EDGAR 10-K Filing

Company CIK: 717806
Filing Year: 2025
Filename: 717806_10-K_2025_0000950170-25-039251.json

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ITEM 1. BUSINESS
Item 1. Business.
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly-owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two additional wholly-owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.
The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.
Strategy
Our strategy focuses on increasing franchise value by building and maintaining a strong and diversified balance sheet through continued loan and deposit growth that leverages our branch network, loan production offices, and digital market capabilities. We foster a culture that adheres to effective credit underwriting standards, pricing discipline, and expense control. Our longer-term growth strategy seeks to grow loan production offices to levels that support limited branching, expansion of our customer base through digital banking offerings, and consideration of acquisition opportunities to enter new markets.
Human Capital Resources
Bancshares has no employees, other than the executive officers discussed in the information incorporated by reference in Part III, Item 10 of this report. As of December 31, 2024, the Bank had 151 full-time equivalent employees. None of our employees are party to a collective bargaining agreement. Management believes that the Company’s employee relations are satisfactory.
To facilitate talent attraction and retention, we strive to make the Company an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, health and welfare programs. Our talent acquisition team uses internal and external resources to recruit highly skilled and talented workers across our markets, and we encourage employee referrals for open positions.
As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent. In addition to healthy base wages, additional programs include bonus opportunities, Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, vacation and paid time off, family and military leave, flexible work schedules and employee assistance programs.
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
We strive to maintain an inclusive workplace and seek to foster an environment where all of our employees can thrive through active engagement in the ongoing success of our organization. It is essential to our business that we continually attract and retain a talented workforce, and our practices are designed to promote fairness in the hiring process. We encourage a customer-focused orientation that meets the diverse needs of consumers and businesses in the communities in which we serve.
Competition
We face strong competition in making loans, acquiring deposits and attracting customers for investment services. Competition among financial institutions is based on interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. We compete with numerous other financial services providers, including commercial banks, online banks, credit unions, finance companies, mutual funds, insurance companies, investment banking companies, brokerage firms and other financial intermediaries operating in Alabama and elsewhere. Many of these competitors, some of which are affiliated with large bank holding companies, have substantially greater resources and lending limits than we do. In addition, many of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks.
The financial services industry is likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries.
Supervision and Regulation
General
We are extensively regulated under both federal and state law. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and condition Bancshares’ ability to repurchase stock or to receive dividends from the Bank. Bancshares is subject to comprehensive examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), and the Bank and its subsidiaries are subject to comprehensive examination and supervision by the Alabama State Banking Department (the “ASBD”) and the Federal Deposit Insurance Corporation (the “FDIC”). These regulatory agencies generally have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impact the conduct and profitability of our activities. It is anticipated that the Trump administration and the current U.S. Congress likely will not increase the regulatory burden on community banking organizations and may seek to reduce and streamline certain prudential and regulatory requirements applicable to community banking organizations at a federal level based on statements made by relevant congressional leaders and the acting leaders of certain banking agencies. At this time, however, it is not possible to predict with any certainty the actual impact the Trump administration may have on the banking industry or our operations.
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the text of such provisions. Proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal level. The likelihood and timing of any changes in these laws and regulations, as well as the impact that such changes may have on us, are difficult to ascertain. A change in applicable laws and regulations, or in the manner in which such laws or regulations are interpreted by regulatory agencies or courts, may have a material effect on our business, operations and earnings.
Regulation of Bancshares
Bancshares is registered as a bank holding company and is subject to regulation and supervision by the Federal Reserve. The BHCA requires a bank holding company to secure the approval of the Federal Reserve before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of any bank or thrift, or merges or consolidates with another bank or thrift holding company. Further, under the BHCA, the activities of a bank holding company and any nonbank subsidiary are limited to: (1) those activities that the Federal Reserve determines to be so closely related to banking as to be a proper incident thereto and (2) investments in companies not engaged in activities closely related to banking, subject to quantitative limitations on the value of such investments. Prior approval of the Federal Reserve may be required before engaging in certain activities. In making such determinations, the Federal Reserve is required to weigh the expected benefits to the public, such as greater convenience, increased competition and gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices.
