USCB Financial (USCB) 28 Jul 232023 Q2 Earnings call transcript

Good morning, and thank you for joining us today for USCB Financial Holdings' Second Quarter 2023 Earnings Call. With me today reviewing our second quarter highlights is CFO Rob Anderson and Chief Credit Officer Ben Pazos, who will provide an overview of the bank's performance, the highlights of which you can see on Slide 3. The past quarters saw the market react, process and respond to the collapse of 3 high-profile regional banks. The news on some financial markets triggered a crisis in confidence amongst consumers and a deposit light to the perceived safety of our Too Big to Fail brethren. At U.S. Century Bank, we build business relationships based on the best-in-class service products and people as our clients look to us for support and guidance. The USCB team responded immediately to the March events, contacting our clients directly to [indiscernible] concerns, answer their questions and most importantly, educate them on their options for obtaining additional FDIC insurance coverage. To this point, the bank has reduced its uninsured deposit ratio by 10% over the past 2 quarters as interested clients opt for available ICS and CDARS deposit products at U.S. Bank. Century

The been slowdown Deposit from weighted quarter-over-quarter we've coupon. in early again has and have curbed were mid-March well-diversified had well June strong, quality May the in in loan XX increases average and loan dissipated. a in very the efforts the consistent months outflows received. our quickly through were past Our amongst closings and highest growing loan reflecting demand is experienced pipeline

their in detail on full Dr. this Financial Patriot shortly. On Wycoff, progress I Wycoff growing Director. baton these level, this deposits Directors. sector's We previous in Levitan challenge collaborating loan years. Board demand this new Lead of Chair, of failures privilege continued at grateful with March. as as on we thank of have management support Partners me and review Directors' reprice Page the prior our point back XXXX. Profitability NIM was our stated, our guidance second yield Board growth, was the was Liquidity Kirk and $X.X or of of as with Managing and Aida or The to loans quarter. we at our trust with will We Partner our believe over the million are greater of near insurance am closely our past and and month to share to been the past the products. Board stated that of a faster compared both Dr. working continued I year. track of ROAA compression Mr. income for of also NIM Net passed deposits X, yields. impacted Levitan, improved or in per an Chairman's confirmed X.XX% Look continued continuing Mr. inverted and assisted terms than as forward above quarter support. On past into for on bank banking is The increases. And loan the over QX curve pricing the by deposit inflection many clients X.XX% $X.XX by exacerbated past for board diluted

credit, of terms capital remain and strong. both In

company weighted the Inc. price of USCB $X.XX. per quarter, of Financial the Holdings, XX,XXX at repurchased shares average During a share

As remain under showing of program. The directionally our trends on page self-explanatory, X risk since is what XX, June focused recapitalization. select conservative XXXX, historical XXX,XXX based performance authorized shares team the Profitable sound is delivering. is and management consistently on following

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

Luis, Thank everyone. and Okay. you, morning, good

with As challenging very U.S. Century environment, quarter dealing and reflect this Bank our mentioned, environment. Luis a second is operating results

more first, While management why feels But we review cover second results, out team pointing about I the future. our quarter. let's the be our will quarter confident

books rates. during Total $X.X and industry banks $X.X $X.X were loan $XXX at low million period had the securities. most assets were billion were billion. today, billion balances put in on quarter securities deposits for we At quarter, the like these the very in end, And the interest of pandemic are

on other securities flat AOCI. million, unrealized available securities interest fast losses Roughly a have the is million now although as are the half prior slide, to the includes mark-to-market $XX.X these XX% for As rates $XXX negative mark in to a accounting million have and held sharp of taken as rise, and to equity on maturity due the securities portfolio treatment. in these footnoted the sale. Total quarter, in the equity now $XXX treated

as inverted this deal our to the the extended and a income period prior January mentioned net small improved forecast time. the decreased curve bank expense as income quarter. rates, last on as portfolio year relatively quarter. Expenses on quarter the moving to CECL an flat with our Non-interest up reduction of during drove was on And and from in there. implemented quarter, an Moving offset was economic interest yield quarter we P&L. the were loan are X call, for Net the prior nominal year, and growth prior and for from was by this there provision partially pieces of expected loss prior some

share, prior that difficult net I would down and So in detail prior million quarter quarter reflective income a of year. environment. $X.XX this basis, in from a slide On more characterize GAAP operating I'll or was minutes. the a $X.X few Overall, cover a as

yield inverted and an for long bank around with failures recent the a hung just dealing March. worsened are curve by that time has We was it in

to on indicators. our key Moving performance

our soundness, remain In metrics credit of terms strong.

