First US Bancshares(FUSB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited interim condensed consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited interim condensed consolidated financial statements for First US Bancshares, Inc. and its subsidiary, including the Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Shareholders' Equity, and Cash Flows, along with detailed notes explaining significant accounting policies, investment securities, loans and leases, borrowings, and other financial instruments Interim Condensed Consolidated Balance Sheets This section presents the company's consolidated balance sheet, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (Dollars in Thousands) | Metric | March 31, 2025 | December 31, 2024 | Change (QoQ) | % Change (QoQ) | | :----------------------------------- | :------------- | :---------------- | :------------- | :--------------- | | Total Assets | $1,126,967 | $1,101,086 | $25,881 | 2.35% | | Total Liabilities | $1,025,736 | $1,002,462 | $23,274 | 2.32% | | Total Shareholders' Equity | $101,231 | $98,624 | $2,607 | 2.64% | | Total Deposits | $961,952 | $972,557 | $(10,605) | -1.09% | | Loans and leases held for investment | $848,335 | $823,039 | $25,296 | 3.07% | Interim Condensed Consolidated Statements of Operations This section provides the company's consolidated statements of operations, outlining revenues, expenses, and net income for the reporting period Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, Dollars in Thousands, Except Per Share Data) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :----------------------------------- | :----- | :----- | :----------- | :------------- | | Total interest income | $14,018 | $14,277 | $(259) | -1.81% | | Total interest expense | $5,121 | $5,237 | $(116) | -2.21% | | Net interest income | $8,897 | $9,040 | $(143) | -1.58% | | Provision for credit losses | $528 | $— | $528 | N/A | | Net income | $1,772 | $2,107 | $(335) | -15.90% | | Basic net income per share | $0.30 | $0.36 | $(0.06) | -16.67% | | Diluted net income per share | $0.29 | $0.34 | $(0.05) | -14.71% | | Dividends per share | $0.07 | $0.05 | $0.02 | 40.00% | Interim Condensed Consolidated Statements of Comprehensive Income This section presents the company's consolidated statements of comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :------------------------------------------------------------------------------------------------ | :----- | :----- | :----------- | :------------- | | Net income | $1,772 | $2,107 | $(335) | -15.90% | | Unrealized holding gains (losses) on securities available-for-sale, net of tax | $2,011 | $(73) | $2,084 | -2854.79% | | Unrealized holding losses on effective cash flow hedge derivatives, net of tax benefit | $(305) | $— | $(305) | N/A | | Reclassification adjustments on cash flow hedge derivatives realized in net income, net of tax benefit | $(36) | $(117) | $81 | -69.23% | | Other comprehensive income (loss) | $1,670 | $(190) | $1,860 | -978.95% | | Total comprehensive income | $3,442 | $1,917 | $1,525 | 79.55% | Interim Condensed Consolidated Statements of Changes in Shareholders' Equity This section details changes in the company's shareholders' equity, reflecting net income, dividends, and other equity adjustments - Shareholders' equity increased from $98,624 thousand at December 31, 2024, to $101,231 thousand at March 31, 2025, primarily due to net income ($1,772 thousand) and a positive change in the fair value of available-for-sale securities ($2,011 thousand), partially offset by dividends declared ($401 thousand) and common stock repurchases ($535 thousand)[18] Interim Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, Dollars in Thousands) | Cash Flow Activity | 2025 | 2024 | Change (YoY) | | :----------------------------------- | :----- | :----- | :----------- | | Net cash provided by operating activities | $1,755 | $825 | $930 | | Net cash (used in) provided by investing activities | $(16,318) | $11,402 | $(27,720) | | Net cash provided by (used in) financing activities | $23,388 | $(2,264) | $25,652 | | Net increase in cash and cash equivalents | $8,825 | $9,963 | $(1,138) | | Cash and cash equivalents, end of period | $56,041 | $60,242 | $(4,201) | Notes to Interim Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures for the interim condensed consolidated financial statements 1. GENERAL This note provides an overview of First US Bancshares, Inc.'s operations and banking services - First US Bancshares, Inc. is a bank holding company operating one wholly-owned banking subsidiary, First US Bank, headquartered in Birmingham, Alabama[21] - The Bank offers general commercial banking services through 15 full-service offices across Alabama, Tennessee, and Virginia, and conducts indirect lending in 17 states[22] 2. BASIS OF PRESENTATION This note describes the accounting principles and presentation methods used for the interim financial statements - The interim condensed consolidated financial statements are unaudited and reflect all necessary adjustments for fair presentation, with results not necessarily indicative of the full fiscal year[23] - Certain prior period amounts were reclassified to conform to the 2025 presentation without affecting financial results[24] - The Company also detailed its calculation for basic and diluted