with that let me turn it back to Louis for some closing comments.
Louis: Thanks, Rob our plans for 2020 fiber rooted on the ongoing strength of Florida's economy, which continues to attract industry entrepreneurs and consumers to a state which offers a welcoming tax climate global accessibility and a highly skilled workforce. This past year, Florida was again ranked the second in the nation as the best.
Louis: States for business as we have seen this economic fuel propels our growth and homes our strategies since launching our IPO in 2021, both total assets and deposits have grown by 47% while loans increased 75% expanding our balance sheet by $825 million.
Louis: <unk> was a country it would be the 15th largest economy in the world, which is forecasted to grow by two 2% in 2025 slightly ahead of the national economies growth forecast consistent.
Louis: Migration of new residents and business continues as the state population approaches $24 million.
Speaker Change: U S century services, the strong diversified and dynamic market, we forecast growth in 2025 to be in the high single digit to low double digit range as we continue to optimize operational efficiency maximize profitability and maintain pristine credit quality with that said I would like to open the floor.
Louis: The Q&A.
We will now begin the question and answer session.
Louis: To ask a question you May press Star then one on your telephone keypad.
Louis: If you are using a speakerphone please pick up your handset before pressing the keys.
Louis: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Woody Lay: The first question comes from Woody lay with <unk>. Please go ahead.
Woody Lay: Hey, good morning, guys.
Speaker Change: Good morning.
Speaker Change: Wanted to start on the wood production and specifically slide nine where you sort of outlined the weighted average coupon on new production the.
Speaker Change: The yields were down a little bit in the fourth quarter I know rates, where we're moving but is that also a reflection of.
Speaker Change: Increased competition impacting pricing.
Speaker Change: Any thoughts there.
Speaker Change: What do you think it's a combination of both clearly rates went down and our portion of the book that is variable went out with it a competition here in Miami Dade County is 40 lets say and.
Speaker Change: But again, we have are we.
Speaker Change: We have our our focus on where we want to be in pricing and.
Speaker Change: If it's not a fully.
Speaker Change: Bank relationship with deposits and the possibility for growth the way we want it we will pass on it.
Speaker Change: Yes, the other thing.
Speaker Change: Add to that would be we did have a chunk of that new loan production in the fourth quarter and our correspondent banking group and those are typically 180 day lines of credit and those are typically a little thinner than our commercial real estate loans are C&I loans as well.
Speaker Change: That brought down.
Speaker Change: That quarter's origination yield.
Speaker Change: Got it that's helpful and then.
Speaker Change: It does feel like expectations for loan growth across the industry are picking up.
Speaker Change: South Florida is a very competitive market.
Speaker Change: How do you think about deposit growth in the year ahead and does it pick up in competition does that impact the ability at all to lower deposit costs going forward.
Speaker Change: Good question I mean, we've talked for probably quarters and maybe years that we have a very good.
Speaker Change: Loan engine here at <unk> I think the.
Speaker Change: The market.
Speaker Change: <unk> is very strong and it really comes down to the funding.
Speaker Change: And our challenge and how we're gearing the sales team is that we have to have strong bankers that can produce on both sides of the balance sheet.
Speaker Change: But the deposits will be.
Speaker Change: The challenge and I think if you asked any bank that would.
Speaker Change: Would be the response, but.
Speaker Change: Right now we're growing the deposit book in line with our loans and we fully expect that to happen in the coming year.
Speaker Change: And then lastly.
The time deposit portfolio.
Speaker Change: 15% of deposits, that's not overly large but any color you can provide on the maturity schedule, there and repricing dynamics.
Speaker Change: Yes, I don't have specifics on the repricing, but I think it's about $180 in the next one.
Speaker Change: In the next year, if my Treasurer is giving me the answer there. So we will have opportunity there where pricing that lower I think that's actually a good opportunity we are pricing I would say.
Speaker Change: Along with the fed funds line or a fed funds curve.
Speaker Change: So we would expect that book to come down over time, especially if we get one or two rate drops in 2025.
