Company Overview and History

First US Bancshares, Inc. (NASDAQ:FUSB) is a bank holding company with a rich history dating back to its founding in 1983. Headquartered in Birmingham, Alabama, the company operates a wholly-owned banking subsidiary, First US Bank, which has a presence across Alabama, Tennessee, and Virginia. As a community-focused institution, First US Bancshares has dedicated itself to providing a diverse range of commercial banking services to small and medium-sized businesses, property managers, professionals, and other individuals.

Over the years, First US Bancshares has navigated the evolving banking landscape with a steadfast commitment to its core values. The company's strategic initiatives have enabled it to adapt to changing market conditions, while maintaining a strong focus on customer satisfaction, technological advancement, and prudent risk management. Since its establishment in 1983, First US Bank has expanded its footprint, opening 15 full-service banking offices and several loan production offices across its three-state operating area. In 2023, the company underwent a significant restructuring by dissolving two wholly-owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., with their remaining assets and liabilities transferred to First US Bank. This move has streamlined the company's operations and potentially improved efficiency.

Despite facing challenges, such as a $142,000 special charge related to the closure of certain branches in 2020, First US Bancshares has demonstrated resilience and a commitment to growth. In 2021, the company completed a $10.65 million private placement of subordinated notes to support its organic growth plans and maintain the bank's capital ratios. This investment in the company's future underscores management's confidence in its long-term prospects.

First US Bancshares has consistently prioritized customer satisfaction and convenience. To this end, the company has invested in upgrading its technology and training programs. As of September 30, 2024, the company employed 154 full-time equivalent employees to deliver its comprehensive range of financial services across its footprint. This investment in human capital reflects the company's commitment to providing personalized and high-quality banking services to its customers.

Financial Performance: Weathering Economic Challenges

In the face of economic volatility and a higher interest rate environment, First US Bancshares has demonstrated resilience in its financial performance. For the year ended December 31, 2023, the company reported net income of $8.48 million, or $1.42 per diluted share, compared to $6.86 million, or $1.06 per diluted share, in the previous year. This represents a 25.5% year-over-year increase in diluted earnings per share, showcasing the company's ability to navigate challenging market conditions.

The company's net interest income for the year ended December 31, 2023, was $37.35 million, up from $36.94 million in the prior year. This increase was driven by a combination of higher interest-earning asset volumes and improved yields on the company's loan and investment portfolios. However, the rising interest rate environment has also led to increased funding costs, resulting in some compression of the company's net interest margin.

To offset the impact of the higher interest rate environment, First US Bancshares has focused on prudent balance sheet management and diversifying its revenue streams. The company's non-interest income has remained relatively stable, totaling $3.36 million for the year ended December 31, 2023, compared to $3.15 million in the previous year. This diversification of revenue sources helps to mitigate the impact of interest rate fluctuations on the company's overall financial performance.

For the most recent quarter, Q3 2024, First US Bancshares reported revenue of $10.09 million, representing a 9.5% increase compared to Q3 2023. Net income for the quarter was $2.22 million, up 5.2% year-over-year. Operating cash flow (OCF) decreased by 5.9% to $1.94 million, while free cash flow (FCF) increased by 18.3% to $3.11 million. These results were bolstered by continued loan and deposit growth, as well as improved net interest margins compared to the year-ago period.

Asset Quality and Liquidity: Maintaining Strength

First US Bancshares has consistently demonstrated strong asset quality and a robust liquidity position. As of December 31, 2023, the company's non-performing assets, including non-accrual loans and other real estate owned, were $3.00 million, or 0.28% of total assets, compared to $3.05 million, or 0.29% of total assets, as of December 31, 2022. This low level of non-performing assets reflects the company's disciplined underwriting and proactive credit risk management practices.

The company's allowance for credit losses on loans and leases as a percentage of total loans was 1.28% as of December 31, 2023, providing a solid buffer against potential loan losses. Additionally, First US Bancshares maintains a healthy liquidity position, with cash, federal funds sold, and securities purchased under reverse repurchase agreements totaling $59.75 million, or 5.6% of total assets, as of December 31, 2023.

The company's capital ratios also remain well above the regulatory requirements for a well-capitalized institution. As of December 31, 2023, the bank's common equity Tier 1 capital ratio was 11.45%, its Tier 1 risk-based capital ratio was 11.45%, and its total risk-based capital ratio was 12.63%. These strong capital levels give First US Bancshares the flexibility to support organic growth, explore strategic initiatives, and weather potential economic downturns.

As of September 30, 2024, the company reported a debt-to-equity ratio of 0.11, indicating a conservative capital structure. Cash and cash equivalents stood at $82.31 million, providing ample liquidity. The company also had access to $48.0 million in unused federal funds lines, $294.8 million in remaining unused credit from the Federal Home Loan Bank (subject to available collateral), and $165.2 million in borrowing capacity with the Federal Reserve Bank (subject to available collateral). The current ratio and quick ratio both stood at 1.01, demonstrating the company's ability to meet its short-term obligations.

