Q1 2025 USCB Financial Holdings Inc Earnings Call
Unknown Executive: Good day and welcome to the USCB Financial Holdings first quarter 2025 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good day and welcome to the U S C. B financial Holdings first quarter was 2025 earnings conference call.
All participants will be in the listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two please.
Please note this event is being recorded.
Luis Aguilera: I would now like to turn the conference over to Luis de la Aguilera. Please go ahead.
I would now like to turn the conference over to Luis dealer Aguilera. Please go ahead.
Luis Aguilera: Good morning, and thank you for joining us for USDB Financial Holdings 2025 First Quarter Earnings Call.
Speaker Change: Good morning, and thank you for joining us for U S. D V Financial Holdings 2025 first quarter earnings call with me today, reviewing our Q1 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.
Luis Aguilera: With me today, reviewing our Q1 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. After a record 2024, Team USDB has come off the block strong in Q1, posting our best quarter since the bank launched its IPO less than four years ago. Our team is focused on the diligent execution of a business plan that emphasizes relationship-driven organic growth. Every associate knows their responsibilities and is encouraged to actively participate, execute, and lead. Our collective efforts delivered a diluted EPS of $0.38 this past quarter, a 65% increase over the prior year.
Speaker Change: After a record 2024 team USB has come off the blocks strong in Q1, posting our best quarter since the bank launched its IPO less than four years ago. Our team is focused on the diligent execution of our business plan that emphasizes relationship driven organic growth every associate knows the responsibilities and it's encouraging.
CFO Anderson: Actively participate execute and lead our collective efforts delivered a fully diluted EPS of <unk> 38 cents. This past quarter, a 65% increase over the prior year CFO Anderson will soon report on Q1's performance in detail and all the inputs to deliver the quarter's results.
Luis Aguilera: CFO Anderson will soon report on Q1's performance in detail and all the inputs that deliver the quarter's results. The industry is currently navigating a market that is experiencing heightened volatility, a large part due to the recently announced tariffs and the uncertainty their impact may have on the economy. In the past few days, we have seen the market react positively as the administration has announced progress on numerous trade deals which may lead to a de-escalation in trade pressure. Immediately after the tariff announcements, management quickly met with both our credit and production teams to discuss the situation and offer clear guidance on identifying and risk assessing all client business sectors that could potentially be impacted by tariff actions.
CFO Anderson: The industry is currently navigating a market that is experiencing heightened volatility a large part due to the recently announced tariffs and the uncertainty there impact may have on the economy in the past few days, we have seen the market react positively as the administration has announced progress on numerous trade deals, which may lead to a D escalation and trade.
CFO Anderson: <unk> <unk>.
CFO Anderson: Immediately after the tariff announcements management quickly met with both our credit and production teams to discuss the situation and offer a clear guidance on identifying and risk assessing all client business sectors that could potentially be impacted by tariff actions. Clearly this is a time for heightened risk management ensuring.
Luis Aguilera: Clearly, this is a time for heightened risk management, ensuring that credit quality is maintained and new loan production is carefully vetted in the context of the moment. Nonetheless, at USDB, we move forward with cautious optimism, taking advantage of our widely diversified business lines and commercial banking initiatives designed to deepen existing relationships and develop new ones. The Florida economy continues to be amongst the strongest in the country and is forecasted to grow steadily in 2025 with a growing labor force, low unemployment, and nation-leading business relocation. bolstered by the strength of the state's economy, average loans increased 205.3 million or 11.5% compared to the first quarter of 2024.
CFO Anderson: Credit quality is maintained and new loan production is carefully vetted in the context of the moment. Nonetheless at Usu beat we move forward with cautious optimism taking advantage of a widely diversified business lines and commercial banking initiatives designed to deepen existing relationships and develop new won the Florida economy.
CFO Anderson: Finished to be amongst the strongest in the country and is forecasted to grow steadily in 2025 with a growing labor force low unemployment and nation, leading business relocations bolstered by the state of the.
The strength of the state's economy average loans increased $205 3 million or 11, 5% compared to the first quarter of 2024. Similarly average deposits grew by $166 6 million or eight 1% again compared to the same quarter last year the loan pipeline.
Luis Aguilera: Similarly, average deposits grew by 166.6 million or 8.1%, again, compared to the same quarter last year. The loan pipeline continues to be robust and diversified, and we anticipate the second quarter to meet or exceed the budget with high single-digit to low double-digit loan and deposit growth. Further supporting production activities, three additional senior bankers joined our team this past quarter supporting business lending, association banking, and deposit production.
CFO Anderson: To be robust and diversified and we anticipate the second quarter to meet or exceed the budget with high single digit to low double digit loan and deposit growth.
CFO Anderson: Further supporting production activities three additional senior bankers joined our team this past quarter supporting business lending Association banking and deposit production.
Luis Aguilera: This past week on April 21st, the company's board of directors declared a cash dividend of $0.10 per share of the company's Class A common stock.
CFO Anderson: This past week on April 21, the company's board of directors declared a cash dividend of <unk> 10 per share of the company's class a common stock the dividend will be paid on June five 2025 to shareholders of record as of the close of business on May 15, the cash dividend program is an important driver to shareholder value and the board.
Luis Aguilera: The dividend will be paid on June 5th, 2025 to shareholders of record as of the close of business on May 15th. The cash dividend program is an important driver to shareholder value and the board of directors is committed to return capital to our investors while maintaining a strong balance sheet.
CFO Anderson: Of directors is committed to return capital to our investors, while maintaining a strong balance sheet.