Speaker Change: Alright, Thanks for taking my question and congrats on the nice quarter.
Speaker Change: Thank you.
Moderator: The next question is from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions Lou in the in the opening comments you mentioned that the specialty verticals.
Speaker Change: I think 30% or so of deposits.
Michael Rose: About south, Florida, and some of the chat.
Michael Rose: Challenges from the Hurricanes in insurance and things like that and specifically related to the the association deposits any any sort of concern there is that something you plan to maybe deemphasize.
Michael Rose: As we move forward just given the challenges.
Michael Rose: Related to some of those associations that we've all read about and then.
Michael Rose: Just broadly as it relates to deposit competition down there is it all fairly rationale just holistically.
Sure.
Michael Rose: I'm bullish on the association banking.
Michael Rose: If you look at the.
Michael Rose: At the data I think it's over 30% of the population of the state leaves in a condominium.
Michael Rose: So.
Michael Rose: The thing is to choose them wisely, we really look at associations that are professionally managed when we do our analysis, we really focus on the number.
Speaker Change: That our owners versus.
Michael Rose: Versus renters.
Michael Rose: Don't go after every single one we look for ones that have the.
Michael Rose: The credit qualifiers that we want.
Michael Rose: And I think theres plenty of those.
Michael Rose: It is it is in our best interest to be choosy as we've been from the very beginning.
Michael Rose: I believe that the volume is still going to be.
Michael Rose: Going to be significant.
Michael Rose: We have a clear focus on this area.
Michael Rose: <unk>.
Michael Rose: No.
Speaker Change: I believe that these verticals that I mentioned at the beginning are going to continue growing.
Michael Rose: Our jurist advantage, which is focused on the <unk>.
<unk> business, which is a deposit rich.
Michael Rose: Market, we service it well.
Michael Rose: Clients are responding.
Michael Rose: So I believe that both of these areas and the others. The MD advantage, we just focus on.
Michael Rose: On the medical business is are all scalable and we have plans to develop to development well.
Speaker Change: Okay helpful. Thanks for that.
Rob Anderson: Rob maybe just on slide 14.
Speaker Change: When you look at the <unk>.
Speaker Change: Service fees, what is that other category that drove that increased fairly meaningfully Q on Q, yes that was the prepayment penalties. So like we said we book loss of Florida prepayment penalties and we did get paid off on some and then we get paid for it so.
That was in the other line item in service fees.
Speaker Change: Got it.
Speaker Change: Thanks, I appreciate that sorry, if I missed it and then maybe just finally for me appreciate the.
Speaker Change: The outlook on expenses, obviously, some some nonrecurring.
Speaker Change: Items this quarter can.
Speaker Change: Can you just discuss what the what the hiring plans are for this year.
Speaker Change: And what's baked into your assumptions for expense growth and maybe what the market looks like for competition for.
Speaker Change: For those sorts of lending hires just just wanted to see if you plan to be a little bit more opportunistic. This year, just given the relative strength of the South Florida markets.
Speaker Change: As we prepare the budget we closely look at this and we feel that we are properly staffed for our plans for 2025.
Speaker Change: Being opportunistic as something that is is what we do and we've been good at it so when those.
Speaker Change: Individuals become.
Speaker Change: Become available we will move on them, but it's nothing that we're really budgeting for just in case. It happens we feel very comfortable that our staffing levels are proper and R. R.
Speaker Change: Our production teams are prime correct.
Speaker Change: Okay, Great I appreciate you taking my questions.
Speaker Change: Thank you Michael.
Speaker Change: The next question is from <unk> Strickland with the half the group. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: To start drilling down on fees, a little bit here.
Speaker Change: Pacifically to swap fee income came in pretty good as you guys indicated it would last quarter and Rob I think you mentioned there is still a decent pipeline there.
Speaker Change: What should we expect in the next couple of quarters from that line item.
Speaker Change: Yes that one is going to move around.