net income per share and comprehensive income, and noted two new accounting standards (ASU 2023-09 and ASU 2024-03) not yet adopted, which are not expected to have a material impact[26][30][32] 3. INVESTMENT SECURITIES This note details the composition, fair value, and credit quality of the company's investment securities portfolio Investment Securities Portfolio (Dollars in Thousands) | Category | March 31, 2025 (Fair Value) | December 31, 2024 (Fair Value) | Gross Unrealized Losses (March 31, 2025) | | :-------------------------------------- | :---------------------------- | :----------------------------- | :--------------------------------------- | | Available-for-Sale (AFS) | $161,314 | $167,888 | $(5,107) | | Held-to-Maturity (HTM) | $602 | $642 | $(30) | | Total | $161,916 | $168,530 | $(5,137) | - As of March 31, 2025, 95 AFS debt securities were in an unrealized loss position for more than 12 months, and 4 for less than 12 months[39] - Management does not intend to sell these securities and believes the losses are due to interest rate environment, not creditworthiness, thus no allowance for credit losses was deemed necessary for AFS or HTM securities[40] - Investment securities with a carrying value of $62.6 million (March 31, 2025) and $72.1 million (December 31, 2024) were pledged to secure public deposits and for other purposes[41] 4. LOANS AND LEASES This note provides a detailed breakdown of the loan and lease portfolio, including credit quality and allowance for credit losses Loan Portfolio Composition (Dollars in Thousands) | Loan Segment | March 31, 2025 | December 31, 2024 | Change (QoQ) | % Change (QoQ) | | :-------------------------------------- | :------------- | :---------------- | :----------- | :--------------- | | Construction, land development and other land loans | $58,572 | $65,537 | $(6,965) | -10.63% | | Secured by 1-4 family residential properties | $68,523 | $69,999 | $(1,476) | -2.11% | | Secured by multi-family residential properties | $106,374 | $101,057 | $5,317 | 5.26% | | Secured by non-residential commercial real estate | $214,065 | $227,751 | $(13,686) | -6.01% | | Commercial and industrial loans and leases | $45,166 | $44,238 | $928 | 2.10% | | Direct consumer | $4,610 | $4,774 | $(164) | -3.44% | | Indirect consumer | $351,025 | $309,683 | $41,342 | 13.35% | | Total loans | $848,335 | $823,039 | $25,296 | 3.07% | | Allowance for credit losses on loans and leases | $10,405 | $10,184 | $221 | 2.17% | - As of March 31, 2025, 52.8% of the loan portfolio was concentrated in real estate loans[51] - Loans with a carrying value of $90.7 million and $309.7 million were pledged as collateral to secure FHLB and FRB borrowings, respectively[52] Allowance for Credit Losses on Loans and Leases (Dollars in Thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $10,184 | $10,507 | | Charge-offs | $(422) | $(390) | | Recoveries | $153 | $207 | | Provision for credit losses on loans and leases | $490 | $112 | | Ending balance | $10,405 | $10,436 | - The Company uses a credit grading system for commercial loans (Pass, Special Mention, Substandard, Doubtful, Loss) and categorizes residential real estate and consumer loans as performing or nonperforming[61][62] - As of March 31, 2025, there were no loans classified as 'Loss'[63] Loans by Credit Quality Indicator (March 31, 2025, Dollars in Thousands) | Category | Pass | Special Mention | Substandard | Doubtful | Total | | :-------------------------------------- | :----- | :-------------- | :---------- | :------- | :------ | | Construction, land development and other land loans | $56,052 | $56 | $2,464 | $— | $58,572 | | Secured by multi-family residential properties | $97,877 | $8,497 | $— | $— | $106,374 | | Secured by non-residential commercial real estate | $208,987 | $4,063 | $1,015 | $— | $214,065 | | Commercial and industrial loans and leases | $42,178 | $77 | $259 | $2,652 | $45,166 | | Secured by 1-4 family residential properties (Performing/Non-performing) | $66,956 | N/A | N/A | N/A | $68,523 | | Direct consumer (Performing/Non-performing) | $4,610 | N/A | N/A | N/A | $4,610 | | Indirect consumer (Performing/Non-performing) | $350,663 | N/A | N/A | N/A | $351,025 | Aging Analysis of Past Due Loans (March 31, 2025, Dollars in Thousands) | Category | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days Or Greater Past Due | Total Past Due | Current | Total Loans | | :-------------------------------------- | :------------------ | :------------------ | :-------------------------- | :------------- | :-------- | :---------- | | Construction, land development and other land loans | $— | $— | $— | $— | $58,572 | $58,572 | | Secured by 1-4 family residential properties | $227 | $— | $— | $227 | $68,296 | $68,523 | | Secured by multi-family residential properties | $— | $— | $— | $— | $106,374 | $106,374 | | Secured by non-residential commercial real estate | $— | $— | $22 | $22 | $214,043 | $214,065 | | Commercial and industrial loans | $63 | $— | $2,652 | $2,715 | $42,451 | $45,166 | | Direct consumer | $3 | $1 | $— | $4 | $4,606 | $4,610 | | Indirect consumer | $594 | $295 | $362 | $1,251 | $349,774 | $351,025 | | Total | $887 | $296 | $3,036 | $4,219 | $844,116 | $848,335 | | As a percentage of total loans | 0.10% | 0.03% | 0.36% | 0.50% | 99.50% | 100.00% | Loans on Non-Accrual