Luis Aguilera: The following slide is self-explanatory, directionally showing nine select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering.
CFO Anderson: The following slide is self explanatory directly showing nine select historical trends since recapitalization.
CFO Anderson: Profitable performance based on sound and Conservative risk management, it's what our team is focused on consistently delivering so let's now draw your attention to our specific financial results and key performance indicators, which will be reviewed by our CFO Rob Anderson. Thank you Lou and good morning, everyone looking at pages, five and six I would characterize the first quarter of 2000.
Luis Aguilera: So let's now draw our attention to our specific financial results and key performance indicators which will be reviewed by our CFO, Rob Anderson.
Robert Anderson: Thank you, Lou, and good morning, everyone. Looking at pages 5 and 6, I would characterize the first quarter of 2025 as another fantastic quarter for USCB. Net income for the quarter was $0.38 per diluted share, up 65% over the prior year. Loans were up 13% annualized compared to the prior quarter, and we surpassed the $2 billion loan mark in the quarter, a fantastic milestone achievement for the team. Deposits were up 25% annualized compared to the prior quarter, and this growth provides us with ample liquidity and ability to further fund loan volume in the coming quarters.
Speaker Change: Twenty-five as another fantastic quarter for U S. C. B net income for the quarter was 38 cents per diluted share up 65% over the prior year loans were up 13% annualized compared to the prior quarter and we surpassed the $2 billion loan mark in the quarter, a fantastic milestone achievement for <unk>.
CFO Anderson: For the team.
CFO Anderson: <unk> were up 25% annualized compared to the prior quarter and this growth provides us with ample liquidity and ability to further fund loan volume in the coming quarters return on average assets was 1.19% return on average equity was 14.15% NIM was $3 one zero person.
Robert Anderson: Return on average assets was 1.19%. Return on average equity was 14.15%. NIM was 3.10%, down slightly from the prior quarter. The efficiency ratio improved to 52.79%. Tangible book value per share was up $0.42 to $11.23, and last, credit metrics remained benign.
CFO Anderson: Sent down slightly from the prior quarter the efficiency ratio improved to $52 seven 9% tangible book value per share was up 42 cents to $11 23 and.
CFO Anderson: And last credit metrics remained 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. Deposits continue to increase both on a linked quarter and year over year basis. With continued execution across our various business verticals, we've seen consistent growth in total deposits over the past few quarters. However, this quarter, while interest bearing deposits increased, we experienced a decline in average DDA balances. This decline was primarily driven by outflows early in the year from our correspondent banking division, which temporarily moved funds off balance sheet. For reference, the end of period DDA balance was 605 million, which is 42 million above the quarterly average.
CFO Anderson: Deposits continue to increase both on a linked quarter and year over year basis with continued execution execution across our various business verticals.
CFO Anderson: We've seen consistent growth in total deposits over the past few quarters.
CFO Anderson: However, this quarter, while interest bearing deposits increase we experienced a decline in average DDA balances.
CFO Anderson: This decline was primarily driven by outflows early in the year from our correspondent banking division, which temporarily move funds off balance sheet for reference the end of period DDA balance was $605 million, which is $42 million above the quarterly average.
Robert Anderson: We successfully reduced interest bearing deposits by nine basis points from the prior quarter. However, because of the lower DDA average balances, the total cost of our deposit book increased one basis point when compared to the previous quarter.
CFO Anderson: We successfully reduced interest bearing deposits by nine basis points from the prior quarter. However, because of the lower DDA average balances. The total cost of our deposit book increased one basis point when compared to the previous quarter, So with that let's move on to the loan book.
Robert Anderson: So with that, let's move on to the loan book. There are a few points I'd like to highlight on this this slide.
CFO Anderson: There are a few points I'd like to highlight on this this slide first with surpassed 2 billion in loans. This significant milestone as a result, the effective strategic execution by our management team as well as the strength and resilience of the South Florida economy.
Robert Anderson: First, we surpassed two billion in loans. This significant milestone is a result of effective strategic execution by our management team, as well as the strength and resilience of the South Florida economy. For reference, we surpassed the one billion dollar threshold in June of 2020.
CFO Anderson: For reference we surpassed the $1 billion of threshold in June of 2020.
Robert Anderson: Second would be the loan growth. On average, loans increased 28.3 million or 5.9% annualized compared to the previous quarter and 205.3 million or 11.5% when compared to the same quarter of 2024.
CFO Anderson: Second would be the loan growth on average loans increased $28 3 million or five 9% annualized compared to the previous quarter, and $205 3 million or 11.5% when compared to the same quarter of 2024.
Robert Anderson: Third would be the timing of our loan production in the quarter. Most of the loan production occurred late in the quarter. This timing limited both the contribution of new yields to quarterly results and the average loan balances reported for the period. If you look at our end-of-period numbers for the quarter, the story is better. End-of-period net loan growth was 63.4 million, or 13% annualized compared to the prior quarter.
CFO Anderson: Third would be the timing of our loan production in the quarter.
Most of the loan production occurred late in the quarter. This timing limited both the contribution of new yields to quarterly results and the average loan balances reported for the period if.
CFO Anderson: If you look at our end of period numbers for the quarter. The story is better and the period net loan growth was $63 4 million or 13% annualized compared to the prior quarter.
Robert Anderson: And last would be the loan yield movement. Loan yields decreased 8 basis points compared to the previous quarter. And this is largely due to the repricing behavior of our loan portfolio. Approximately 28% of our bearable rate loans are tied to SOFR, which has retracted 34 basis points from the prior quarter.