Expansion and Growth: Positioning for the Future

In addition to its solid financial performance, First US Bancshares has also been actively investing in its growth and expansion. During the nine months ended September 30, 2024, the company opened a new banking center in the Bearden area of Knoxville, Tennessee, replacing its previously existing Knoxville-Bearden location. This strategic move allowed the company to enhance its presence and better serve the local community.

Furthermore, the company commenced the renovation of a banking center office in Daphne, Alabama, which it had previously acquired from another financial institution. This new location is expected to serve as the bank's initial deposit-gathering facility in the Daphne-Mobile area and is anticipated to open to the public in 2025.

These expansion efforts reflect First US Bancshares' commitment to growing its footprint and strengthening its position in key markets. By investing in new banking centers and optimizing its existing branch network, the company aims to provide its customers with greater convenience and access to its comprehensive suite of banking services.

Shareholder Value Creation: Rewarding Investors

First US Bancshares has also demonstrated a strong commitment to rewarding its shareholders. The company has maintained a consistent dividend policy, paying quarterly cash dividends to its shareholders. During the nine months ended September 30, 2024, the company declared cash dividends totaling $0.15 per share, the same as in the corresponding period of the previous year.

In addition to its dividend program, First US Bancshares has actively repurchased its common stock under a share repurchase program. During the nine months ended September 30, 2024, the company repurchased 106,500 shares of its common stock at a weighted average price of $10.67 per share. As of September 30, 2024, the company had 352,813 shares remaining available for repurchase under the program.

These shareholder-friendly initiatives demonstrate First US Bancshares' commitment to enhancing long-term shareholder value and its confidence in the company's future prospects.

Product Segments and Loan Portfolio

First US Bancshares' loan portfolio is diversified across several key segments:

Real Estate Loans: As of September 30, 2024, real estate loans comprised 55.8% of the company's total loan portfolio, up from 53.6% at the end of 2023. Within this category, non-farm non-residential properties accounted for $224.61 million, while construction, land development, and other land loans totaled $53.10 million.

Commercial and Industrial (C&I) Loans: These loans, which include financing for business operations, inventories, equipment, and receivables, accounted for 5.6% of total loans as of September 30, 2024, down from 7.4% at the end of 2023. The C&I loan balance stood at $44.87 million, a decrease from $60.52 million at year-end 2023.

Consumer Loans: This segment is divided into direct consumer loans ($5.02 million), branch retail loans ($6.23 million), and indirect consumer loans ($298.78 million) as of September 30, 2024. Consumer loans represented 38.4% of the total loan mix, a slight increase from 37.9% at the end of 2023.

The company's focus on maintaining strong asset quality is evident in its credit metrics. The provision for credit losses for the nine months ended September 30, 2024, was $152,000, significantly lower than the $753,000 reported in the same period of 2023. Net charge-offs as a percentage of average loans improved to 0.10% for the first nine months of 2024, compared to 0.12% in the prior year period.

However, nonperforming assets increased to $6.59 million, or 0.60% of total assets, as of September 30, 2024, up from $3.00 million, or 0.28% of assets, at the end of 2023. This increase warrants close monitoring but remains within manageable levels given the company's strong capital position and reserve coverage.

Overall, First US Bancshares' loan portfolio experienced a 2.2% decrease from year-end 2023 to September 30, 2024. This reduction was primarily driven by payoffs in construction loans and reductions in consumer indirect and commercial and industrial loan categories. However, the bank saw growth in commercial real estate non-farm non-residential and multi-family residential loans during the first nine months of 2024, demonstrating its ability to adapt to changing market conditions and customer demands.

Conclusion: A Resilient Community Bank Poised for Growth

First US Bancshares, Inc. (NASDAQ:FUSB) has established itself as a resilient and community-focused banking institution, consistently navigating the evolving financial landscape. The company's strong financial performance, prudent risk management, and strategic growth initiatives position it well to continue serving its customers and creating value for its shareholders. With a diversified loan portfolio, strong liquidity position, and commitment to expanding its footprint, First US Bancshares is well-equipped to capitalize on opportunities in its core markets of Alabama, Tennessee, and Virginia.

As First US Bancshares looks to the future, it remains steadfast in its mission to be a trusted partner for businesses and individuals alike, while exploring new opportunities to expand its reach and enhance its competitive edge. The company's focus on maintaining strong asset quality, coupled with its strategic investments in new banking centers and technology, positions it well for sustainable growth in the coming years. Despite facing challenges such as a rising interest rate environment and increased competition, First US Bancshares continues to demonstrate its ability to adapt and thrive, making it a compelling option for investors seeking exposure to the regional banking sector.