Status (March 31, 2025, Dollars in Thousands) | Category | Total Nonaccrual Loans | Nonaccrual Loans with No ACL | | :-------------------------------------- | :--------------------- | :--------------------------- | | Secured by 1-4 family residential properties | $632 | $389 | | Secured by non-residential commercial real estate | $22 | $— | | Commercial and industrial loans | $2,652 | $— | | Indirect consumer | $362 | $— | | Total loans | $3,668 | $389 | - The Company did not modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2025, and there were no payment defaults on loans modified in the previous twelve months[74] 5. OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS This note outlines the company's foreclosed property activity and repossessed assets Foreclosed Property Activity (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Beginning balance | $1,509 | $602 | | Sales proceeds | $(186) | $— | | Net gains | $35 | $— | | Impairment | $(30) | $(30) | | Ending balance | $1,328 | $572 | - Total repossessed assets remained consistent at $0.2 million as of both March 31, 2025, and March 31, 2024, and are included in other assets[76] 6. GOODWILL AND OTHER INTANGIBLE ASSETS This note provides details on the company's goodwill and other intangible assets, including amortization Goodwill and Other Intangible Assets (Dollars in Thousands) | Asset | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Goodwill | $7,435 | $7,435 | | Core deposit intangible, net | $30 | $49 | | Total | $7,465 | $7,484 | - Goodwill impairment was neither indicated nor recorded during the three months ended March 31, 2025[77] - The estimated remaining amortization expense on intangible assets is $30 thousand, all of which will occur during 2025[79] 7. BORROWINGS This note describes the company's short-term and long-term borrowings, including available lines of credit - Short-term borrowings increased significantly to $45.0 million as of March 31, 2025, from $10.0 million at December 31, 2024, comprising $25.0 million in FHLB advances and $20.0 million in federal funds purchased from the FRB[82] - The Company had no long-term FHLB advances outstanding[85] Subordinated Debt Information (Dollars in Thousands) | Metric | March 31, 2025 | March 31, 2024 | | :------------------------------------------------ | :------------- | :------------- | | Balance at period-end | $10,890 | $10,817 | | Average rate paid during the period | 4.20% | 4.20% | | Weighted average remaining maturity (in years) | 6.50 | 7.50 | Available Unused Lines of Credit (Dollars in Millions) | Source | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Correspondent banks | $48.0 | $48.0 | | FHLB advances | $285.3 | $319.9 | | FRB | $160.0 | $165.1 | 8. INCOME TAXES This note details the company's income tax provision, effective tax rate, and deferred tax assets Income Tax Provision and Effective Rate (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Provision for income taxes | $554 | $651 | | Effective tax rate | 23.8% | 23.6% | - The net deferred tax asset decreased to $3.0 million as of March 31, 2025, from $4.1 million at December 31, 2024, influenced by changes in fair value of available-for-sale securities and cash flow hedges, among other temporary differences[88] 9. DEFERRED COMPENSATION PLANS This note outlines the company's deferred compensation obligations and stock equivalent holdings - The Company's deferred compensation obligation for supplemental retirement benefits decreased to $2.6 million as of March 31, 2025, from $2.7 million at December 31, 2024[89] - Under the Non-Employee Directors' Deferred Compensation Plan, 78,102 shares of common stock were held as stock equivalents as of March 31, 2025[90] 10. STOCK AWARDS This note provides information on stock-based compensation expense, stock option, and restricted stock activity - Stock-based compensation expense totaled $0.2 million for the three months ended March 31, 2025, up from $0.1 million in the prior year[94] - The Company did not grant any stock option awards during the period, but 49,400 shares of restricted stock were granted[95][98] Stock Option Activity (Three Months Ended March 31) | Metric | 2025 (Number of Shares) | 2024 (Number of Shares) | | :-------------------------- | :---------------------- | :---------------------- | | Outstanding, beginning of period | 268,250 | 411,900 | | Exercised | 20,750 | 8,750 | | Expired | 5,500 | 500 | | Options outstanding, end of period | 242,000 | 402,650 | | Options exercisable, end of period | 242,000 | 402,650 | Restricted Stock Award Activity (Three Months Ended March 31) | Metric | 2025 (Number of Shares) | 2024 (Number of Shares) | | :-------------------------- | :---------------------- | :---------------------- | | Unvested shares, beginning of period | 92,599 | 86,443 | | Granted | 49,400 | 55,300 | | Released from restriction | 50,075 | 45,977 | | Unvested shares, end of period | 91,924 | 95,766 | 11. LEASES This note details the company's operating lease income, expense, right-of-use assets, and liabilities Operating Lease Income and Expense (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Operating lease income | $284 | $257 | | Operating lease expense | $109 | $156 | Supplemental Lease Information (Dollars in Thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $1,838 | $1,921 | | Operating lease liabilities | $1,892 | $1,972 | | Weighted-average remaining lease term (in years) | 6.00 | 5.14 | | Weighted-average discount rate | 4.31% | 4.08% | 12. DERIVATIVE FINANCIAL INSTRUMENTS This note describes the company's use of interest rate derivatives to manage economic risks and their impact on financial statements - The Company uses interest rate derivative instruments to manage economic risks, primarily modifying repricing characteristics of assets and liabilities[103] - In March 2025, the Company purchased an interest rate floor contract ($20.0 million notional) and entered into two forward starting interest rate swap contracts ($40.0 million aggregate notional) designated as cash flow hedges[104][105] - Three interest rate swap contracts ($30.0 million aggregate notional) previously designated as fair value hedges were voluntarily terminated in March 2025[108] Active Derivative Instruments (Dollars in Thousands) | Category | Notional Amount (March 31, 2025) | Estimated Fair Value Gain (Loss) (March 31, 2025) | | :------------------------------------------------ | :------------------------------- | :------------------------------------------ | | Fair value hedges (Interest rate swaps) | $— | $— | | Cash flow hedges (Interest rate swaps) | $40,000 | $217 | | Cash flow hedges (Interest rate floors) | $20,000 | $278 | | Non-designated (Interest rate floors) | $25,000 | $15 | | Non-designated (Credit risk participation agreements) | $15,198 | $(71) | | Total derivatives designated as hedging instruments, net | N/A | $495 | | Total derivatives not designated as hedging instruments, net | N/A | $(56) | Net Effects of Derivative Instruments on Statements of Operations (Three Months Ended March 31, Dollars in Thousands) | Location in Statements of Operations | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Interest income | $(29) | $260 | | Interest expense | $97 | $156 | | Non-interest income | $(17) | $— | | Non-interest expense | $(4) | $(24) | | Net increase to income before income taxes | $47 | $392 | 13. OTHER OPERATING INCOME AND EXPENSE This note provides a breakdown of various other operating income and expense categories Other Operating Income (Three Months Ended March 31, Dollars in Thousands) | Category | 2025 | 2024 | | :-------------------- | :----- | :----- | | Bank-owned life insurance | $137 | $131 | | ATM fee income | $84 | $85 | | Other income | $82 | $93 | | Total | $303 | $309 | Other Operating Expense (Three Months Ended March 31, Dollars in Thousands) | Category | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Postage, stationery and supplies | $149 | $178 | | Telephone/data communication | $199 | $192 | | Collection and recoveries | $70 | $26 | | Directors fees | $93 | $96 | | Software amortization | $108 | $90 | | Other real estate/foreclosure expense, net | $20 | $31 | | Other expense | $657 | $377 | | Total | $1,296 | $990 | 14. GUARANTEES, COMMITMENTS AND CONTINGENCIES This note discloses the company's off-balance sheet commitments, contingent liabilities, and litigation status Commitments and Contingent Liabilities (Dollars in Thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Standby letters of credit | $— | $— | | Standby performance letters of credit | $896 | $896 | | Commitments to extend credit | $133,257 | $120,703 | - The allowance for unfunded lending commitments remained at $0.4 million as of both March 31, 2025, and December 31, 2024[119] - The Company is self-insured for a significant portion of employee health benefits, with an estimated liability of $0.2 million for self-insurance as of both periods[119] - The Company is involved in ordinary course litigation, which management believes will not have a material adverse effect on its financial statements or results of operations[120] 15. FAIR VALUE OF FINANCIAL INSTRUMENTS This note details the fair value measurements of financial instruments, categorized by valuation hierarchy levels - The Company classifies financial instruments into a fair value hierarchy (Level 1, 2, 3) based on the observability of inputs[122] - Level 1 includes U.S. Treasury securities, Level 2 includes most other investment securities and derivatives, and Level 3 includes collateral dependent loans and OREO, which are valued using significant unobservable inputs like appraisal comparability adjustments[124][125][129][130][131] Assets and Liabilities Measured at Fair Value on a Recurring Basis (March 31, 2025, Dollars in Thousands) | Asset/Liability | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------------- | :--------------- | :------ | :------ | :------ | | Investment securities, available-for-sale | $161,314 | $38,797 | $122,517 | $— | | Other assets - interest rate floors | $293 | $— | $293 | $— | | Other assets - interest rate swaps | $217 | $— | $217 | $— | | Other liabilities - credit risk participation agreements | $71 | $— | $71 | $— | Assets Measured at Fair Value on a Non-recurring Basis (March 31, 2025, Dollars in Thousands) | Asset | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------- | :--------------- | :------ | :------ | :------ | | Collateral dependent loans | $1,393 | $— | $— | $1,393 | | OREO and other assets held-for-sale | $1,328 | $— | $— | $1,328 | - For Level 3 measurements, collateral dependent loans and