CFO Anderson: And last would be the loan yield movement loan yields decreased eight basis points compared to the previous quarter and this is largely due to the repricing behavior of our loan portfolio approximately 28% of our variable rate loans are tied to sofa, which has retracted 34 basis points from the prior quarter.
Robert Anderson: Moving on to slide nine. Two comments for this slide. One is that we continue to diversify our loan portfolio across products and collateral codes, as demonstrated by our loan composition trend. And the other comment is that the weighted average coupon for new loans for the first quarter was 6.67%. However, if we exclude new loans from our corresponding banking group, the weighted average coupon for new loans would be 7.15%.
CFO Anderson: Moving on to slide nine.
CFO Anderson: Two comments for this slide one is that we continue to diversify our loan portfolio across products and collateral codes as demonstrated by our loan composition trend and the other comment is that the weighted average coupon for new loans for the first quarter was $6 six 7%. However, if we exclude new loans from our correspondent banking group.
CFO Anderson: The weighted average coupon for new loans would be 7.15%.
Robert Anderson: While correspondent bank loans may lower the overall weighted average coupon, it's important to note that these loans are short-term in nature, typically 180 days, and provide a degree of protection in a rising rate environment. Also, all of the banks come as a full relationship. This includes low-cost deposits and competitively priced wire fees.
CFO Anderson: While correspondent bank loans may lower the overall weighted average coupon. It's important to note that these loans are short term in nature, typically 180 days and.
CFO Anderson: Provided degree of protection in a rising rate environment.
CFO Anderson: Also all of the banks come as a full relationship. This includes low cost deposits and competitively priced wire fees. So with that lets look at the margin.
Robert Anderson: So with that, let's look at the margins. On a year-over-year basis, our NIM continues to improve, reflecting the strength of our asset mix and disciplined balance sheet management. However, compared to the previous quarter, the NIM declined six basis points.
CFO Anderson: On a year over year basis, our NIM continues to improve reflecting the strength of our asset mix and disciplined balance sheet management, however, compared to the previous quarter. The NIM declined six basis points.
Robert Anderson: Contributing to the decline are a few items. First is the lower SOFR rate. As mentioned earlier, the decline in SOFR has negatively impacted the yield of variable rate assets contributing to the overall reduction in earning asset yields. Second, we had higher than expected cash balances which lowered the earning power of our earning asset mix. And third, the lower average DDA balances put pressure on our overall deposit cost.
CFO Anderson: <unk> to the decline or a few items first is the lower sulfur rate as mentioned earlier. This decline in server has negatively impacted the yield of variable rate assets contributing to the overall reduction in earning asset yields.
CFO Anderson: We had higher than expected cash balances, which lowered the earning power of our earning asset mix and third the lower average DDA balances put pressure on our overall deposit cost.
Robert Anderson: The net interest income was negatively impacted by a lower day count compared to the previous quarter. But despite the short-term dip, the underlying trends remain positive and intact for further expansion in the coming quarters, especially if the Fed cuts rates.
CFO Anderson: The net interest income was negatively impacted by a lower day count compared to the previous quarter, but despite this short term dip the underlying trends remained positive and intact for further expansion in the coming quarters, especially if the fed cuts rates.
Robert Anderson: Moving on to page 11. In prior quarters, our strategy focused on preparing for a potentially lower rate environment. However, given the current uncertainty in the rate outlook, we are now positioning the balance sheet to remain neutral, prepared for both upward and downward shifts in interest rates. This is reflected in our year one static net interest income simulation results, which show that the balance sheet is resilient to a 100 basis point rate increase and 100 basis point rate decrease. Now, when we look at the loan portfolio repricing profile, we see that 55% of the portfolio is variable and 42% is fixed.
CFO Anderson: Moving on to page 11.
CFO Anderson: In prior quarters, our strategy focused on preparing for potentially lower rate environment. However, given the current uncertainty in the rate outlook. We're now positioning the balance sheet to remain neutral prepared for both upward and downward shifts in interest rates. This is reflected in our year. One static net interest income simulation results, which show that the ban.
CFO Anderson: One sheet, Israel resilient to 800 basis point rate increase and a 100 basis point rate decrease.
CFO Anderson: Now when we look at the loan portfolio repricing profile, we see that 55% of the portfolio is variable and 42% is fixed however.
Robert Anderson: However, it is worth noting that the majority, if not all, of the variable rate loans have embedded floors, which protect the balance sheet in a lower rate environment. In fact, we booked nearly 500,000 this quarter, which I will highlight shortly. Also, 42% of the variable rate loans will reprice within the next 12 months, which limits immediate rate exposure.
CFO Anderson: However, it is worth noting that the majority if not all of the variable rate loans have embedded floors, which protect the balance sheet and a lower rate environment. In fact, we booked nearly 500000 this quarter, which I will highlight shortly.
CFO Anderson: Also 42% of the variable rate loans will reprice within the next 12 months, which limits immediate rate exposure.
Robert Anderson: Looking ahead, one of the most favorable things that can happen this year would be the normalization of the yield curve, specifically a return to a positively sloped curve. This would naturally support margin expansion by allowing us to benefit from the spread between short-term funding costs and long-term asset yields.
Looking ahead, one of the most favorable things that can happen. This year would be the normalization of the yield curve, specifically a return to a positively sloped curve. This would naturally support margin expansion by allowing us to benefit from the spread between short term funding costs and long term asset yields.
William Turner: With that, let me turn it to Bill to discuss asset quality.
CFO Anderson: With that let me turn it to bill to discuss asset quality. Thank.
