USCB Financial Holdings, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared with 2022. This is an annual filing, not a standalone fourth-quarter report. USCB is a Florida bank holding company operating U.S. Century Bank, with 10 banking centers focused on South Florida and $2.34 billion of year-end assets.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $2.339 billion | $2.086 billion |
| Total loans, year-end | $1.781 billion | $1.507 billion |
| Total deposits, year-end | $1.937 billion | $1.829 billion |
| Total stockholders’ equity, year-end | $192.0 million | $182.4 million |
| Interest income | $101.0 million | $71.1 million |
| Net interest income before credit-loss provision | $58.6 million | $63.7 million |
| Noninterest income | $7.4 million | $5.2 million |
| Noninterest expense | $41.8 million | $39.3 million |
| Net income | $16.5 million | $20.1 million |
| Diluted earnings per share | $0.84 | $1.00 |
| Net interest margin | 2.79% | 3.38% |
| Efficiency ratio | 63.37% | 57.06% |
| Return on average assets / equity | 0.75% / 8.99% | 1.01% / 10.73% |
- Assets grew 12.1%, loans 18.1%, and year-end deposits 5.9%. Net loans after the allowance were $1.760 billion.
- Cash provided by operating activities was $22.5 million; investing activities used $273.0 million and financing activities provided $237.4 million. Cash and cash equivalents fell $13.1 million to $41.1 million.
- The Bank’s year-end regulatory capital ratios were 12.65% total risk-based, 11.48% Tier 1 and CET1, and 9.17% leverage; the Bank was classified as well capitalized. The holding company is below the $3 billion small-bank-holding-company asset threshold for separate regulatory capital requirements.
Material changes versus 2022
- Net income declined 17.9%. Although interest income rose, interest expense increased much faster: the weighted average cost of interest-bearing liabilities rose to 3.07% from 0.66%, and net interest income fell 8.0%. Management attributed the margin pressure chiefly to higher funding costs.
- Average deposits increased, but average noninterest-bearing deposits declined 5.9% as customers moved funds into interest-bearing accounts. The average rate paid on deposits rose to 2.06% from 0.39%.
- Noninterest income increased, principally from higher service fees and bank-owned life insurance income. The securities portfolio restructuring generated a $1.9 million loss on securities sales, versus $2.5 million in 2022.
- Noninterest expense rose 6.4%, including higher regulatory assessments, technology and other operating costs, and staffing. The efficiency ratio worsened by 6.31 percentage points.
- The allowance for credit losses was $21.1 million, or 1.18% of loans, versus $17.5 million, or 1.16%, at year-end 2022. Adoption of CECL on January 1, 2023 increased the loan allowance by about $1.1 million and reduced opening retained earnings by about $1.0 million after tax; 2022 was not restated.
- Nonperforming assets were $468,000, or 0.03% of loans, compared with none at year-end 2022. Substandard loans increased to $9.5 million from $3.9 million.
Liquidity, funding and other notable items
- At year-end, the Company reported $224.8 million of available on-balance-sheet liquidity, including $187.7 million of unpledged securities and $37.1 million of excess cash, plus $395.0 million of additional off-balance-sheet liquidity. These figures exclude brokered deposits and other off-balance-sheet funding sources.
- Estimated uninsured deposits were $1.1 billion; 45% of deposits were estimated to be FDIC-insured. The top 15 depositors held 20% of deposits; public funds were 13.9%. Brokered CDs totaled $50 million when raised in 2023 at a 4.98% weighted average rate and renewed in Q1 2024 at 5.13%.
- FHLB advances were $183.0 million at year-end, up from $46.0 million, with a 4.4% weighted average rate. After year-end, the Company borrowed $80 million through the Bank Term Funding Program on January 12, 2024, at 4.81%, due January 10, 2025. The program stopped making new loans in March 2024.
- Investment securities totaled $404.3 million. The filing reports approximately $79.4 million of gross unrealized losses across securities at year-end, primarily attributed by management to interest-rate and spread movements rather than credit deterioration. Management said it did not intend, and was not more likely than not required, to sell securities in loss positions before recovery of amortized cost.
- The loan portfolio remained concentrated in commercial real estate (CRE): $1.048 billion, or 58.8% of gross loans. CRE was 384% of risk-based capital and had grown at least 50% over the prior 36 months, meeting regulatory guidance indicators for heightened concentration scrutiny. The Bank reported annual CRE stress testing and exposure monitoring. Non-owner-occupied CRE was 68% located in South Florida.
- Management described the Bank as slightly asset-sensitive/neutral in year one and asset-sensitive in year two. Its static model estimated year-one NIM of 2.81% in the base case and 2.86% under a +400-basis-point scenario; the filing cautions that model assumptions mean actual results may differ. No specific earnings or financial guidance is provided.
- The Company repurchased 669,920 shares for approximately $7.6 million during 2023, leaving 80,080 shares authorized under the program. It declared no dividends in 2023; in January 2024 it approved a $0.05-per-share quarterly dividend, with approximately $1.0 million paid in March.
- Related-party loan purchases were $85.1 million in 2023, and the Bank paid the related entities $1.9 million in fees. The filing reports no material current legal proceedings; a shareholder lawsuit over a 2021 exchange transaction was dismissed with prejudice in December 2023, subject to the court’s retained jurisdiction over costs or post-judgment relief.
Management commentary, risks and contingencies
Management’s stated strategy centers on relationship-based banking for small and midsize businesses, organic growth, specialty lending and deposit verticals, and potential strategic acquisitions. Key risks include South Florida and real-estate concentration, CRE market weakness, higher deposit costs and deposit outflows, interest-rate changes, credit deterioration, liquidity access, inflation, severe weather, cybersecurity and third-party service disruptions, and heightened BSA/AML exposure from correspondent banking in Latin America and the Caribbean. The allowance depends on forecasts and management judgments; CRE qualitative-factor sensitivity testing showed a hypothetical $6.1 million, or 32.6%, increase in the allowance under the tested maximum-loss assumptions.
The Company reported that its disclosure controls and internal control over financial reporting were effective at December 31, 2023, with no material weakness identified by management. The independent auditor issued an unqualified opinion on the financial statements; the filing does not include an auditor attestation on internal control.
Most important facts for investors to verify
- Deposit mix and stability: uninsured balances, deposit pricing and retention, brokered CD renewal costs, and reliance on large or public-fund relationships.
- Funding and liquidity after year-end, including the $80 million BTFP borrowing, its repayment plan and the availability of remaining contingent liquidity.
- CRE concentration, South Florida property exposures, portfolio growth, collateral values, stress-test results and any supervisory response.
- Whether loan-quality deterioration and CECL assumptions warrant higher provisions, particularly given the increase in substandard loans and new nonperforming loans.
- Net interest margin and earnings sensitivity as deposit costs reprice, market rates change and interest-rate swaps affect funding and asset duration.
- Unrealized securities losses, pledged collateral and management’s ability to hold affected securities until recovery without adverse liquidity needs.
- Related-party loan purchases and fees, and the terms and regulatory capacity supporting the new dividend and any further repurchases.