There are a number of restrictions imposed on us by law and regulatory policy that are designed to minimize potential losses to the depositors of the Bank and the Deposit Insurance Fund maintained by the FDIC (as discussed in more detail below) if the Bank should become insolvent. For example, the Federal Reserve requires bank holding companies to serve as a source of financial strength to their subsidiary depository institutions and to commit resources to support such institutions in circumstances in which they might not otherwise do so. The Federal Reserve also has the authority to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
Any capital loan by Bancshares to the Bank is subordinate in right of payment to deposits and certain other indebtedness of the Bank. In addition, in the event of Bancshares’ bankruptcy, any commitment by Bancshares to a federal banking regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
The Federal Deposit Insurance Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as a subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, then insured and uninsured depositors, along with the FDIC, will have priority of payment over unsecured, non-deposit creditors, including the institution’s holding company, with respect to any extensions of credit that they have made to such insured depository institution.
Regulation of the Bank
The operations and investments of the Bank are limited by federal and state statutes and regulations. The Bank is subject to supervision and regulation by the ASBD and the FDIC and to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that it may originate, and limits on the types of other activities in which the Bank may engage and the investments it may make.
The Bank is subject to federal laws that limit the amount of transactions between the Bank and its nonbank affiliates, including Bancshares. Under these provisions, transactions by the Bank with nonbank affiliates (such as loans or investments) are generally limited to 10% of the Bank’s capital and surplus for all covered transactions with any one affiliate and 20% of capital and surplus for all covered transactions with all affiliates. Any extensions of credit to affiliates, with limited exceptions, must be secured by eligible collateral in specified amounts. The Bank is also prohibited from purchasing any “low quality” assets from an affiliate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposed additional requirements on transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the length of time for which collateral requirements regarding covered transactions must be maintained.
In addition, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), an independent bureau with broad authority to regulate the consumer finance industry, including regulated financial institutions, non-banks and others involved in extending credit to consumers. The CFPB has authority through rulemaking, orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer financial laws. Although the CFPB has the power to interpret, administer and enforce federal consumer financial laws, the Dodd-Frank Act provides that the federal banking regulatory agencies continue to have examination and enforcement powers over the financial institutions that they supervise relating to the matters within the jurisdiction of the CFPB if the supervised institutions have less than $10 billion in assets.
Over the last several years, the CFPB has taken an aggressive approach to the regulation (and supervision, where applicable) of providers of consumer financial products and services. For example, the CFPB has taken, or attempted to take, a proactive, multi-front approach to protect consumers from excessive overdraft and non-sufficient funds fees, including through proposed or final rules, interpretive opinions and enforcement actions. Given the increased number and expansive nature of its regulatory initiatives, the CFPB has been subject to lawsuits brought by the banking industry and other providers of consumer financial products and services. The CFPB’s approach may change under the Trump administration, but it remains unclear exactly what changes will occur or how quickly. In addition, certain rules that the Biden administration CFPB finalized may be subject to reversal by either the U.S. Congress or the new CFPB administration.
The Dodd-Frank Act requires the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The banking agencies issued proposed rules in 2011 and issued guidance on sound incentive compensation policies. In 2016, the Federal Reserve and the Office of Comptroller of the Currency also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2024, these rules have not been implemented.
Lending Limits
Under Alabama law, the amount of loans that may be made by a bank in the aggregate to one person is limited. Alabama law provides that unsecured loans by a bank to one person may not exceed an amount equal to 10% of the capital and unimpaired surplus of the bank or 20% in the case of secured loans. For purposes of calculating these limits, loans to various business interests of the borrower, including companies in which a substantial portion of the stock is owned or partnerships in which a person is a partner, must be aggregated with those made to the borrower individually. Loans secured by certain readily marketable collateral are exempt from these limitations, as are loans secured by deposits and certain government securities.