William 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 loss has increased to $24.7 million in the first quarter. This was due to a $681,000 provision. The allowance for credit loss remained unchanged at an adequate 1.22% of the portfolio. The $681,000 provision was driven by the $63 million in net loan growth in the quarter. Net losses were zero for the first quarter. The remaining graphs on page 12 show the non-performing loans at a quarter end, which increased six basis points for $1.4 million from the fourth quarter for 0.2% of the portfolio.
Speaker Change: 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 7 million in the first quarter. This was due to a $681000 provision the allowance for credit losses remained unchanged at an adequate 122% of the portfolio.
Speaker Change: The $681000 provision was driven by the $63 million and net loan growth in the quarter net losses were zero for the first quarter.
Speaker Change: The remaining graphs on page 12 shows the nonperforming loans at quarter end, which increased six basis points.
Speaker Change: $1 4 million from the fourth quarter, 2% of the portfolio. The increase was related to three smaller loans secured by residential real estate and no losses expected.
William Turner: The increase was related to three smaller loans secured for residential real estate and no losses expected. After the quarter end, the bank sold a yacht securing a $1.7 million non-performing loan. The loss on the sale was a little more than $500,000 and was provided for last year. Without this YACHT loan, non-performing assets improved 0.13% of total losses. Classified loans increase seven basis points, or $1.7 million, to 0.44% of the portfolio to $9 million and represent 3.26% of capital. The increase was related to one commercial loan and three residential loans and no loss of income. The sale of the previously mentioned yacht will also improve the classified ratio to 2.6% of capital.
Speaker Change: After the quarter end the bank sold a yacht securing a $1 7 million nonperforming loan.
Speaker Change: The loss on the sale of a little more than $500000 and was provided for last year.
Speaker Change: Without discount loan nonperforming assets improved one 3% of total loans classified.
Speaker Change: Classified loans increased seven basis points or $1 7 million.
Speaker Change: Four 4% of the portfolio to $90 million and represents 326% of capital. The increase was related to one commercial loan and three residential loan and no loss is expected the sale of the previous mentioned yacht will also improve the classified ratio.
Speaker Change: Two 6% of capital.
William Turner: The bank continues to have no other real...
Speaker Change: Bank continues to have no other real estate.
William Turner: On page 13, the first graph shows the loan portfolio mix at 331. The portfolio increased $63 million on a net basis in the first quarter to $2 billion. The composition continues to be well Commercial real estate represents 57% of the portfolio for $1.15 billion, segmented between retail, multifamily, owner-occupied, and office property.
Speaker Change: On page 13, the first graph shows the loan portfolio and mix of 331, the portfolio increased $63 million on a net basis in the first quarter to $2 billion. The composition continues to be well diversified commercial real estate represents 57% of the portfolio for one <unk>, one 5 billion segment.
Speaker Change: Between retail multifamily owner occupied and office properties.
William Turner: The second graph is a breakout of the commercial real estate portfolios for the non-owner-occupied and owner-occupied, which also demonstrate their diversification. The table to the right of the graph also shows the weighted average loans of values of the commercial real estate portfolio. at less than 60% and the debt service coverage ratios are adequate for each portfolio.
Speaker Change: The second graph is a breakout of the commercial real estate portfolio and non owner occupied and owner occupied which also demonstrates the diversification there.
Speaker Change: A table to the right of the graph also shows the weighted average loan to values of the commercial real estate portfolio.
Speaker Change: At less than 60% and the debt service coverage ratios are adequate for each portfolio segment.
Speaker Change: Quality and paper payment performances are good for all segments of the loan portfolio at a total past due ratio remains below airbags overall, the quality of the loan portfolio remains good.
William Turner: Thank you, Bill.
Speaker Change: Thank you Bill noninterest income was certainly a bright spot for the U S. C. B team. This quarter, we had approximately 500000 in loan prepayment penalties, which falls under the other line item in service fees title insurance fees are also in this line item and were stronger than prior periods swap loans.
Unknown Executive: Non-interest income was certainly a bright spot for the USDB team this quarter. We had approximately $500,000 in loan prepayment penalties, which falls under the other line item in service fees. Title insurance fees are also in this line item and were stronger than prior periods.
Unknown Executive: swap loans decreased this quarter due to market conditions, but we have plenty of swap loans in the pipeline and expect Q2 to have better results. SBA loan sales were back this quarter and we booked $525,000 in fees. Overall, non-interest income was 16.3% of total revenue and 0.58% to average asset. Both metrics are in line with the prior quarter and higher than the prior quarter of 2024.
Speaker Change: Decreased this quarter due to market conditions, but we have plenty of swap loans in the pipeline and expect Q2 to have better results.
Speaker Change: SBA loan sales were back this quarter and we booked 525000 in fees overall noninterest income was 16, 3% of total revenue and 0.58% to average asset both metrics are in line with the prior quarter and higher than the first quarter of 2024.
Unknown Executive: So let's look at expenses on page 15. Our total expense base was $12.1 million and in line with our previous guidance. Salaries and employee benefits decreased $294,000 compared to the prior quarters as we booked higher incentive accruals in the fourth quarter of 2024. Again, our incentive and bonus programs are fully aligned with the company performance. So when the company performs well, our shareholders and associates share in that success. Consulting and legal expenses decreased $359,000 due to a reimbursement of some legal expenses in the quarter.
Speaker Change: So let's look at expenses on page 15.
Speaker Change: Our total expense base was $12 1 million and in line with our previous guidance salaries employee benefits decreased 294000 compared to the prior quarters as we booked higher incentive accruals in the fourth quarter of 2024 again, our incentive and bonus programs are fully aligned with the company performance. So when the company performs.
