First US Bancshares, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020, with comparisons to 2019; it is not a standalone fourth-quarter filing. First US Bancshares operates First US Bank, consumer finance subsidiary Acceptance Loan Company (ALC), and FUSB Reinsurance. Its banking and finance activities primarily serve Alabama and nearby states. The Bank permanently closed a Thomasville, Alabama office in July 2020. The company transferred $45.5 million of indirect loans from ALC to the Bank effective January 1, 2020.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $35.8 million | $36.9 million |
| Provision for loan losses | $2.9 million | $2.7 million |
| Non-interest income | $5.0 million | $5.4 million |
| Non-interest expense | $34.3 million | $33.8 million |
| Net income | $2.7 million | $4.6 million |
| Diluted earnings per share | $0.40 | $0.67 |
| Net interest margin | 4.69% | 5.18% |
| Operating cash flow | $6.1 million | $11.3 million |
- At year-end, total assets were $890.5 million, up from $788.7 million; loans net of allowance were $638.4 million versus $545.2 million, and deposits were $782.2 million versus $683.7 million.
- Cash and cash equivalents were $94.4 million, compared with $57.0 million. Investment securities totaled $91.4 million, down from $108.4 million.
- Gross loans were $650.1 million. The allowance for loan and lease losses was $7.47 million, or 1.16% of loans (1.18% excluding SBA-guaranteed PPP loans), versus 1.05% in 2019.
- Nonperforming assets declined to $4.0 million, or 0.45% of assets, from $4.8 million, or 0.61%. Net charge-offs were $1.2 million, 0.21% of average loans, versus $2.0 million, 0.38%.
- Shareholders’ equity was $86.7 million, or 9.7% of assets, versus $84.7 million, or 10.7%. The Bank was regulatory “well-capitalized”: CET1 and Tier 1 risk-based ratios were 11.78%, total risk-based capital 12.92%, and Tier 1 leverage 8.98%.
- Year-end borrowings consisted of $10.0 million of short-term borrowings; there was no long-term debt. The company reported $225.8 million of remaining FHLB capacity, subject to collateral, and $51.4 million of unused federal funds lines.
- Cash flow from operations was $6.1 million; investing activities used $66.1 million, primarily reflecting loan growth, while financing activities provided $97.4 million, largely from deposit growth. Cash and cash equivalents increased $37.4 million.
- Dividends were $0.12 per share for 2020, up from $0.09. The company repurchased 38,604 shares for $0.5 million during the first quarter; none were repurchased in the fourth quarter.
Material changes versus 2019
- Net income fell about 41%, and diluted EPS decreased from $0.67 to $0.40. Net interest income declined $1.2 million as lower asset yields more than offset reduced funding costs; net interest margin contracted 49 basis points.
- Loan growth was driven by indirect sales lending, up $96.0 million, and commercial real estate, up $31.4 million. The indirect portfolio transfer from ALC to the Bank contributed to the reported shift between subsidiaries.
- Deposits increased $98.6 million, reflecting pandemic-related liquidity preferences, stimulus payments, payment deferrals, and lower consumer spending. Core deposits were 92.9% of deposits.
- Provision expense rose $0.2 million amid pandemic uncertainty, even as net charge-offs and nonperforming assets improved. Non-interest income declined $0.4 million; non-interest expense increased $0.5 million.
- Operating cash flow decreased from $11.3 million to $6.1 million, while year-end cash and cash equivalents increased substantially, supported by deposit inflows.
Outlook, risks, and unusual items
- Management expects the low-rate environment to continue pressuring margin and says growth in net interest income will remain challenging. Its stated priorities are repricing deposits, growing loans that meet credit standards, maintaining credit quality and controlling expenses. The filing provides no quantified earnings or revenue guidance.
- COVID-19 remains a significant uncertainty. More than 1,900 borrowers received pandemic-related payment deferrals during 2020; 110 borrowers with $8.1 million of loans remained in deferment at year-end. Management identified $13.5 million, or 2.1% of loans, as high-risk exposure, principally hotels/motels and dine-in restaurants. The company warned that deterioration may emerge as relief periods end.
- The Bank originated 167 PPP loans totaling $14.0 million; $11.9 million remained outstanding at year-end. PPP guarantee eligibility, forgiveness, processing-related litigation, and SBA review are identified risks. The Bank began processing new PPP applications in January 2021.
- Management discontinued secondary-mortgage marketing in the fourth quarter of 2020, expecting lower related fee income to be substantially offset by lower expenses. 2020 also included $324,000 of gains on sales of premises, equipment and other assets and $326,000 of net gains on investment securities.
- The company had not adopted CECL; it expected adoption in 2023 and said the potential initial allowance adjustment was not yet known. LIBOR transition may affect loans, securities, derivatives, and funding arrangements.
- The auditor issued an unmodified opinion on the financial statements and identified the allowance for loan losses as a critical audit matter because of the judgment involved in qualitative reserve factors. Management concluded internal control over financial reporting was effective; the auditor did not provide an attestation on those controls.
- Management said ordinary-course litigation was not expected to have a material adverse effect. Dividend capacity depends partly on Bank earnings and remains subject to legal, regulatory, and other restrictions.
Important facts for investors to verify
- Whether pandemic-related loan deferrals and hotel/restaurant exposures lead to later delinquencies, charge-offs, or increased loan-loss provisions.
- Whether strong deposit growth persists and how the company manages excess cash, funding costs, and net interest margin in a prolonged low-rate environment.
- The credit performance and concentration implications of rapid indirect-sales loan growth, including the transferred portfolio, and commercial real estate exposures.
- PPP loan forgiveness and SBA guarantee status, including any claims, reviews, or litigation that could create losses or expenses.
- The company’s CECL implementation plan and estimated transition impact, as well as its progress and costs in replacing LIBOR-linked contracts.
- The sustainability of earnings, dividends, liquidity, and regulatory capital, including restrictions on subsidiary dividends and access to borrowing facilities.