Business Context and Reporting Period
First US Bancshares, Inc. is a bank holding company headquartered in Birmingham, Alabama. Its principal businesses are First US Bank and consumer-finance subsidiary Acceptance Loan Company (ALC). This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021; balance-sheet comparisons are with December 31, 2020. Dollar amounts below are in millions unless stated otherwise.
Financial Results and Position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $9.31 | $8.62 | $18.38 | $17.51 |
| Net interest margin | 4.31% | 4.65% | 4.35% | 4.81% |
| Provision for loan and lease losses | $0.50 | $0.85 | $0.90 | $1.43 |
| Non-interest income | $0.81 | $1.33 | $1.76 | $2.63 |
| Non-interest expense | $8.40 | $8.58 | $16.80 | $17.08 |
| Net income | $0.95 | $0.40 | $1.90 | $1.25 |
| Diluted earnings per share | $0.14 | $0.06 | $0.28 | $0.19 |
- For the first half, total interest income was $19.90 million and total interest expense was $1.53 million. The effective tax rate was 22.1%, versus 23.3% a year earlier.
- Six-month operating cash flow was $5.19 million; investing cash outflow was $73.08 million and financing cash inflow was $55.29 million. Cash and cash equivalents declined $12.59 million to $81.82 million.
- At June 30, total assets were $946.95 million, net loans $677.76 million, investment securities $123.58 million, deposits $837.89 million, and shareholders’ equity $88.78 million. Short-term borrowings were $10.02 million; no long-term FHLB advances were outstanding.
- Bank capital ratios were 11.14% for common equity Tier 1 and Tier 1 risk-based capital, 12.22% total capital, and 8.60% Tier 1 leverage. Management said these exceeded regulatory “well-capitalized” thresholds.
Material Changes Versus Comparable Periods
- Q2 net income rose to $0.95 million from $0.40 million; first-half net income increased to $1.90 million from $1.25 million. First-half net interest income improved by $0.87 million, chiefly as lower deposit costs more than offset lower asset yields.
- Net interest margin compressed year over year: 34 basis points in Q2 and 46 basis points for the first half. Management cited the low-rate environment, an asset-sensitive balance sheet, excess low-yielding cash, and a lower mix of higher-yield ALC consumer loans.
- First-half non-interest income fell $0.87 million, reflecting lower deposit fees, credit insurance income and mortgage fees, as well as securities gains in 2020 that did not recur. The Bank’s mortgage division had been discontinued in Q4 2020. Non-interest expense decreased $0.28 million, primarily from lower salaries and benefits.
- Loans increased $39.4 million from year-end, including growth in indirect lending and real estate lending. Deposits rose $55.7 million, while available-for-sale securities increased to $118.7 million from $85.0 million at year-end.
- Credit indicators improved: nonperforming assets were $2.13 million, or 0.22% of assets, versus $4.04 million, or 0.45%, at year-end. Loans over 90 days past due were $0.55 million, compared with $1.82 million at year-end; no such loans were accruing.
Outlook, Commentary, Risks and Unusual Items
- Management expects low rates and substantial investable cash balances to continue pressuring net interest income and margin. Its stated priorities are deploying cash into loans or securities meeting credit standards and continuing to reprice deposit liabilities. It also noted competition for quality loans and funding.
- Management considered the $7.73 million allowance for loan and lease losses adequate under the incurred-loss model at June 30, but warned that further economic deterioration could require additional provisioning. CECL adoption is not required until January 1, 2023; the eventual impact is not yet known.
- COVID-19-related loan deferments declined to $0.6 million from $8.1 million at year-end. The identified hotel/motel and dine-in restaurant “high-risk” category was $12.0 million, or 1.7% of loans, versus $13.5 million, or 2.1%, at year-end. Management will continue monitoring borrower and economic conditions.
- There were 151 PPP loans totaling $11.6 million outstanding at quarter-end; 120 borrowers had received forgiveness. Remaining net deferred PPP fees were approximately $0.34 million.
- The Company announced the planned Q3 2021 closure of four banking offices to improve operating efficiency. Management expects expense reductions after initial closure costs and cautioned that closures could slow deposit growth.
- Unrealized losses on certain securities were attributed to interest rates, not issuer creditworthiness; the Company reported no other-than-temporary impairment. Ordinary-course litigation was not expected by management to have a material adverse effect. The filing reports no material change to previously disclosed risk factors.
Important Facts for Investors to Verify
- Whether margin pressure persists and whether cash deployment supports loan growth without weakening credit standards.
- Loan performance, charge-offs, allowance adequacy, and exposures to indirect consumer lending, commercial real estate, and remaining COVID-19-sensitive borrowers.
- Deposit trends following the four planned branch closures and the availability and collateral requirements of unused funding lines.
- The earnings and expense effects of the discontinued mortgage division, branch closures, PPP forgiveness, and eventual CECL adoption.
- Interest-rate sensitivity: the filing’s model shows lower projected net interest income under falling-rate scenarios, while estimated market value of equity declines under those scenarios.