USCB Financial Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 24, 2023. This is an annual report, not a standalone fourth-quarter report. USCB operates U.S. Century Bank, a South Florida community bank with 10 banking centers, focused on small and midsize businesses and specialty banking services.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income before credit-loss provision | $63.7 million | $52.5 million |
| Net interest margin | 3.38% | 3.26% |
| Net income | $20.1 million | $21.1 million |
| Net income (loss) available to common shareholders | $20.1 million | $(70.6) million |
| Total assets at year-end | $2.086 billion | $1.854 billion |
| Total loans at year-end | $1.507 billion | $1.190 billion |
| Total deposits at year-end | $1.829 billion | $1.590 billion |
| Stockholders’ equity at year-end | $182.4 million | $203.9 million |
- Net income fell about 4.4%. Diluted EPS was $1.00 in 2022 versus a reported loss of $6.72 in 2021; the prior-year common-shareholder loss included an $89.6 million one-time charge from preferred-share exchanges and redemptions. Excluding that item, 2021 adjusted diluted EPS was $1.81, versus $1.00 in 2022.
- Net interest income rose 21.3%, supported by loan growth and higher asset yields. Average earning-asset yield increased to 3.78% from 3.52%; the cost of interest-bearing liabilities rose to 0.66% from 0.45% as rates increased.
- Noninterest income declined to $5.2 million from $10.7 million, principally reflecting a $2.5 million securities-sale loss and the absence of 2021 one-time income, including a $2.5 million loan settlement recovery and a $1.0 million property-sale gain. Noninterest expense increased 10.2% to $39.3 million, primarily from compensation and public-company costs. The efficiency ratio was 57.06%, compared with 56.31%.
- Cash flow: operating activities provided $29.5 million; investing activities used $270.6 million, largely reflecting loan growth and securities activity; financing activities provided $249.0 million, including $238.9 million of deposit growth. Cash and cash equivalents ended at $54.2 million, up from $46.2 million.
- Year-end FHLB advances were $46.0 million, up from $36.0 million; weighted-average rate was 2.60%, with most advances due in 2023. Lease liabilities were $14.4 million. The filing reports no outstanding Fed Funds line borrowings.
- Regulatory capital remained above well-capitalized thresholds. The regulatory table reports total risk-based capital of 13.58%, Tier 1 and CET1 ratios of 12.47%, and leverage of 9.56% at year-end. Management’s highlights elsewhere cite different figures; investors should verify the applicable ratios in the regulatory capital note and call report.
Material changes versus the prior year
- Loans grew 26.7% and deposits 15.0%; total assets increased 12.5%. Loan growth included $70.2 million of purchased loans. Commercial real estate (CRE) loans reached $970.4 million, or 64.4% of gross loans, versus $705.0 million, or 59.2%, in 2021.
- Investment securities declined to $418.8 million from $524.2 million as repayments and proceeds supported loan growth. The company transferred securities with $74.4 million amortized cost and $63.8 million fair value from available-for-sale to held-to-maturity in 2022. Year-end accumulated other comprehensive loss was $44.8 million, compared with $2.5 million a year earlier.
- Nonperforming assets fell to zero from $1.2 million. The allowance for credit losses increased to $17.5 million, while declining as a share of loans to 1.16% from 1.27%.
- Stockholders’ equity decreased despite 2022 earnings, reflecting primarily the $42.2 million after-tax comprehensive loss associated largely with unrealized securities losses.
Outlook, risks and unusual items
- No formal earnings or growth guidance is provided. Management described organic growth and potential strategic acquisitions as its strategy, while saying it expects no significant near-term change in loan mix or emphasis on CRE lending.
- The bank exceeded CRE concentration supervisory indicators: CRE loans were 390% of risk-based capital, and the portfolio had grown at least 50% over the prior 36 months. Management reports monitoring exposures and conducting annual stress testing.
- CECL was adopted January 1, 2023. The company estimated an initial increase of approximately $1.0–$2.0 million in the loan-loss allowance and $0.2–$0.6 million in the reserve for unfunded commitments; estimates remained subject to refinement, and management expected greater quarterly provision volatility.
- Deposits were a key funding source, but an estimated 39% were FDIC-insured at year-end; estimated uninsured deposits were $1.1 billion. The top 15 depositors held 12% of deposits, and public funds represented 11%. The filing discusses March 2023 banking-sector disruptions and says the bank had not accessed the new Bank Term Funding Program by the financial-statement issuance date.
- Other material risks include South Florida and real-estate concentration, interest-rate and liquidity risk, deposit competition, inflation, credit quality, foreign correspondent banking and BSA/AML compliance, cybersecurity/vendor disruption, severe weather, and regulatory requirements.
- In February and March 2023, after year-end, the company repurchased 250,000 shares in each month at $12.04 and $11.39 per share, respectively. No shares had been repurchased by December 31, 2022.
- The independent auditor issued an unqualified opinion. Management concluded disclosure controls and internal control over financial reporting were effective at year-end and reported no material weaknesses. No material legal proceedings were reported.
Investor verification priorities
- Reconcile regulatory capital ratios: the MD&A highlights and regulatory-capital table report different 2022 values.
- Assess liquidity and deposit stability, including uninsured balances, large relationships, public funds, pledged collateral, and the maturity of FHLB advances.
- Review CRE concentration, loan underwriting and collateral, geographic exposure, and the sensitivity of asset quality to a South Florida downturn.
- Evaluate securities unrealized losses, AOCI, the AFS-to-HTM transfer, and the potential effects of deposit outflows or asset sales.
- Confirm the final CECL adoption adjustment and subsequent credit-loss and unfunded-commitment reserve trends.
- Review full-year cash-flow drivers and the effects of post-year-end share repurchases on capital and per-share measures.