Speaker Change: Well, our shareholders and associates share in that success.
Speaker Change: Insulting and legal expenses decreased 359000, due to a reimbursement of some legal expenses in the quarter and looking forward. We fully expect the quarterly expense base to gradually increase throughout 2025, due to new hires and potentially adding to the bonus accruals based on company performance so with that let's.
Unknown Executive: And looking forward, we fully expect the quarterly expense base to gradually increase throughout 2025 due to new hires and potentially adding to the bonus accruals based on company performance.
Unknown Executive: So with that, let's turn to capital. Three things to note on capital. First, we doubled the dividend to 10 cents per share. Next, AOCI improved slightly to a negative 41.1 million. This nominally improved our tangible book value per share metric. And last, end of period share count increased with the 2024 performance stock awards.
Speaker Change: Turning to capital.
Louis: Three things to note on capital first we doubled the dividend at <unk> 10 per share next Aoc I improved slightly to a negative $41 1 million. This nominally improved our tangible book value per share metric Alas end of period share count increased with the 2024 performance stock awards, so with that let me turn it back to Louis for some.
Luis Aguilera: So with that, let me turn it back to Lou for some closing comments. Thanks, Rob. As seen by our first quarter's results, the bank's plan for 2025 is clearly on track and supported by the strength of Florida's economy, which is forecasted to grow at 2.8 percent this year, outpacing the nation's average economic growth projected at 1.5. Florida's labor force has been consistently growing, with the state adding 113,000 jobs in January of this year. US Century's service is a strong, diversified, and growing market, and we plan for loan and deposit growth in the high single-digit, low double-digit range, tempered by cautious optimism due to the uncertainty of the potential economic impacts of the new trade and power policy.
Louis: Closing comments, thanks, Rob as seen by our first quarters results. The bank's plan for 2025 is clearly on track and supported by the strength of Florida's economy, which is forecasted to grow at two 8%. This year outpacing the nation's average economic growth projected at 1.5, Florida's Labor force has been.
Louis: It's only growing with the state, adding 113000 jobs in January of this year U S century services, a strong diversified and growing market and we plan for loan and deposit growth in the high single digit low double digit range tempered by cautious optimism do the uncertainty of the economic potential economic.
Louis: Impacts of the new trade and tariff policies.
Luis Aguilera: Heightened risk management to ensure that credit quality is maintained and new loan production is carefully vetted and assessed regarding tariff-related uncertainties. Continued discipline expense control to maintain and improve operating leverage. We have recently onboarded three new experienced bankers to support continued loan and deposit growth and expect to hire two more in the next quarter. As a matter of fact, one of those accepted a job offer yesterday.
Louis: Tightened risk management to ensure that credit quality is maintained and new loan production is carefully vetted and assessed regarding tariff related uncertainties continued disciplined expense control to maintain and improve operating leverage we have recently on boarded three new experienced bankers to support continued loan and deposit growth and expect to.
Louis: Hire two more in the next quarter as a matter of fact, one of those accepted a job offer yesterday with that said I would like to open the floor for Q&A.
Unknown Executive: With that said, I would like to open the floor to Q&A. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Louis: We will now begin the question and answer session.
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.
Speaker Change: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Unknown Executive: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Woody Lay: The first question comes from Woody Lay with KBW, please go ahead. Hey, good morning, guys. Morning.
Woody Lay: The first question comes from Woody lay with K B W. Please go ahead.
Woody Lay: Hey, good morning, guys.
Speaker Change: Good morning wanted to start on deposit growth I mean balances were up pretty notably what was there a specific deposit vertical that that drove the growth in the quarter. And then also were there any seasonal impact in the quarter. If I look back at this time last year.
Robert Anderson: Wanted to start on deposit growth. I mean, balances were up pretty notably. Was there a specific deposit vertical that drove the growth in the quarter? And then also, were there any seasonal impacts in the quarter? If I look back at this time last year, deposits were up a lot in the first quarter as well. Just curious if there's any seasonal impacts. I think we saw the deposit growth in certain key areas like our correspondent banking. There was movement at the end of the year, it came back in at the beginning. Also, our HOAs contributed to that.
Woody Lay: Deposits were up a lot in the first quarter as well.
Woody Lay: Just curious if there's any seasonal impacts.
Woody Lay: I think we saw we saw the deposit growth in certain key areas like our correspondent banking. There was there was movement up the end of the year. It came back in at the beginning also our Hoa's contributed to that and I think overall also the business banking group had a very strong quarter.
Robert Anderson: And I think overall, also, the business banking group had a very strong quarter. You know, they lead with loans, but they bring in new clients and, you know, the deposits come with them. So I think overall, it was, you know, it was it was pretty, pretty balanced. Got it.
Woody Lay: They lead with loans, but they bring in new clients and the deposits come with them.
Woody Lay: Overall it was a.
Woody Lay: It was it was pretty pretty balanced.
Woody Lay: Got it and then maybe shifting to the NIM you know some of that excess liquidity weighed on the on the NIM in the first quarter and then it looks like a portion of our solid chunk of the loan production was weighted towards towards the end of the quarter. So just given those aspect and you expect strong growth.
Robert Anderson: And then maybe shifting to the NIM, you know, some of that excess liquidity weight on the on the NIM in the first quarter, and then it was like a portion of a solid chunk of the loan production was weighted towards towards the end of the quarter. So just given those aspects, and you expect strong growth, how should we be thinking about the NIM trajectory from here? It sounds like it should be biased upwards. Yeah, I would say flat to slightly up, you know, if you think we're going to get rate cuts in June, which I think is the, you know, the implied forward curve, I think that will benefit us on the deposit cost.