OREO are valued with an appraisal comparability adjustment (discount) ranging from 9%-10% (weighted average 9.5%) based on recent market activity[134][135][136][137][138] Fair Value of Financial Instruments (March 31, 2025, Dollars in Thousands) | Instrument | Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------------- | :-------------- | :------------------- | :------ | :------ | :------ | | Cash and cash equivalents | $56,041 | $56,041 | $56,041 | $— | $— | | Investment securities available-for-sale | $161,314 | $161,314 | $38,797 | $122,517 | $— | | Investment securities held-to-maturity | $632 | $602 | $— | $602 | $— | | Federal funds sold and securities purchased under reverse repurchase agreements | $5,451 | $5,451 | $— | $5,451 | $— | | Federal Home Loan Bank stock | $1,978 | $1,978 | $— | $— | $1,978 | | Loans, net of allowance for credit losses | $837,930 | $799,659 | $— | $— | $799,659 | | Other assets - interest rate floors | $293 | $293 | $— | $293 | $— | | Other assets - interest rate swaps | $217 | $217 | $— | $217 | $— | | Deposits | $961,952 | $896,643 | $— | $896,643 | $— | | Short-term borrowings | $45,000 | $45,000 | $— | $45,000 | $— | | Long-term borrowings | $10,890 | $9,746 | $— | $9,746 | $— | | Other liabilities - credit risk participation agreements | $71 | $71 | $— | $71 | $— | 16. SEGMENT REPORTING This note provides financial information for the company's single reportable operating segment, First US Bank - First US Bank is the Company's only reportable operating segment, conducting general commercial banking and indirect lending[148][149] - The Chief Operating Decision Makers (CODM) evaluate performance and allocate resources based on net income and total consolidated assets[151] Bank Segment Financial Information (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Interest income | $14,018 | $14,277 | | Non-interest income | $875 | $865 | | Total income | $14,893 | $15,142 | | Interest expense | $5,121 | $5,237 | | Provision for credit losses | $528 | $— | | Salaries and employee benefits | $3,736 | $4,088 | | Fees for professional services | $215 | $341 | | Other expense | $657 | $377 | | Provision for income taxes | $554 | $651 | | Total expense | $13,121 | $13,035 | | Consolidated net income | $1,772 | $2,107 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial performance and condition, comparing the three months ended March 31, 2025, to the same period in 2024, and balance sheet items to December 31, 2024. It covers recent market conditions, an executive overview, detailed analysis of net interest income, provision for credit losses, non-interest income and expense, income taxes, and a comprehensive balance sheet analysis including loans, deposits, and liquidity DESCRIPTION OF THE BUSINESS This section provides an overview of First US Bancshares, Inc.'s business model and operational scope - First US Bancshares, Inc. operates First US Bank, a commercial bank offering a range of services across 15 full-service offices and indirect lending in 17 states[153][154] - The Company focuses on customer satisfaction through technology upgrades and employee training, with 147 full-time equivalent employees as of March 31, 2025[155] RECENT MARKET CONDITIONS This section discusses the economic and market environment impacting the company's performance during the quarter - During Q1 2025, the banking industry faced economic volatility: U.S. inflation slowed to 2.4% but remained above the FRB's 2% target, unemployment modestly rose to 4.2%, and the federal funds rate was held at 4.25%-4.50%[159] - U.S. GDP contracted by 0.3% for the first time since 2022, creating an uncertain environment for future rate movements[160] - Evolving trade policies and potential tariffs also contribute to broader economic uncertainty[160] EXECUTIVE OVERVIEW This section provides a high-level summary of the company's financial performance and key operational highlights Executive Overview of Financial Performance (Three Months Ended March 31, Dollars in Thousands, Except Per Share Data) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :----------------------------------- | :----- | :----- | :----------- | :------------- | | Net interest income | $8,897 | $9,040 | $(143) | -1.58% | | Provision for credit losses | $528 | $— | $528 | N/A | | Non-interest income | $875 | $865 | $10 | 1.16% | | Non-interest expense | $6,918 | $7,147 | $(229) | -3.20% | | Net income | $1,772 | $2,107 | $(335) | -15.90% | | Diluted net income per share | $0.29 | $0.34 | $(0.05) | -14.71% | - Net interest income decreased by 1.6% due to yield reductions on loans following federal funds rate cuts in late 2024, partially offset by increased earning asset volumes and reduced interest expense on liabilities[163] - The provision for credit losses increased to $0.5 million, primarily due to loan growth[164] - Non-interest income remained consistent, while non-interest expense decreased by 3.2% due to lower salaries and professional service fees, partially offset by higher 'other expense' (absence of check fraud recovery)[165][166] Net Interest Income and Margin This section analyzes the company's net interest income and net interest margin, including factors influencing changes Net Interest Income and Margin Analysis (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | Change (YoY) | % Change (YoY) | | :-------------------- | :----- | :----- | :----------- | :------------- | | Net interest income | $8,897 | $9,040 | $(143) | -1.58% | | Net interest margin | 3.53% | 3.65% | -0.12% | -3.29% | | Total interest income | $14,018 | $14,277 | $(259) | -1.81% | | Total interest expense | $5,121 | $5,237 | $(116) | -2.21% | - The decrease in net interest income and margin was primarily driven by lower average yields on interest-earning assets ($0.4 million decrease), partially offset by growth in interest-earning assets ($0.1 million increase) and a decrease in interest expense ($0.1 million decrease) due to reductions in market interest rates[187] - Net interest margin improved by 12 basis points from Q4 2024 to Q1 2025, reaching 3.53%, but remained below earlier 2024 levels[188][189] Provision for Credit Losses This section discusses the provision for credit losses and its impact on the allowance for credit losses - The Company recorded a provision for credit losses of $0.5 million for the three months ended March 31, 2025, compared to no provision in the prior year, primarily due to increased loan volume[190] - The Allowance for Credit Losses (ACL) on loans and leases as a percentage of total loans was 1.23% as of March 31, 2025, a slight decrease from 1.24% at December 31, 2024[191] - Net charge-offs increased to $0.3 million from $0.2 million year-over-year[191] Non-Interest Income This section details the various components of the company's non-interest income Non-Interest Income Components (Three Months Ended March 31, Dollars in Thousands) | Category | 2025 | 2024 | $ Change | % Change | | :----------------------------------- | :----- | :----- | :------- | :------- | | Service charges and other fees on deposit accounts | $288 | $299 | $(11) | -3.7% | | Bank-owned life insurance | $137 | $131 | $6 | 4.6% | | Lease income | $284 | $257 | $27 | 10.5% | | ATM fee income | $84 | $85 | $(1) | -1.2% | | Other income | $82 | $93 | $(11) | -11.8% | | Total non-interest income | $875 | $865 | $10 | 1.2% | Non-Interest Expense This section provides a breakdown of the company's non-interest expenses and factors influencing changes Non-Interest Expense Components (Three Months Ended March 31, Dollars in Thousands) | Category | 2025 | 2024 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Salaries and employee benefits | $3,736 | $4,088 | $(352) | -8.6% | | Net occupancy and equipment | $875 | $894 | $(19) | -2.1% | | Computer services | $412 | $443 | $(31) | -7.0% | | Insurance expense and assessments | $384 | $391 | $(7) | -1.8% | | Fees for professional services | $215 | $341 | $(126) | -37.0% | | Postage, stationery and supplies | $149 | $178 | $(29) | -16.3% | | Telephone/data communications | $199 | $192 | $7 | 3.6% | | Collection and recoveries | $70 | $26 | $44 | 169.2% | | Directors fees | $93 | $96 | $(3) | -3.1% | | Software amortization | $108 | $90 | $18 | 20.0% | | Other real estate/foreclosure expense, net | $20 | $31 | $(11) | -35.5% | | Other expense | $657 | $377 | $280 | 74.3% | | Total non-interest expense | $6,918 | $7,147 | $(229) | -3.2% | - The decrease in non-interest expense was primarily driven by reductions in salaries and employee benefits and fees for professional services[193] - This was partially offset by an increase in 'other expense' due to the absence of a check fraud expense recovery that occurred in Q1 2024[193] Provision for Income Taxes This section analyzes the company's income tax provision and effective tax rate Income Tax Provision and Effective Rate (Three Months Ended March 31, Dollars in Thousands) | Metric | 2025 | 2024 | | :-------------------- | :----- | :----- | | Provision for income taxes | $554 | $651 | | Effective tax rate | 23.8% | 23.6% | - The effective tax rate is influenced by recurring permanent differences such as tax-exempt interest income from municipal bonds and loans, and the cash surrender value of bank-owned life insurance[195] BALANCE SHEET ANALYSIS This section provides a detailed analysis of the company's balance sheet components, including assets, liabilities, and equity Investment Securities This section analyzes the company's investment portfolio, including changes in fair value and expected life - The total investment portfolio decreased to $161.9 million as of March 31, 2025, from $168.6 million at December 31, 2024[196] - Available-for-sale securities constituted 99.6% of the portfolio, with net unrealized losses totaling $4.0 million, an improvement from $6.7 million at December 31, 2024[197] - The expected average life of securities increased to 4.0 years from 3.6 years[199] Loans and Leases This section details the composition and growth of the company's loan and lease portfolio - Total loans increased by $25.3 million (3.1%) to $848.3 million as of March 31, 2025, primarily driven by a $41.3 million growth in consumer indirect loans[168][202] - This growth was partially offset by reductions in construction and non-residential commercial real estate loans[202] Loan Portfolio by Category (Dollars in Thousands) | Loan Category | March 31, 2025 | December 31, 2024 | | :-------------------------------------- | :------------- | :---------------- | | Construction, land development and other land loans | $58,572 | $65,537 | | Secured by 1-4 family residential