loan slightly was X.XX%. down reserve coverage Our to loss

In equity profitability, assets X.XX%. terms return was of X.XX% and on was return on average average

$X.XX, our basis Our NIM factors, was several detail. tangible moved of portfolio per value $XX.XX. mark negative down of would by cover securities our driven which referenced Absent have more up was AOCI per prior AOCI I share X.XX% quarter, the from our and to Efficiency on tangible reflective which $X.XX ratio earlier. mark, value and book been XX points is book that slightly the share share the in XX.XX% and I'll per

our the on on A So hinges deposits. page. next cover story big our of let's NIM our deposits part

million liquidity. given average recent weighted caution, a brought in First, CDs X.XX% of bank $XX we rate brokerage at to in of abundance the failures, of boost

products. to finally comprised costs, end, impact our at and strength puts competitors cycle. in this Second, deposit $XX On had clients dropped beta book. rate of up our the which cycle on money sought experienced balances to This out rate shift balances experienced quarter points this of this quarter profound returns most deposits the deposit of which movement the increases, [through] X.XX%. Relative our we Average demonstrates XX basis Fed XX%. DDA moved total more deposit at that funds, XX.X% million rate as higher mix earlier DDA market average, CD a the in

deposit model, broker a collateralized, partially adjusted of slide, XX% accounts, portion business public the XX% our amount commercial of is bank. XX% funds base The commercial deposits of by deposits closer collateralized total book our deposits. are public diversified you take and at deposit If a our X% funds, the are XX%. accounts, uninsured reflects which look on personal next our

the I'd Excluding above public balance average quarter the sustained out our funds, of also point our is are collateralized the ending demonstrating portion XX%. quarter, end. that billion uninsured of growth at spot balance $X.XXX for

liquidity. move let's So to on

excludes we strengthened our million, to the and brokered to During quarter, listing ability CD this or liquidity the tap our $XXX markets.

program our depository to funding additional call, on the Reserve to last institutions. stated created make new available liquidity a As Federal

program the program. accessed intend not We to and program have not enrolled the but in access the bank do funding have term

Our confident excluding on-balance listing are $XXX our CDs these brokered is is off-balance us We feel $XXX sheet for and adequate liquidity to than sources the liquidity million. that million, navigate current sheet more sources environment. and

to So to back loan with that, it our turn discuss Luis me book. let

will -- of quarter, On Rob. portfolio the quarter to XXXX, continue Slide that or see you, the XXX average increased $XXX.X and XX.X% million loans, XX compared basis XXXX. Page through X.X% PPP annualized Thank have compared on a a we compared excluding Directionally, to loan quarter XXXX. points loans, to $XX.X second trend second million yields prior XX, or increased the

the slowdown knee-jerk. loan business immediately Slide clients and uncertainties XX. contagion of is greater SVB was market bank on track. prospects mid-March A understandably early the But May made have from Market has noted see fears abated, on demand triggered through and Let's that in after as detail crisis. in settled production XXXX, back

points continued pipeline the the production QX. focus average to a the increase above composition loans, reconstructed is business portfolio at As association been side, X(a) basis points Portfolio variable over rate, and developed has left-hand coupon estimated an has QX on in active XXX XXX a X non-CRE in a that the product and the we the new basis over XXX pre-SVB to our lending QX $XX or on XXXX, quarter-to-quarter, yacht management run well-diversified a past lines, focus gross topped see go-forward basis we several basis XXX weighted average. In loans SBA coupon graphic and June with verticals of correspondent points diversification And XXXX banking. in lending, have on of team. closings to been the from million, added years, points XXXX reflecting including in for

the QX new XXXX. was, at see composition loan provided, the on pace can and X% non-CRE diversification graphic in XX% respectively, greater the and trend is XXXX total QX of portfolio QX as from for you current XX% The XX% loan in As XXXX, loan volume up up as QX non-CRE. the picked of has