Speaker Change: How should we be thinking about the NIM trajectory from here it sounds like it should be biased upwards.
Speaker Change: Yeah, I would say flat to slightly up if you think we're going to get rate cuts in June which I think is the.
Speaker Change: The implied forward curve I think that will benefit us on the deposit cost.
Robert Anderson: So I think, you know, slightly flat to up would be our bias internal.
Speaker Change: <unk> I think.
Speaker Change: Slightly flat to up would be our bias internally.
Robert Anderson: Got it.
Speaker Change: Got it and how should we sort of.
Robert Anderson: And how should we sort of I guess rationalize the ALCO models paired with some of that commentary. Because if I look at, you know, slide 11, it would seem that y'all would screen as asset sensitive, but it almost thinks like the NIM would move, you know, an increase in the downrate environment. So how should we sort of rationalize those two points? Yeah, no, it's a good point. And I asked my treasurer this all the time, I said, Hey, rates are going down on the front end of the curve, and our margin is going up. So what's going on with the model, but, you know, the models are loaded with with conservative assumptions.
Speaker Change: I guess rationalized the Alco models paired with some of that commentary because if I look at.
Speaker Change: Slide 11.
Speaker Change: <unk> seen that you all would screen as asset sensitive but.
Speaker Change: It almost seems like the.
Speaker Change: The NIM would.
Speaker Change: New.
Speaker Change: The increase in the down rate environment, So how should we sort of rationalize those two.
Speaker Change: Yeah, no. It's a good point and I asked my Treasurer. This all the time I said, hey rates are going down on the front end of the curve and our margin is going up so what's going on with the model, but the models are loaded with with conservative assumptions and.
Robert Anderson: And, you know, what I'd like to say is that we outperform the model. So if our model has a deposit beta on the model, which we did, when the Fed cut rates, and we would be looking to outperform those assumptions, again, if the Fed were to cut rates. So we're optimistic about the margin, I think, you know, the this quarter, we had excess liquidity, our DDA average was down. But at the end of the quarter, we brought that back up to around 605 million, which was nice to see. And we need to hold it or or grow it to continue to have a good deposit cost.
Speaker Change: What I'd like to say is that we outperformed the model. So if our model has a deposit beta on the money market around 39% and we're able to move it to 40 to 50, we're going to outperform the model, which we did when the fed cut rates and we would be looking to outperform those assumptions again.
Speaker Change: If the fed were to cut rates. So we're optimistic about the margin I think you know this quarter, we had excess liquidity our DDA average was down.
Speaker Change: But at the end of the quarter, we brought that back up to around $605 million, which was nice to see and we need to hold it there or or grow it to continue to have a good deposit costs, but overall, we're encouraged about the margin in a down rate scenario, but I would cautiously just say flat to down or flat to up with.
Robert Anderson: But overall, we're encouraged about the margin in a downrate scenario. But I would cautiously just say, flat to down or flat to up would be the guidance going.
Speaker Change: B the guidance going forward.
Woody Lay: All right, that's really helpful, Collar.
Speaker Change: Alright.
Woody Lay: That's it for me.
Speaker Change: Really helpful color.
Woody Lay: Thanks for taking my question.
Speaker Change: That's it for me thanks for taking my questions.
Woody Lay: Thanks Woody.
Michael Rose: Our next question comes from Michael Rose with Raymond James. Please go ahead. Hey, good morning, guys. Thanks for taking my questions. Just following up on the deposit discussion. What was the impact from some of the specialty verticals and I think you mentioned some hiring of deposit gatherers. I'm sorry if I got that wrong. But just, you know, what's kind of the outlook for deposit growth as we move forward, given just such a really strong start to the year? I know last quarter, last year's first quarter was really strong, but just I think was stronger than a lot of us were looking for.
Speaker Change: Our next.
Speaker Change: <unk> comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, good morning, guys. Thanks for.
Speaker Change: Taking my questions just following up on the deposit discussion.
Michael Rose: What was the impact from some of the specialty verticals.
Michael Rose: Thank you you mentioned some hiring of deposit gathers I'm, sorry, if I got that wrong.
Michael Rose: But just whats the outlook for deposit growth as we move forward given just such a <unk>.
Michael Rose: Really strong starts to the year I know last quarter last year's first quarter was really strong but.
Michael Rose: Just I think it was stronger than a lot of us were looking for thanks.
Michael Rose: Thanks.
Luis Aguilera: Sure. We added production personnel on the HOA side. We also added one on the banking side, which again, they're focused on loans and deposits. And another one is on the retail side. And again, another lender is going to be joining us shortly. So, you know, each one of those new hires is supporting one of the verticals that we have. They've all been responding well. We believe there's going to be a lot of opportunity on the HOA later in the year. The state is kind of rationalizing its decision regarding some legislation that was approved on the requirements for associations to have reserves in place.
Michael Rose: Sure we added production personnel on the HOA side.
Michael Rose: We also added one.
Michael Rose: On the business banking side, which again their focus on loans and deposits and another one is on the on the.
Michael Rose: <unk>.
Michael Rose: On the retail side and again, another lender who is going to be joining us shortly so.
Michael Rose: Each one of those new hires is supporting one of the verticals that we have.
Michael Rose: They've all been there.
Michael Rose: They've all been responding well, we believe theres going to be a lot of opportunity on the HOA.
Michael Rose: Later in the year.
