USCB Financial Holdings, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
USCB Financial Holdings is the holding company for U.S. Century Bank, a Florida state-chartered bank serving South Florida. This unaudited report covers the quarter ended March 31, 2022. Unless noted otherwise, quarterly results are compared with Q1 2021; balance-sheet figures are compared with December 31, 2021.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparison |
|---|---|---|
| Interest income | $15.3 million | $13.7 million in Q1 2021 |
| Net interest income | $14.4 million | Up 15.3% from $12.5 million |
| Net interest margin | 3.22% | 3.35% in Q1 2021 |
| Net income | $4.9 million; diluted EPS $0.24 | $4.8 million in Q1 2021; EPS was $0.78 for Class A and $0.16 for Class B |
| Non-interest income / expense | $1.9 million / $9.6 million | Income down 16.2%; expense up 10.8% |
| Net cash from operating activities | $5.6 million | $4.1 million in Q1 2021 |
| Total assets | $1.97 billion | Management reports 20.4% growth year over year |
| Net loans / deposits | $1.24 billion / $1.71 billion | Deposits up 22.0% year over year |
| Cash and cash equivalents | $94.1 million | $46.2 million at December 31, 2021; $105.9 million at March 31, 2021 |
| FHLB advances | $36.0 million | Unchanged from December 31, 2021 |
| Stockholders’ equity | $192.0 million | Down from $203.9 million at year-end, primarily reflecting quarterly other comprehensive loss |
Net income rose modestly, while net income available to common shareholders increased from $4.0 million to $4.9 million because no preferred dividends were paid in Q1 2022. Per-share comparisons are affected by the 2021 IPO, preferred-share exchanges and redemptions, and the Class B-to-Class A share exchange.
Material changes, outlook and risks
- Net interest income growth reflected higher loan and investment income and lower funding costs; margin nevertheless declined. Non-interest income fell mainly because of fewer loan-sale gains. Higher salaries and employee benefits, including new hires and seasonal payroll taxes, drove much of the expense increase.
- Gross loans grew 5.6% from year-end, including purchases of commercial real estate and residential loans. Commercial real estate represented 62.1% of gross loans. Management said it did not expect a significant near-term change in portfolio composition or its emphasis on commercial real estate lending.
- Asset quality indicators were favorable: no non-accrual loans at quarter-end, compared with $1.2 million at year-end; non-performing loans were 0.00% of total loans. The allowance for credit losses was $15.1 million, or 1.20% of loans. No provision was recorded in Q1 2022.
- Unrealized investment-security losses increased materially: available-for-sale securities had $27.0 million of net unrealized losses at March 31, versus $4.3 million at year-end; held-to-maturity securities had $9.7 million of unrecognized losses versus $2.5 million. Management attributed declines to market interest rates rather than credit quality and reported no securities classified as other-than-temporarily impaired. The securities-related after-tax loss contributed to a $16.9 million quarterly other comprehensive loss.
- Estimated uninsured deposits were $1.0 billion, and the top ten lending relationships totaled $187.1 million, or 14.9% of net loans. Foreign-bank loans in Ecuador, Honduras and El Salvador totaled $61.4 million; related deposits with right of offset were $30.3 million.
- The Bank was well capitalized and exceeded required capital conservation-buffer levels. The Company and Bank reported total risk-based capital ratios of 14.49% and 14.41%, respectively. Management stated liquidity resources were adequate. The Bank had $36 million in fixed-rate FHLB advances and no outstanding Fed Funds line borrowings.
- Management described the company as asset-sensitive: its model estimated that a 400-basis-point rate increase would raise year-one NIM to 3.28% from a 3.17% base case, while higher rates were expected to reduce economic value of equity. These are model estimates, not guidance, and depend on assumptions about rates, prepayments and deposit behavior.
- The Board approved a discretionary repurchase program for up to 750,000 Class A shares; none had been repurchased by March 31. Management expects to adopt CECL on January 1, 2023 and said the standard is expected to significantly change credit-loss policies, disclosures and estimation methods; the financial impact was not yet determined.
- The effective tax rate was 27.7%; management cited a one-time $300,000 deferred-tax-asset adjustment. The filing reports no material legal proceedings and no material change to previously disclosed risk factors. Key risks include South Florida and real-estate lending concentrations, interest-rate, credit and liquidity exposure, uninsured deposits, inflation, and regulatory and CECL-related changes.
Important facts for investors to verify
- How rising rates and deposit repricing affect net interest margin, funding costs and investment-security values.
- Whether commercial real estate, large borrower, foreign-bank and uninsured-deposit concentrations change, and how credit quality and the allowance develop.
- The extent and timing of any recovery in securities values, and implications for tangible book value and reported equity.
- Loan and deposit growth, cash generation, capital ratios, and any execution of the 750,000-share repurchase authorization.
- Management’s CECL implementation progress and eventual estimated adoption impact.