Okay. Thank Luis. you,

recent bank a Moving We higher-priced a cash quarter. compared $X.X our by the NIM and due decreased brokered increase liquidity liability-sensitive more increased in in prior the our to both margin interest an net sheet. page. wake at income quarter, on in detriment the to of to CDs, held predominantly deposit costs and Net to balance with failures million interest

We also out experienced with deposits. shift balances of DDA and mix into a moving interest-bearing

noted so As competitors pack. experienced up this finally in of quarters, many we prior our earlier, with the caught

at our quarter. at loan done of production end the QX As mentioned, were majority yields was of the Luis higher booked the

impact on realized. All NIM, feel full the a for following inflection an has on impact So we at the we be but our point are these near NIM or the events had to negative reasons. yet

liquidity has or abated. in settled book down and movement our deposit First,

this rate an yield of swap curve the put carry on advantage pay-fixed quarter. $XXX,XXX we Today, improve by XXX the NIM Second, in inverted will rates. with swap has amount, our which movement annualized a basis notional no interest notional second in $XX point basis on million to the take on

cash XXX. average above $XXX loan sitting year pricing match have this walk the double The Fifth, We believe and today could above. clients basis rates rate rates movement we an opposite. Fourth, our early will year, $XXX,XXX. point improve with strong on basis with our or low basis deploy allow into no continues in opportunistic a basis in rate another tad swaps on higher. that increase, rates point the Next, basis If cash And when we request loan in fixed steady. XX on and cash for can loans balance the rates. number by conversely, points nearly net hike potentially we these with be to Combined, we repriced if could in in to swap annualized the stay last QX, has million excess and million $XXX,XXX the each pay further did or weighted XXX see digits, be sheet pricing. us a raise the the balance later improve is at $XXX X annualized NIM by door to will drop, competitors' the Fed XX this a notional should just on rate of will also million pipeline growth has carry $X.X XX rate deposit an this perhaps

will in to Let's which to balance and behave sheet is the latest of X. repricing neutral ALM our given our variable sheet the year portfolio result rate a having rate move in year is loans X next asset to page, sensitive expected how highlight in balance a higher model, is direct of According This X. year our movement.

As to the we X-year XX-year these discussed is priced that reprice practice mechanism year. the loans hybrid have before, X. We an of a loans a loans CMT, book year within while CRE XX fixed tied rate our with expect after variable to and to repricing index

the $XXX loans within have X We next of months. repricing million

to turn Ben asset So me quality. discuss let with it that, to

Rob, to you, morning and all. good Thank

CRE economic due absolute be numbers slightly to of strictly that have Our note should at total in loans And Nonperforming in loans also we in do numbers percentage loans outlook. $X.XXX classified. and in decreased ALLL classified and continue any credits. the loans to classified of not $XXX,XXX. minimal percentage as million a is our have We lower loans. total improvement absolute in is This at

from we have This you to portfolio amount of $XXX portfolio $X.XXX a billion, seen before. our appreciably not million, book the Moving Out changed Slide information to loans. loans of XX, loan on inclusive of CRE have has numbers mix. owner-occupied

XXXX. than now ended CRE concentration and has is fiscal lower year at Our decreased

from table portfolio. The $X.X CRE from concentration into $X.X retail XXXx segment biggest the X.XXx the million Weighted -- translates the average to $XXX XX% Our loan-to-values ranging in metrics CRE which you XX% of of low to Page million. and from in with to ranging debt service loans XX gives XX%, page average the is conservatively book. million, coverage ranging

Moving to Slide XX.

this portfolio not have what have The show of market. Again, segment. you within outstanding the seen information much CRE our metrics change bank's We clean XX% primary office are balances before. from how on is. loan