Michael Rose: The state is kind of rationalizing its decision regarding some legislation that was approved.
Michael Rose: Requirements for associations to have reserves in place.
Luis Aguilera: All of them had submitted a plan by December 31st regarding their reserves. So we have a plan in place to work with them and bringing them in to benefit from both the loans and the deposit side. So we continue to work these verticals. They've been very significant. I think they're contributing Last time I checked, it was about $650 million to the overall deposit base of the bank, and we continue for them to be accredited. associated.
Michael Rose: All of them had to have submitted a plan by December 31 rigs.
Michael Rose: Regarding their reserves so we have a plan in place.
Michael Rose: To work with them and bringing them into benefit from both the.
Michael Rose: The loans and the deposit side. So we continue to to work these verticals they've been very significant.
Michael Rose: I think they are contributing.
Last time, I check was about $650 million to the overall.
Michael Rose: The deposit base of the bank and we continue for them to be accretive.
Michael Rose: Very helpful. Appreciate it.
Michael Rose: And on slide 15, just on expenses, you know, to the comment that the efficiency ratio is the lowest since the third quarter of 2021. You had previously talked about, you know, around $12 million for expenses. It sounds like maybe there's some opportunistic hires out there.
Michael Rose: And then on slide 15, just on expenses.
Michael Rose: The comment that the efficiency ratio was the lowest it's been since the.
Michael Rose: For the third quarter of 2021.
Michael Rose: You'd previously talked about around $12 million for for expenses sounds like maybe there's some some opportunistic hires out there. So how should we think about the expense base in the hiring outlook.
Robert Anderson: So how should we think about the expense base and the hiring outlook? as we move forward. Thanks. Yeah, as Lou mentioned, we did make a couple hires in the first quarter, we just had another one, except yesterday. And we do anticipate that expense space to move up, especially with company performance, and strong performance. So you know, it's around 12.1, could it go to 12.3, 12.4 in the coming quarters? I think that's a good guidance for the coming quarter short term. Okay, perfect.
Michael Rose: As we move forward. Thanks.
Michael Rose: Yeah as Lou mentioned, we did a couple of hires in the first quarter. We just had another one except.
Michael Rose: Yesterday.
Michael Rose: And we do anticipate that expense base to move up, especially with company performance and.
Michael Rose: Strong performance so it's around $12 one could it go to $23 12 for the coming quarters, I think thats a good guidance for the coming quarter short term.
Michael Rose: Okay perfect.
Michael Rose: And I assume just from the capital point of view, that, you know, organic growth continues to be the focus here. I know, just given the pullback in the sector, we've seen a lot of banks kind of talk and lean into buybacks. But I would assume just given, you know, pretty solid still growth prospects at this point, that that's the focus. That's the focus, always has been, and continues to be. All right, sounds good. Thanks for taking my questions, guys. Appreciate it. Absolutely, Michael. Thank you.
Michael Rose: I assume just from a capital point of view.
Michael Rose: That organic growth continues to be the focus here I know.
Michael Rose: Just given the pullback in the sector, we've seen a lot of banks kind of talk and lean into into buybacks, but I would assume just given yes.
Michael Rose: Pretty solid still growth prospects at this point, but thats.
Michael Rose: That's the focus.
Michael Rose: That's the focus always has been and continues to be.
Speaker Change: Alright sounds good thanks for taking my questions guys I appreciate it.
Michael Rose: Michael Thank you take care.
Michael Rose: Take care.
Feddie Strickland: The next question comes from Feddie Strickland with Hobby Group. Please go ahead. Hey, good morning. Just wanted to dig into the margin a little bit more, you know, appreciate that, you know, the guide slaps and maybe slightly up. I was originally thinking maybe see a little bit more of a benefit just given that late second quarter loan production that seemed to be at higher rates, and you also have the end of period DDA increases. Is it just expected competitive pressures, maybe offsetting some of that benefit? Is that really the driver there? Yeah, I mean, we're seeing a lot of competitive pressures on the deposit rates right now.
Speaker Change: The next question comes from <unk>, St Glyn with Harvey Group. Please go ahead.
Speaker Change: Hey, good morning.
Michael Rose: Just wanted to dig into the margin a little bit more.
Speaker Change: I appreciate that the guide flat to maybe slightly up.
Speaker Change: I was originally thinking maybe see a little bit more of a benefit just given that late second quarter loan production that seem to be at higher rates and you also had the end of period.
Speaker Change: DDA increases is it just can be expected competitive pressures, maybe offsetting some of that benefit is that really the driver there.
Yes, I mean, we're seeing a lot of the competitive pressures on.
Speaker Change: The deposit rates right now so.
Robert Anderson: So there were a number of things that go into the margin. One was the lower DDA average. Again, we brought that back by the end of the quarter, but it was really, like, really, like the last week of the quarter. So it was near the end. Yeah, we did have higher cash balances. Like, if you looked at our end of period cash balance, it was around a 97 million. So, you know, we're really set with cash that impacted the margin as well. But that will help fund our loan growth in the coming quarter as well.
Speaker Change: So there there were a number of things that go into the margin one was the lower DDA average again, we brought that back by the end of the quarter, but it was really like.
Speaker Change: We like really like the last week of the quarter. So it was it was near the end.
Speaker Change: We did have higher cash balances like if you looked at our end of period cash balances around a $97 million.
Speaker Change: So we're really set with cash that that impacted the margin as well, but that will help fund our loan growth in the coming quarter as well, but we're seeing a lot of competition and customers are asking for.
