First US Bancshares(FUSB) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial position strengthened with total assets reaching $956.7 million, while net income for the nine months significantly increased to $2.74 million Interim Condensed Consolidated Balance Sheets Interim Condensed Consolidated Balance Sheets (Thousands of USD) | Balance Sheet Items | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $956,734 | $890,511 | | Total cash and cash equivalents | $75,260 | $94,415 | | Investment securities available-for-sale | $117,560 | $84,993 | | Loans, net of allowance | $696,972 | $638,374 | | Total Liabilities | $867,137 | $803,833 | | Total deposits | $846,842 | $782,212 | | Total Shareholders' Equity | $89,597 | $86,678 | - Total assets increased by $66.2 million, or 7.4%, from December 31, 2020, to September 30, 2021, primarily driven by growth in net loans and investment securities[13] - Total deposits grew by $64.6 million, or 8.3%, during the first nine months of 2021, providing the primary funding for asset growth[13] Interim Condensed Consolidated Statements of Operations Interim Condensed Consolidated Statements of Operations (Thousands of USD) | Income Statement Items (Nine Months Ended Sep 30) | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Net interest income | $27,711 | $26,474 | | Provision for loan and lease losses | $1,517 | $2,476 | | Total non-interest income | $2,656 | $4,002 | | Total non-interest expense | $25,342 | $25,822 | | Net income | $2,740 | $1,662 | | Diluted net income per share | $0.41 | $0.25 | - Net income for the nine months ended September 30, 2021, increased by 64.9% year-over-year, driven by a $1.2 million increase in net interest income and a $1.0 million decrease in the provision for loan and lease losses[16] - For the third quarter of 2021, net income more than doubled to $0.837 million from $0.411 million in Q3 2020[16] Notes to Interim Condensed Consolidated Financial Statements - In September 2021, the company's subsidiary, Acceptance Loan Company, Inc. (ALC), ceased new business development and closed its 20 branch locations, resulting in pre-tax restructuring charges of approximately $0.5 million in Q3 2021[42][43] - As of September 30, 2021, loans in pandemic-related deferment totaled $0.8 million, a significant decrease from $8.1 million as of December 31, 2020[73] - The company had 77 Paycheck Protection Program (PPP) loans with an aggregate principal balance of $3.9 million remaining outstanding as of September 30, 2021[77] - Subsequent to the quarter end, on October 1, 2021, the company completed a private placement of $11.0 million in subordinated notes maturing in 2031[98] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic initiatives, including ALC branch closures, which contributed to a $2.7 million net income for the nine months and $956.7 million in total asset growth, alongside improved asset quality Executive Overview - A key strategic initiative in Q3 2021 was the cessation of new business and closure of all 20 ALC branch locations to reduce expenses, improve asset quality, and focus on commercial and consumer indirect lending[180] - The company incurred pre-tax charges of approximately $0.55 million in Q3 2021 related to the ALC closures, with an additional $0.5 million in expenses expected in Q4 2021 and Q1 2022, which are anticipated to be offset by ongoing cost savings[181] Earnings Highlights (Nine Months Ended Sep 30) | Earnings Highlights (Nine Months Ended Sep 30) | 2021 | 2020 | | :--- | :--- | :--- | | Net Income | $2.7 million | $1.7 million | | Diluted EPS | $0.41 | $0.25 | - Total assets grew to $956.7 million at September 30, 2021, from $890.5 million at December 31, 2020, driven by loan and deposit growth[195] Results of Operations - Net interest income for the nine months ended Sep 30, 2021, increased by $1.2 million YoY, primarily due to a $1.5 million reduction in interest expense from repricing deposit liabilities, with average total funding costs decreasing to 0.36% from 0.68%[186][188] - Net interest margin decreased to 4.29% for the first nine months of 2021 from 4.72% in the prior year period, pressured by the low interest rate environment and a shift in loan portfolio mix[215] - The provision for loan and lease losses decreased to $1.5 million for the nine months of 2021 from $2.5 million in 2020, partly due to improved credit quality from reductions in ALC's higher-risk consumer portfolio[190][220] - Non-interest income decreased by $1.3 million for the nine months of 2021 compared to 2020, mainly due to lower secondary market mortgage fees (following the division's discontinuance), reduced service charges, and fewer gains on sales of securities and assets[223] - Non-interest expense decreased by $0.5 million for the nine months of 2021, primarily from lower salaries and benefits, partially offset by $0.5 million in one-time expenses in Q3 related to ALC branch closures[226] Balance Sheet Analysis - Total loans increased by $58.8 million in the first nine months of 2021, led by growth in indirect lending (+$52.6 million) and real estate lending (+$16.4 million)[196] - Nonperforming assets as a percentage of total assets improved to 0.35% as of September 30, 2021, from 0.45% at year-end 2020[200][236] - Total deposits increased by 8.3% to $846.8 million as of September 30, 2021, with core deposits (excluding time deposits >$250k) growing to 93.9% of total deposits[239] - Shareholders' equity increased to $89.6 million as of September 30, 2021, from $86.7 million at year-end 2020, and the company declared a dividend of $0.09 per share for the nine-month period[244][245] Quantitative and Qualitative Disclosures About Market Risk The company primarily manages interest rate risk using financial simulation models, with a +100 basis point parallel rate shock projected to increase net interest income by $0.476 million over one year, and a -100 basis point shock projected to decrease it by $0.835 million Projected Cumulative Change in Net Interest Income (Thousands of USD) | Interest Rate Scenario | Cumulative Change in Net Interest Income (1 Year) | | :--- | :--- | | +2% | +$528 thousand | | +1% | +$476 thousand | | -1% | -$835 thousand | | -2% | -$1,416 thousand | Projected Net Change in Market Value of Equity (Millions of USD) | Interest Rate Scenario | Net Change in Market Value of Equity | | :--- | :--- | | +2% | +$1.5 million | | +1% | +$3.1 million | | -1% | -$15.0 million | | -2% | -$7.7 million | - The company has identified all contracts referencing LIBOR and is preparing for its discontinuance by evaluating alternative reference rates[265] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Based on an evaluation as of September 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[267] - No changes occurred in the company's internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, these controls[268] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course litigation which is not expected to have a material adverse effect on its financial condition or results of operations - The Company is party to certain ordinary course litigation, which is not expected to have a material adverse effect on its consolidated financial statements or results of operations[271] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020[272] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, 2,643 shares were purchased for the 401(k) Plan, with no direct company repurchases, leaving 1,054,961 shares available under the extended program - During Q3 2021, 2,643 shares were purchased in open-market transactions for the company's 401(k) Plan at an average price of $10.60 per share, with no shares purchased as part of the publicly announced repurchase program[273] - On April 28, 2021, the Board of Directors approved the repurchase of an additional 1,000,000 shares and extended the share repurchase program to December 31, 2022, with 1,054,961 shares available for repurchase as of September 30, 2021[273] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - The report includes standard exhibits such as CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and financial data in Inline XBRL format (Exhibits 101, 104)[275]