XX%. Miami's rate Finally, of the should sector national I of and availability lower X.X% that note averages office outperforms with vacancy

XX, into noninterest our about Going will Slide Rob income. talk

for quarter SBA quarter, saw fees steady prior down a closer a year. from quarter loan as fees had income. we to We up slightly Ben. prior expenses. were look noninterest flat prior Service take you, straightforward, this sales the Thank from quarter. With Okay. the the fewer fees let's were but at

total accrual based million from up prior Our QX. $XX.X was incentive and assessment decreased increased expense performance special others, services, slightly was benefits the the through and and as Like $XXX,XXX the down were and this quarter. on base Salaries we attributed expense. internet which increase. banking insurance assets FDIC expense, up fees audit largely Other tax operating our quarter and due to company to

of current expense, of paid, expenses general project which the we through pace we other when or a these the some increase are timing the are While remainder the year. invoices due operating are to current of near at in seeing

at slightly run feel quarterly than forward a lower expense be or million. should rate, we In terms our $XX.X our of

let a shares of at we to pick quick that, look the $X.XX able above Capital in well-capitalized take price a and weighted So up XX,XXX capital. with levels, quarter. remain are me average levels at

XXX,XXX current have shares We allow us price will opportunistic remaining if to share the under authorization, retreats. which be our

So for closing Luis some to I'll turn it back with capital straightforward, comments.

Thank you, Rob.

managing environment, navigate and the of team in mindful our we is our challenging economic taking prudent current expenses this As liquidity, conditions, capital. balance operating sheet, management approach

enhancing asset classes. limiting conservatively is our risk, focus on certain manage and we while quality profitability While growth our and in asset margin

with I'll team. of XX following. ROA management terms a sitting not is basis Delivering In point comments, closing the say well this

our we longer-term since While growth a delivering on performance XXXX. ask review to define profitable not our X, consistency performance, in trend Page quarter you demonstrates which sound, does

sound include We have to in $XX.X NIM better, X% XXXX, X% clean. credit goals, XX%, are ROAA deliver to feel and laid an reasonable remains of better, below or by we our improve to to and deposit out several team in or further They of growth into ROAE manner steadily and and quarterly for rise a ensure million and and near our the which above year-end to achievable operations continue term. loan the expenses safe XX% book

explore the primary Our and opportunities our many that the to Rob to have half that already near-term viable said, let's we floor of NIM. to Q&A. focus as other open we do specific year. With discussed have we taken into is second improve so the actions to get

Gailey with comes the question line [Operator Instructions] Our of from first Brady KBW.

it the from active value. the was relatively slow mean in you is XQ buyback levels. in book -- buyback the So were still stock I the cheap second but tangible quarter, did on

and So how do buyback? you think about utilizing the rest of your the authorization

because hesitant I quarter, and would quarter. slowed were bank no a fall the say in sure second really activity would little during with price other that the failures we making

goes buy feel the And million. stock. I ever We bought our $XXX are to it better. it's bit feel think it if really we at great using support value. little to We book opportunity to a a back tangible down buyback we

smart move. Our was a we million. and that book appreciably tangible then, is value since It's $XXX think up

we So opportunistic. view again, more the buyback as

than capital In here buying But and got we at and on sometimes make used is this back. is deploy risk it capital take bigger the loans our quarter, just $X.XX. buyback. to best Our it

X swaps? And What $XXX right. All those $X.X you life the NIM would that be is I swaps added a the million, were then annually. of think benefit impact said million of the of

and years in. the So X X layered Brady. between in There we probably them have of terms are kind on those, is years

me, does high comes when U.S. Century Office. Okay. And to finally it for a little screen

if anticipate And guys -- over a office is of you quality But just right on your was do performing noise so mean, an now. I clean you you for Office how I in little in seeing So I wondering time? you just any wanted update anticipate think is more markets? credit

-- I We watching commissioned third-party in Well, we studies every requests we our paid carefully concentration that my every your we to nationwide. is say I best Office segments, other cannot Miami, probably major understand Office Office, is I compared is are there's concern. and really that CRE And fundamental probably for. the in are annual In a new comes have either issues from segment reviews. Office, market anticipate do big This big frankly, concern and but in U.S. not the have book. or we in know this not any addressing opinion. a doing

next Our Raymond from comes from question James. Michael Rose

you think start And margin. that beta just you those the the and of push of where wanted verticals. bit the assumptions what on you of and mix just can several trough? could then NIB source to maybe Rob, DDA remind takes. of have know appreciate lending I us any deposits a guys kind I a all little kind on? and your on the are side, the color Are puts Can different just harder you

Okay.

