First US Bancshares, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. Figures are unaudited. Unless otherwise stated, dollar amounts are in millions.
Business context
First US Bancshares is a bank holding company operating First US Bank and consumer finance subsidiary Acceptance Loan Company (ALC). The Bank serves Alabama, Tennessee and Virginia, with additional indirect lending across multiple states. The company reported 19 banking offices and 20 ALC offices at quarter-end.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $0.950 million; diluted EPS $0.14 | Q1 2020: $0.847 million; diluted EPS $0.13 |
| Net interest income | $9.064 million | Q1 2020: $8.886 million |
| Net interest margin | 4.40% | Q1 2020: 4.97% |
| Provision for loan and lease losses | $0.401 million | Q1 2020: $0.580 million |
| Non-interest income / expense | $0.951 million / $8.396 million | Q1 2020: $1.297 million / $8.494 million |
| Total assets | $926.5 million | December 31, 2020: $890.5 million |
| Total loans / net loans | $670.5 million / $659.2 million | December 31, 2020: $650.1 million / $638.4 million |
| Total deposits | $818.0 million | December 31, 2020: $782.2 million |
| Cash and cash equivalents | $125.9 million | December 31, 2020: $94.4 million |
| Shareholders’ equity | $87.9 million; 9.5% of assets | December 31, 2020: $86.7 million; 9.7% of assets |
| Short-term borrowings | $10.0 million | Unchanged from December 31, 2020; no long-term FHLB advances |
Operating cash flow was $1.9 million, compared with $1.0 million in Q1 2020. Investing activities used $6.1 million, principally reflecting $21.9 million of net loan growth, partly offset by securities maturities and prepayments. Financing activities provided $35.6 million, including a $35.8 million deposit increase. Cash and cash equivalents increased $31.5 million during the quarter.
The Bank reported capital ratios above regulatory “well-capitalized” thresholds: common equity Tier 1 and Tier 1 risk-based ratios were each 11.42%, total capital was 12.50%, and Tier 1 leverage was 8.73%. The quarterly dividend was $0.03 per share.
Material changes versus comparable periods
- Net income increased about 12% year over year, while net interest income rose modestly. Lower deposit costs more than offset reduced interest income: total interest income fell $0.6 million and interest expense fell $0.7 million.
- Net interest margin declined 57 basis points to 4.40%, reflecting lower asset yields, excess low-yield cash, and a reduced mix of higher-yield ALC consumer loans. Average loans were $104.8 million higher year over year, but loan interest income declined $0.1 million.
- Non-interest income decreased $0.35 million, mainly because of lower deposit service charges and the closure of the mortgage division in Q4 2020. Non-interest expense declined $0.10 million, primarily from lower salaries and benefits.
- Loans grew $20.4 million from year-end, led by real estate and indirect lending; deposits increased $35.8 million. The investment portfolio declined to $75.8 million from $91.4 million.
- Nonperforming assets fell to $3.45 million, or 0.37% of assets, from $4.04 million, or 0.45%, at year-end. Non-accrual loans were $2.51 million versus $3.09 million.
Outlook, risks and unusual items
- Management expects continued pressure on net interest income and margin from low rates and substantial investable cash balances. It plans to seek qualifying loan growth and continue repricing deposits lower; it also notes competition for creditworthy loans and deposits.
- COVID-19-related loan deferments declined to $1.2 million from $8.1 million at year-end. Management’s identified higher-risk hotel/motel and dine-in restaurant loans totaled $12.1 million, or 1.8% of loans, versus $13.5 million, or 2.1%. Management cautions that economic impacts remain uncertain.
- The allowance was $7.475 million, 1.12% of total loans and 1.15% excluding SBA-guaranteed PPP loans. Management considered it sufficient under the incurred-loss model but said further deterioration could require additional provisioning. CECL adoption is expected by January 1, 2023; the eventual transition adjustment is not yet known.
- There were 154 PPP loans outstanding totaling $14.8 million; 76 borrowers had received forgiveness. PPP loans are SBA-guaranteed, and $0.387 million of net deferred fees remained at quarter-end.
- Available unused FHLB credit was $217.1 million, subject to collateral; unused correspondent-bank lines were $44.8 million and Federal Reserve discount-window availability was $1.4 million. Management said liquidity was adequate for obligations and commitments over the next 12 months.
- Interest-rate simulations estimate that a 100-basis-point increase would raise cumulative net interest income by $1.084 million over one year; a 100-basis-point decrease would reduce it by $0.720 million. These are model estimates, not guidance.
- On April 28, 2021, after quarter-end, the board authorized repurchases of an additional 1 million shares and extended the program through December 31, 2022. No shares were repurchased under the program during Q1; 6,965 shares were purchased in the quarter by an independent trustee for the 401(k) plan.
- The company reported ordinary-course litigation that management does not expect to materially affect results, and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective; no material change in internal control was reported.
Important facts for investors to verify
- Whether loan growth can sustain earnings as the net interest margin contracts and excess cash is deployed.
- Trends in non-accrual loans, past-due credits, charge-offs, the allowance, and borrower performance after COVID-related deferments.
- Deposit stability and funding costs, including the degree to which recent deposit growth reflects temporary liquidity and stimulus-related factors.
- PPP forgiveness, remaining deferred fees, and the effect of PPP balances on reported loan yields and allowance ratios.
- The eventual financial impact and implementation of CECL, and the company’s exposure to LIBOR/reference-rate transition.
- Execution of the expanded share repurchase authorization and any subsequent capital or dividend decisions.