Robert Anderson: But we're seeing a lot of competition and customers asking for CDs that are very competitively priced. And then also we had a an abundance of our correspondent banking loans that are typically 180 days, and they will reprice typically with SOFR. They're tied to SOFR to a certain extent. And that came down in the quarter as well. But again, that relationship is a full relationship on the correspondent banking side. So while the loans may be short term in nature, they may be lower priced than a typical CRE loan, which they are coming with very strong deposits and wire activity as well.
Speaker Change: Cds that are very competitively priced and then also we had a an abundance of our correspondent banking loans that are typically 180 days and they will reprice typically with sofa, they're tied to serve or to a certain extent and that that came down in the quarter as well, but again.
Speaker Change: That relationship is a full relationship on the correspondent banking site. So why the loans may be short term in nature. They may be a lower price than a typical CRE loan, which they are they are coming with very strong deposits and wire activity as well, so but again I would guide on the margin.
Feddie Strickland: But again, I would guide on the margin flat to up in the coming quarters. And if we get rate cuts, we expect to outperform the model. Got it. That's that's helpful.
Speaker Change: Flat to up in the coming quarters, and if we get rate cuts, we expect outperformed the model.
Speaker Change: Got it that's helpful and then just.
Feddie Strickland: And then just within the correspondent banking side, I noticed that trade finance piece.
Speaker Change: Within the correspondent banking side I noticed that.
Speaker Change: Trade finance piece.
Luis Aguilera: Can you talk a little bit about how that maybe specifically could be impacted here and what the magnitude of that portion of the portfolio is? We don't see there's going to be a lot of really things that are impacting. We're in contact with our banks. Remember, the client that we have is another bank. We're not financing the individual clients. Our conversations with them are ongoing, and we haven't really perceived any concerns from them. I think when our four correspondent banks are also in the Caribbean basin and Central America, and I think last time I checked, the overall trade impact to Central America was 10%, and they're all kind of negotiating.
Speaker Change: Can you talk a little bit about how that may be specifically.
Speaker Change: Be impacted here and what's the magnitude of that portion of the portfolio is.
Speaker Change: We don't we don't see there's going to be a lot of really things that are impacting we're in contact with the with our banks remember we the client that we have is another bank.
Speaker Change: We're not we're not financing the individual clients our conversations with them are R. R.
Speaker Change: Our ongoing and we don't we haven't really perceived any concerns.
From them.
Speaker Change: <unk>.
Speaker Change: When our four corresponded banks are also in the Caribbean Basin.
And Central America, and I think last time I checked the overall trade impact to Central America was 10% and Theyre all kind of negotiating so it's on the lower range of what we've seen globally. So we don't believe that there is going to be much of an impact on that.
Luis Aguilera: So it's on the lower range of what we've seen globally. So we don't believe that there's going to be much of an impact on them.
Speaker Change: Yeah.
Feddie Strickland: Thanks, Lou. That's helpful.
Speaker Change: Thanks, a lot.
Feddie Strickland: And then just one last one for me, just on credit. I mean, even with some of the moves this quarter, credit's still relatively clean when you look at your portfolio versus peers. But I guess we have seen a little bit of an upward trend the last couple of quarters on MPAs and classifieds. You seem to find your opening comments that you're making some progress on a couple of different pieces.
Speaker Change: That's helpful. And then just one last one for me just just on credit I mean, even even with some of the moves this quarter credit still relatively clean when you look at your portfolio versus peers.
But I guess, we have seen a little bit of an upward trend. The last couple of quarters on a days in classifieds.
Speaker Change: You seem to imply in your opening comments that youre, making some progress on a couple of different pieces. I mean is that a possibility we could maybe see that trend reverse all else equal in the second quarter, and maybe see MPA sandal classifieds down a little.
Luis Aguilera: I mean, is there the possibility we could maybe see that trend reverse all else equal in the second quarter, maybe see MPAs and or classifieds down a little? Yeah, I think I think we will see the non performance come down with the sale of the yacht with the with the loans that we that we have in the non-performing portfolio right now that we have, we have a few loans that are that are only non-performing because of their history. They are their current pain is agreed some of the some of the loans have have already had the asset sold by the client and there is waiting payoff so I anticipate the number for me.
Speaker Change: I think I think we will see the nonperforming to come down with the sale of the yard.
Speaker Change: With the loans that we have in nonperforming portfolio right now that we have we have a few loans that are that are only nonperforming because of their history. They are they are current paid as agreed.
Speaker Change: Some of the loans have already.
Speaker Change: Had the asset sold by the client.
Speaker Change: So I anticipate the.
Speaker Change: The number for me.
Luis Aguilera: group. They're in They're all certified.
Speaker Change: During the second quarter.
Speaker Change: And then also declassified to come down.
Feddie Strickland: All right, great. Thanks for taking my question. Thanks, Feddie.
Speaker Change: Alright, great. Thanks for taking my questions.
Patty: Thanks Patty.
Unknown Executive: This concludes our question and answer session.
Patty: This concludes our question and answer session.
Luis Aguilera: I would like to turn the conference back over to Luis Aguilera for closing remarks. Thank you. Thank you, everyone. So on behalf of the US Century team, I would like to thank you all for your attendance and look forward to meeting again at our next earnings call.
Patty: I would like to turn the conference back over to Luis dealer Aguilera for closing remarks.
Patty: Well. Thank you. Thank you everyone on behalf of the U S century team I would like to thank you all for your attendance and look forward to meeting again at our next earnings call.
Patty: Sure.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Speaker Change: [music].
Unknown Executive: http://teensancl Business Insider.com
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