So make quarter should probably ago a year increase, started to said no the we rate rates cycle. when

be said a always the of XX% cycle, kind rate we on So beta. up through could we total around deposit to

peak now. XX% CDs on XX%. So we're betas at We're our markets money then around that and anticipating repricing right around

the run can So the $XXX line. clients for We of had lot past hoping I in you ]. days to the March asking come competitors We do a specials. door in few had and have rates hold [ XXX post at cash. But we're million we tell

of but not. those have abated, Some others have

select market with certainly it were hold bit challenge us. DDAs big the I'd our [ come First basis, that's to only money see but ] marketplace a XX%, and XXX a in a on account. Horizon was like at back We core a for but matching

front, just bit momentum, guys in have very little It's prior than color. on growth quarters. obviously then continue that to some challenging. slower a And Appreciate but Okay. the you loan

dynamics repricing competitive if sorry mentioned if quarters? over And this -- the production in for get the yields next growth Just the we kind expect are don't I'm Rob. or it, market. what could of a I the where you missed of I for but kind know the loan new wanted to? What couple of to sense loans

is Sure, Luis. Mike, this

as more have selective shift pointed historically mentioned, which last attorney -- opportunity been and actually, that's on C&I here, consumer lending seeing doing in very we the year side, [indiscernible] last are ever strongly, very, the than more C&I the focused on on the HOA very SBA don't We -- consistently yacht Again, I good had side, as steadily doing all on being down. The deposits. a initiatives, we're us component are coming and Again, loans, very the Advantage market in well the Ben our very business actually that, the stop. we've have on CRE. is gives which and and HOA down, they've our think we on trended going to delivered, very

correspondent doing also foreign core Our banking on been additional in well has very bringing very, deposits.

more doing So that in were looking going line believe next we're seeing forward. a I believe which be quarters. of X.X. to fundings going going continue That's going steadily. We on for coupon production year, that X about quarter. be what saw per last single to we're very we go-forward that's we we is quarterly at digit with that Again, to be the and our projecting what pipeline $XXX low going to I our believe million a anticipate well It's over

XX%, appreciate C&I like level is Slide And it. mix to XX, percentage? just a terms Luis, to a to of at there in target you'd get Got strive to with

to about that shoot book. XX% overall be for XX% at the like would I to probably of to

training order Having in lot the developing able They've years, developed in for it's market been experts larger think easy. the overall matter subject we success the I team the in desirous banks. real brought of this And from here are a not I real had leverage in strategies, greatest really that XX tell of to you team. that. with can we've not because community we've verticals to production writing the policies, assist only been banks

seeing think, has But is We CRE economy. it, that move in to do So that. do not to XXXX We're be going with portion a XX% believe to in that's a real we're believe or I X% are denominated component and to our again, trying we're increase. from continue, all these going shy always and business We're this second we and very I that, transactional, estate And South significant. are banked. in the fully going you're C&I we been notwithstanding, And doing in quarter, best not well. the bring quality lending continue. non-CRE pretty pleased about Florida, to but

just Great. here. I the on side. for appreciate just from me, finally relatively color expense expenses Maybe stable around the

but down this, higher. guys You employee have did -- little salaries the march count the continued missed in a and has a sorry line you to bit if I guys step

at XXX or were you so. think I

X are I side then think But wanted get levers pull to can bit? there just the that a little on down other color sequentially. was you And that some up to bring any there. cost expense

Yes.