properties | $68,523 | $69,999 | | Secured by multi-family residential properties | $106,374 | $101,057 | | Secured by non-residential commercial real estate | $214,065 | $227,751 | | Commercial and industrial loans | $45,166 | $44,238 | | Direct consumer | $4,610 | $4,774 | | Indirect consumer | $351,025 | $309,683 | | Total loans | $848,335 | $823,039 | Fixed vs. Variable Rate Loans by Maturity (March 31, 2025, Dollars in Thousands) | Maturity | Fixed Interest Rates | Variable Interest Rates | Total Loans | | :-------------------------- | :------------------- | :-------------------- | :---------- | | One Year or Less | $27,880 | $84,858 | $112,738 | | After One Year Through Five Years | $137,230 | $128,029 | $265,259 | | After Five Years Through Fifteen Years | $404,701 | $33,485 | $438,186 | | After Fifteen Years | $14,386 | $17,766 | $32,152 | | Total | $584,197 | $264,138 | $848,335 | Allowance for Credit Losses on Loans and Leases This section examines the allowance for credit losses on loans and leases, including net charge-offs Changes in ACL on Loans and Leases (Dollars in Thousands) | Metric | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | :------ | | Beginning balance | $10,184 | $10,116 | $10,227 | $10,436 | $10,507 | | Net charge-offs | $(269) | $(495) | $(251) | $(209) | $(183) | | Provision for credit losses | $490 | $563 | $140 | $— | $112 | | Ending balance | $10,405 | $10,184 | $10,116 | $10,227 | $10,436 | | Ending balance as a percentage of loans | 1.23% | 1.24% | 1.26% | 1.25% | 1.27% | | Net charge-offs as a percentage of average loans | 0.13% | 0.14% | 0.12% | 0.10% | 0.09% | Allowance for Credit Losses on Unfunded Lending Commitments This section discusses the company's reserve for unfunded lending commitments - The Company's reserve for unfunded lending commitments remained at $0.4 million as of both March 31, 2025, and December 31, 2024[206] Nonperforming Assets This section provides an overview of the company's nonperforming assets, including non-accrual loans and OREO Nonperforming Assets (Dollars in Thousands) | Metric | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | :------ | | Non-accrual loans | $3,668 | $3,949 | $6,051 | $2,337 | $2,393 | | Other real estate owned | $1,328 | $1,509 | $538 | $542 | $572 | | Total Nonperforming Assets | $4,996 | $5,458 | $6,589 | $2,879 | $2,965 | | Nonperforming assets as a percentage of total assets | 0.44% | 0.50% | 0.60% | 0.27% | 0.28% | | ACL as a percentage of non-accrual loans | 283.67% | 257.89% | 167.18% | 437.61% | 436.11% | Allocation of Allowance for Credit Losses on Loans and Leases This section details the allocation of the allowance for credit losses across different loan types ACL Allocation and Net Charge-offs by Loan Type (Q1 2025, Dollars in Thousands) | Loan Type | Allowance Allocation | ACL as Percentage of Total Loans | Net Charge-offs as Percentage of Average Loans | | :-------------------------------------- | :------------------- | :------------------------------- | :------------------------------------------- | | Construction, land development and other land loans | $279 | 0.48% | — | | Secured by 1-4 family residential properties | $355 | 0.52% | -0.03% | | Secured by multi-family residential properties | $529 | 0.50% | — | | Secured by non-residential commercial real estate | $1,271 | 0.59% | — | | Commercial and industrial loans | $1,527 | 3.38% | -0.13% | | Direct consumer | $47 | 1.02% | -4.49% | | Indirect consumer | $6,397 | 1.82% | 0.44% | | Total | $10,405 | 1.23% | 0.13% | Deposits This section analyzes changes in the company's deposit base, including interest-bearing and non-interest-bearing accounts - Total deposits decreased by 1.1% to $962.0 million as of March 31, 2025, primarily due to reductions in interest-bearing and non-interest-bearing demand deposit accounts, partly driven by lower deposit pricing[209] - Core deposits, excluding large time and brokered deposits, totaled $813.9 million (84.6% of total deposits), down from $837.7 million (86.1%) at December 31, 2024[209] Other Interest-Bearing Liabilities This section discusses the company's other interest-bearing liabilities, such as federal funds purchased and FHLB advances - Other interest-bearing liabilities, including federal funds purchased, repurchase agreements, FHLB advances, and subordinated debt, increased significantly to 6.5% of total interest-bearing liabilities as of March 31, 2025, from 2.5% at December 31, 2024[211] Shareholders' Equity This section details changes in shareholders' equity, including the impact of earnings, dividends, and share repurchases - Shareholders' equity increased by 2.6% to $101.2 million (9.0% of total assets) as of March 31, 2025, driven by earnings, net of dividends and share repurchases, and a reduction in accumulated other comprehensive loss due to changes in market interest rates and maturing lower-yielding investment securities[212] - The Company declared a cash dividend of $0.07 per share for Q1 2025, consistent with the previous quarter's increase[213] - During Q1 2025, 40,000 shares of common stock were repurchased at a weighted average price of $13.38 per share, with 872,813 shares remaining available under the repurchase program[214] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's liquidity position and capital adequacy, including