Speaker Change: A little bit I mean, this year I think the market and where interest rates were definitely favored swap activity I think that could quiet down into 2025, and we will be looking if that does go down we'll be looking to offset that decrease with increases in our wire fees our TMT.
Speaker Change: Fees and SBA gain on sale, so that could trend down into 2025 I think.
Speaker Change: For the year, we probably booked over $3 million.
Speaker Change: I would not anticipate that level of activity in 2025.
Speaker Change: That's fair and I was going to ask what the opportunity was on SBA, just kind of what youre, what youre seeing in terms of pipelines will going forward.
Speaker Change: How much we could see that grow over the course of the year potentially.
Speaker Change: What we have.
We're planning to more than double what we did in this past year, we have the.
Speaker Change: Our strategy that we actually shared with our board.
Speaker Change: This past.
Speaker Change: This past meeting our focus is going to be on.
Speaker Change: On a certain business segment that we're gearing up for our all of our lenders are adept on the SBA seven program. This is something that we've been training them on now for three years. Since we launched the program were initially and was led by the Department head every single every sing.
Speaker Change: The lender that we have has been participating.
Speaker Change: They have good marketing support and they know their goals and their strategy. So.
Speaker Change: I think we're in good shape for for this year and for that SBA fee volume to increase.
Speaker Change: Thank you for that that's helpful and just last for me.
Speaker Change: Just thinking about the specialty lending segments.
Financing and some of the other other areas.
Speaker Change: Where you see it in those green shoots for 2025.
Speaker Change: I think the yacht financing is going to be steady as it's been the last few years.
Speaker Change: We're entering the <unk>.
Speaker Change: The yacht.
Speaker Change: Actually the <unk> season, with our boat shows coming up.
Speaker Change: Let me add the international boat show in the Palm Beach et cetera, all throughout the state so that usually <unk>.
<unk> volume I think everything else is going to be steady.
Speaker Change: <unk>.
Speaker Change: And in growing our.
Speaker Change: Our.
Speaker Change: On the global side, we have visited all of our <unk>.
Speaker Change: Sure.
Speaker Change: And customers that are on the.
Speaker Change: On the lending side every single one of them was visited in the last two quarters.
Speaker Change: Good feedback from those visitations, we expect that they're going to continue borrowing grin growing the relationships and it's not necessarily adding new clients, there, but expanding on the relationships that we already have so we feel very comfortable that it's going to be a very productive year with them.
Speaker Change: And HOA as I said also.
Speaker Change: Is going to continue.
Speaker Change: Is going to continue moving forward I forget exactly what the percentages, but its almost I am.
Speaker Change: I'm going to say, it's near 50% of the <unk> and the state of Florida are over 30 years old so they have to be going through the 30% and 40 year certifications theyre going to be looking for.
Speaker Change: Four reduce on roofs on windows, and there's going to be I think tremendous opportunities there.
Speaker Change: Got it. Thank you so much that's it for me.
Betty: Thanks Betty.
Speaker Change: The next question is from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten: Hi, good morning, everyone, sorry, I hopped on a few minutes late but.
Speaker Change: Wondering if you can talk about and apologies if I missed it but.
Speaker Change: Loan growth obviously, it was still good this quarter, but maybe a little bit light of what it has been in the recent past and just if that was just elevated pay downs or any other trends youre seeing and kind of how you think about.
Speaker Change: Trend line, what could be best case scenario growth for you guys in 'twenty five or maybe lower end if things don't.
Speaker Change: Pan out like we all hope.
Speaker Change: Well this past quarter, there was quite a bit of payoff activity.
Probably more than you normally see on a quarterly basis, especially on our <unk>.
Speaker Change: Our correspondent banking section, which as we mentioned earlier these are 180.
Speaker Change: The terms, so but again, we believe that the borrowing is going to continue in that area. We don't really have any any issues there.
Speaker Change: As far as.
Speaker Change: We have prepayments on the on the commercial side.
Speaker Change: I attend all pipeline meetings as those Rob and Bill on a weekly basis, we are constantly in communication with our lenders we know what the competition is doing.
