First US Bancshares, Inc. — 2023 Form 10-K
Business context and reporting period. The company is a bank holding company operating First US Bank, a community and commercial bank headquartered in Birmingham, Alabama, with branches in Alabama, Tennessee and Virginia and indirect consumer lending in 17 states. This filing covers the fiscal year ended December 31, 2023; comparisons are primarily with 2022. Amounts below are in millions unless otherwise noted.
Key financial metrics
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Net interest income | $37.35 | $36.94 | Up 1.1% |
| Provision for credit losses | $0.32 | $3.31 | Lower, primarily reflecting reduced legacy ALC charge-offs |
| Non-interest income | $3.38 | $3.45 | Down 2.0% |
| Non-interest expense | $29.14 | $28.07 | Up 3.8% |
| Net income | $8.49 | $6.86 | Up 23.6% |
| Diluted EPS | $1.33 | $1.06 | Up 25.5% |
| Net interest margin | 3.87% | 4.07% | Down 20 basis points |
| Total assets | $1,072.94 | $994.67 | Up 7.9% |
| Total loans | $821.79 | $773.87 | Up 6.2% |
| Total deposits | $950.19 | $870.03 | Up 9.2% |
| Shareholders’ equity | $90.59 | $85.14 | Up 6.4%; 8.4% of assets versus 8.6% |
- Interest and margins: Interest income rose to $52.81 million from $41.20 million, but interest expense increased faster, to $15.46 million from $4.26 million. Average earning-asset yield rose to 5.47% from 4.53%; total funding cost increased to 1.65% from 0.48%.
- Cash flow: Operating activities provided $13.07 million; investing activities used $60.45 million; financing activities provided $67.51 million. Cash and cash equivalents ended the year at $50.28 million, up from $30.15 million.
- Credit quality: Net charge-offs were $1.08 million, or 0.14% of average loans, versus $2.21 million, or 0.30%, in 2022. The allowance for loan losses was $10.51 million, or 1.28% of loans, versus $9.42 million, or 1.22%. Nonperforming assets were $3.00 million, 0.28% of assets, versus $2.34 million, 0.24%.
- Liquidity and funding: Core deposits were $819.5 million, 86.2% of deposits, compared with $778.1 million, 89.4%. Brokered deposits were $82.7 million, including a $20.2 million year-over-year increase. Estimated uninsured/uncollateralized deposits were $200.3 million, or 21.1% of deposits, up from $148.3 million, or 17.1%.
- Borrowings and capital: Year-end short-term borrowings were $10.0 million and long-term borrowings were $10.8 million, principally subordinated notes. The Bank’s CET1 and Tier 1 risk-based capital ratios were each 10.88%; total risk-based capital was 12.11%, and Tier 1 leverage was 9.36%. The Bank was classified as well-capitalized.
Material changes versus the prior comparable period
- Net income improved, supported by higher loan balances and yields and a substantially lower credit-loss provision. Margin nevertheless contracted as deposit and other funding costs rose sharply.
- Loans grew $47.9 million, led by indirect consumer, commercial construction and non-farm/non-residential real estate lending. Indirect consumer loans reached $306.3 million, about 37% of total loans.
- Deposits grew $80.2 million, with interest-bearing deposits increasing and non-interest-bearing deposits declining $16.2 million. Core deposits’ share of total deposits fell 3.2 percentage points.
- Cash and cash equivalents rose $20.1 million. Readily available liquidity, including off-balance-sheet sources, was reported at $375.3 million versus $166.4 million. Discount-window borrowing capacity supported by pledged collateral increased to $161.7 million from $1.2 million.
- Unrealized net losses in the available-for-sale securities portfolio narrowed to $9.3 million from $11.1 million; the company attributed them to interest rates, not issuer credit concerns, and recorded no securities credit-loss allowance.
- Shareholders’ equity increased, partly offset by the $1.8 million after-tax CECL transition adjustment and $1.4 million of share repurchases. Dividends increased to $0.20 per share from $0.14.
Outlook, commentary, risks and unusual items
- Management provided no numerical earnings or balance-sheet guidance. It expects comparable cash dividends, subject to results, regulatory requirements and other constraints, and does not expect significant near-term growth in non-interest income.
- Management cites elevated inflation, higher rates, intense competition for deposits and an inverted yield curve as uncertainties. Continued rate or deposit-cost changes could affect net interest income; the filing’s modeled scenarios show higher rates generally benefiting projected net interest income and lower rates reducing it.
- Commercial real estate loans totaled $301.7 million, or 36.7% of the loan portfolio. Nonaccrual CRE loans were $1.3 million. Management is enhancing monitoring; risks include weaker property values, refinancing pressure and borrower stress.
- The indirect consumer portfolio is a significant concentration and had $0.93 million of gross charge-offs in 2023, up from $0.38 million in 2022. Management also identifies possible future credit deterioration from inflation and higher rates.
- The company adopted CECL on January 1, 2023. The transition increased loan-loss allowances by $2.1 million, established a $0.3 million reserve for unfunded commitments, and reduced retained earnings by $1.8 million after tax. The auditor identified the loan-loss allowance as a critical audit matter.
- Termination of interest-rate swaps generated deferred gains that are being recognized over the original contract terms; derivative hedging instruments contributed a net $1.51 million increase to 2023 pretax income. Three new $10 million fair-value hedges were entered into in 2023.
- Acceptance Loan Company ceased new business in 2021 and was dissolved in 2023; the Bank continues to manage its remaining $10.5 million loan portfolio. ALC and FUSB Reinsurance were dissolved after transferring remaining assets and liabilities to the Bank.
- Ordinary-course litigation is not expected by management to materially affect results. Management reported effective internal control over financial reporting; the independent auditor gave an unqualified opinion on the financial statements but did not attest to internal controls.
Important facts for investors to verify
- Whether deposit competition and higher funding costs continue to compress net interest margin, and how deposit mix and brokered funding evolve.
- Performance and loss trends in the indirect consumer portfolio, and whether the allowance remains adequate under CECL assumptions and forecasts.
- CRE concentration, the status of the nonaccrual CRE loan, and borrowers’ refinancing and collateral conditions.
- Actual availability and terms of reported liquidity sources, including collateral-dependent FHLB and Federal Reserve capacity, alongside the higher uninsured-deposit balance.
- How recurring earnings compare with 2023 results, which included lower provision expense and deferred gains from terminated swaps; also assess dividend and repurchase capacity under regulatory limits.