available funding sources - The Company maintains strong liquidity from cash, loan/investment maturities, and access to federal funds, FHLB advances, and the FRB's discount window[215] - Loans maturing or repricing in one year or less totaled $264.4 million, and investment securities maturing or repricing in one year or less were $27.6 million as of March 31, 2025[217] Readily Available Liquidity (Dollars in Thousands) | Source | March 31, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------- | :---------------- | | Total liquidity from cash, federal funds sold and securities purchased under reverse repurchase agreements | $61,492 | $52,943 | | Liquidity from pledgable investment securities | $89,064 | $86,296 | | Liquidity from unused lendable collateral (loans) at FHLB | $9,180 | $45,388 | | Liquidity from unused lendable collateral (loans and securities) at FRB | $160,043 | $165,061 | | Unsecured lines of credit with banks | $48,000 | $48,000 | | Total readily available liquidity | $367,779 | $397,688 | - Estimated uninsured deposits totaled $202.6 million (21.1% of total deposits) as of March 31, 2025, down from $216.8 million (22.2%) at December 31, 2024[226] - Management believes the Company has adequate liquidity to cover contractual obligations for the next twelve months[227] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines the Company's approach to managing interest rate risk through financial simulation models to assess the potential impact of interest rate changes on net interest income and net interest margin over one- and two-year timeframes Assessing Short-Term Interest Rate Risk – Net Interest Margin Simulation This section presents the results of interest rate risk simulations on net interest margin and net interest income Average Change in Net Interest Margin from Level Interest Rate Forecast (basis points, pre-tax) | Interest Rate Shift | 1 Year | 2 Years | | :------------------ | :----- | :------ | | +1% | 1 | 2 | | +2% | 1 | 3 | | +3% | (1) | 2 | | -1% | (6) | (8) | | -2% | (12) | (19) | | -3% | (21) | (33) | Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax) | Interest Rate Shift | 1 Year | 2 Years | | :------------------ | :----- | :------ | | +1% | $112 | $524 | | +2% | $116 | $712 | | +3% | $(136) | $379 | | -1% | $(702) | $(1,840) | | -2% | $(1,343) | $(4,252) | | -3% | $(2,345) | $(7,505) | ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - As of March 31, 2025, Bancshares' management, including its CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level[232][233] Changes in Internal Control Over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting - There were no changes in Bancshares' internal control over financial reporting during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[234] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other required disclosures ITEM 1. LEGAL PROCEEDINGS This section states that the Company is involved in ordinary course litigation but expects no material adverse effect on its financial statements or operations - The Company is a party to certain ordinary course litigation and intends to vigorously defend itself, with management believing the outcome will not have a material adverse effect on its consolidated financial statements or results of operations[236] ITEM 1A. RISK FACTORS This section refers to the Company's most recent Annual Report on Form 10-K for a comprehensive list of risk factors, noting no material changes during the current reporting period - There have been no material changes to the risk factors previously disclosed in the Company's 2024 Form 10-K[237] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the Company's common stock repurchases during the first quarter of 2025 under its publicly announced share repurchase program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Number of Shares that May Yet Be Purchased Under the Programs | | :----------------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------------------------- | :-------------------------------------------------------------------- | | January 1 – January 31 | 687 | $12.68 | — | 912,813 | | February 1 – February 28 | 16,547 | $13.10 | 16,500 | 896,313 | | March 1 – March 31 | 23,545 | $13.58 | 23,500 | 872,813 | | Total | 40,779 | $13.37 | 40,000 | 872,813 | ITEM 5. OTHER INFORMATION This section confirms no other material information or changes in Rule 10b5-1 trading arrangements by directors or executive officers during the reporting period - No other material information was reported, and no directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the period[241] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, incentive programs, certifications, and XBRL-formatted financial statements - The report includes various exhibits such as the Certificate of Incorporation, Amended and Restated Bylaws, Cash Incentive Program, Director Fee Schedule, CEO/CFO certifications, and financial statements formatted in Inline XBRL[242] SIGNATURES This section contains the duly authorized signature for the Quarterly Report on Form 10-Q - The report is signed by Thomas S. Elley, Senior Executive Vice President, Treasurer, Assistant Secretary, Chief Financial Officer, and Principal Accounting Officer, on behalf of First US Bancshares, Inc. on May 8, 2025[244][245][246]