Speaker Change: The pipeline going forward I think is as strong as any one that we've had in the past four quarters.
Speaker Change: So I think that the loan demand.
Speaker Change: Is going to be there.
Speaker Change: As I said earlier, we believe that it's going to be.
Speaker Change: High single digit low double digit growth that's what we're that's what we planned for.
Speaker Change: Okay, great very helpful.
Speaker Change: And then I know, Rob you had kind of said hey, the deposit growth that really helps to fuel the potential maximization of the loan opportunities and maximizing the team's potential are there any new deposit vertical potentially out on the horizon or any new initiatives from a deposit front that you guys would endeavor towards.
Speaker Change: To drive even higher deposit growth or is it just the continuation of working what you guys have built in maximizing.
Speaker Change: Those platform.
Speaker Change: Yes, I think it's optimizing what we have I think we have a lot of talented people on the team that are sophisticated in their area of expertise.
Speaker Change: Started MD advantage. This past year I think there is a lot of opportunity there.
Speaker Change: Private client group is seeing a lot of activity and continued growth and I think it's just.
Speaker Change: Growing what we have and giving our team the.
Speaker Change: The right tools and the products and I think they're doing a fantastic job in the market. So I think we will continue to grow our deposit book in line with our loan book and part of the key while making sure we get the operating accounts and.
Speaker Change: We can tweak maybe incentive plans, a tad or two on the deposit but.
Speaker Change: But I don't think we need.
Speaker Change: New verticals, our new teams that add to the expense I think it's working with what we have.
Speaker Change: If I if I can we chose and develop the.
Speaker Change: The association banking correspondent banking, the attorney business and the medical because we believe that they are incredibly scalable in this market. So it's not really about adding new lines, it's about maximizing what we have and.
Speaker Change: Within the strategies there.
Speaker Change: There are opportunities to bring in new teams, we have done that Bruce successfully.
And we will continue to look for those opportunities, but I believe that the ones that we've chosen the ones that we've developed in the market and trained our people to execute on our very scalable and with a lot of demand.
Speaker Change: That's great commentary on the scalability appreciate that and then just last thing for me would be loan loss reserve kind of levels.
Speaker Change: Obviously, you guys have.
Fantastic credit book de Minimis.
Speaker Change: Non accruals, but the reserve continues to build as a percentage of loans.
Speaker Change: As we move forward if credit holds where it is could we see those existing dollars of reserved kind of be more flat and just.
Speaker Change: Cover the incremental loan growth versus building as a percentage of loans or how do you guys think about that loan loss reserve percentage relative to year exemplary credit.
Speaker Change: Thank you for the exemplary credit covenant.
Speaker Change: Yes.
Speaker Change: We.
Speaker Change: It will probably grow in relation to the growth in the portfolio as the net loans grow the.
Speaker Change: The reserve or pick up a basis point or two as we grow.
Speaker Change: There is no no no hiccups in credit quality, we should see slow steady.
Speaker Change: One basis point to two basis point growth or even holding steady.
Speaker Change: Each quarter as we go forward.
Bill Turner: I think maybe just adding on to that I think we were I don't know around 119 last quarter, we moved up to $1 22, I think part of that is the bill mentioned the yacht in the vessel that we put a provision on other than that I think that general pools by around 119, that's certainly adequate <unk> benchmark.
Bill Turner: That compared to some of the credit quality. So I don't think it will move materially maybe in dollars I think.
Bill Turner: Bill has mentioned and we certainly with loan growth but.
Bill Turner: Think we're very adequately reserved.
Speaker Change: Yes for sure Okay that makes sense. Thank you guys for all the color congrats on a great quarter and great year.
Steven: Thanks Steven.
Speaker Change: This concludes our question and answer session.
Speaker Change: I would like to turn the conference back over to Luke Daily Aguilera for any closing remarks.
Speaker Change: Okay. Thank you very much for your attendance on behalf of the U S.
Speaker Change: The U S century team I would like to thank you all for your attendance and look forward to meet again at our next earnings call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.