expenses, and the and benefits accrual, on company our on lower did that's performance. decreased. based So salaries incentive We

team all our down. our and win, that we then doesn't So here that wins, goals, is guess, do -- we the bring I mantra if stated our the team if

be So some would and you looking the on that's I table, a we'll we'll but everything adjust opportunities, that. type tell that on at there basis, quarterly are

So but say would right the below XX.X% we rate. now, or run as at a expect -- I slightly

Strickland question from Feddie next comes Our Janney Montgomery Scott. from

to quarter. should If X% mentioned fourth margin correctly, by around think I heard the you I get you the back

Are of how some of are levers front-loaded earning through kind more result rising you the Is there that beta there costs remix, thinking driving there. that had outlook? in other too to the from Is we those pull Just since swap? able deposit assets you're factors have that of new get primarily? the production, you a combination stabilizing it

not for the on cut going margin is XXX So us. to it certainly, margin,

We feel So we've higher. got a the back we number that things like get to will grind out put can X%. to of us

higher that is us. would for I on multiple that, main there's but contribute item putting goal one think say The is XXX. good I would that above main and a the to X% factors asset earning -- yields

or above. goal production XXX a quarter the loan So at Luis XXX as mentioned in

hit for costs, but higher a deposit we We deposit be goals. Certainly, edges, help that's if margin bit on going on costs the our our the have swaps some is hit on but us opportunity, and yields. have the to loans to And putting controlling higher thing earning We piece yields. margin our asset repricing, the marks is the great. controlling of do that main on little main will to get putting some those

makes sense. of That onetime And way CD move Understood. was term what kind of we deposits to same see as just Or of And that really along much brokered questioning, brought more not you a that necessarily necessarily? a of on? that? grow that could the line was to short liquidity, to

So at rolling X-year. and else of right the around brokered think mean a than rate of near now. I CD getting probably anything was We're the end I those, is one-off the cycle. that or a we're more

So We -- inverted for some time, pauses to anticipate an curve. Fed we're living go yield or whether inverted. but not. in we're still that the mean on I still

for the out the reason curve, is X years the going swaps. to So years X on

deposits you it in the it? I for or is past, last the concern just seems haven't not whether about a given get And Is that I been Got something worried to saw much this focused Or too to that around like XXX% grew, just happy one whether quarter. you're where your uninsured depositors of on as coverage it it it. that is? want one to think, me. liquidity of you're XX%

We're model. Well, I think a bank. of not retail deposit is simply the business uninsured our reflective figure very

labeled all portfolio XX. to We've the down happened. unsure quickly banks kind our happening. to clients was which correspondent CDAR in HOAs. within discuss don't and and had, hours, did were we managers. were that the all that March really events broken that Probably have top Everybody Each clients we only ICS talked here different What very the ones we by when products is have one white the We we of spoke the past, our interested that spoke was to top traditionally concerned what XX that. the the

side. on the be the to, as more and wanted I So more safer guess, we educated clients,

seeing shift refers started so you And mix, as it. Rob that to

things to a going that go continue it gain think basis think time. popularity. of to this customer. kind on I that know just any be the slowly big I event, They people at continually the anywhere. they it's significant educate will here. make in one don't is are doing of don't ongoing have there an point move to that Should But can to ever we do

in so, done as and good I and job think the them she And steady creating educating a we've goes. product

Makes the sense. and role. Appreciate guys, on the color Luis, congrats, Chairman

At this there more questions. are no time,

Okay.

all calls, field the We So and your call thank the always earnings to our welcome you had. opportunity for and take attending share questions we've for dialogue this plans. any

team industry in very the X capitalize a from While this years around, Board. regulatory turning IPO. look confidence is franchise They a traversing under hard environment, to a taking I the and it oversight improve in and ones for to we full opportunities so on challenges. have challenging are operating these this successful on very that work

The results. a nation. performance. economy motivated best our And is not as and in Our the quarter earlier, does plan define clear. Florida delivering team The among is said the is I single

in you our in earnings next much, very all on updating said, So planned great that have and and as a call. With progress on weekend. thank our we forward all look delivering you

This concludes the meeting.

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