Commercial Real Estate Concentration Limits
In December 2006, the U.S. bank regulatory agencies issued guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” to address increased concentrations in commercial real estate (“CRE”) loans. The guidance describes the criteria the agencies will use as indicators to identify institutions potentially exposed to CRE concentration risk. An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s capital, or (iv) total CRE loans representing 300% or more of the institution’s capital, and the outstanding balance of the institution’s CRE portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk.
In December 2015, the U.S. bank regulatory agencies issued guidance titled “Statement on Prudent Risk Management for Commercial Real Estate Lending” to remind financial institutions of existing guidance on prudent risk management practices for CRE lending activity, including the 2006 guidance described above. In the 2015 guidance, the agencies noted their belief that financial institutions had eased CRE underwriting standards in recent years. The 2015 guidance went on to identify actions that financial institutions should take to protect themselves from CRE-related credit losses during difficult economic cycles. The 2015 guidance also indicated that the agencies would pay special attention in the future to potential risks associated with CRE lending.
In June 2023, in response to the increased risk relating to CRE loans, the federal banking agencies issued a final Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts. The new policy statement updates, expands on and supersedes existing guidance from 2009. Most notably, it (i) adds a new discussion of short-term loan accommodations, (ii) expands guidance regarding the evaluation and assessment of guarantors to also encompass loan sponsors, (iii) incorporates information about changes to accounting principles since 2009, and (iv) updates and expands the illustrative examples of CRE loan workouts. Furthermore, on December 18, 2023, the FDIC issued an advisory on Managing Commercial Real Estate Concentrations in a Challenging Economic Environment, which conveys certain key risk management practices for FDIC-supervised institutions to consider in managing CRE loan concentrations in the current economic environment.
Securities and Exchange Commission
Bancshares is under the jurisdiction of the Securities and Exchange Commission (“SEC”) for matters relating to the offer and sale of its securities and is subject to the SEC’s rules and regulations related to periodic reporting, reporting to shareholders, proxy solicitations and insider trading regulations.
Monetary Policy
Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a substantial effect on the operating results of commercial banks, including the Bank. The Federal Reserve has a significant impact on the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.
Deposit Insurance
The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund maintained by the FDIC. As a result, the Bank is required to pay periodic assessments to maintain insurance coverage for its deposits. Under the FDIC’s assessment system for banks with less than $10 billion in assets, the assessment rate is determined based on a number of factors, including the Bank’s CAMELS (supervisory) rating, leverage ratio, net income, non-performing loan ratios, other real estate owned (OREO) ratios, core deposit ratios, one-year organic asset growth and a loan mix index.
The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would likely have an adverse effect on our operating expense, results of operations, and cash flows. Management cannot predict what insurance assessment rates will be in the future. Furthermore, deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Dividend Restrictions
Under Delaware law, dividends may be paid only out of the amount calculated as the present fair value of the total assets of the corporation, minus the present fair value of the total liabilities of the corporation, minus the capital of the corporation. In the event that there is no such amount, dividends may be paid out of the net profits of the corporation for the fiscal year in which the dividend is
declared and/or the immediately preceding fiscal year. Dividends may not be paid, however, out of net profits of the corporation if the capital represented by the issued and outstanding stock of all classes having a preference on the distribution of assets is impaired. Further, the Federal Reserve permits bank holding companies to pay dividends only out of current earnings and only if future retained earnings would be consistent with the company’s capital, asset quality and financial condition.
Since it has no significant independent sources of income, Bancshares’ ability to pay dividends depends on its ability to receive dividends from the Bank. Under Alabama law, the Bank may not pay a dividend in excess of 90% of its net earnings unless its surplus is equal to at least 20% of capital. The Bank is also required by Alabama law to seek the approval of the Superintendent of the ASBD prior to the payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (1) the Bank’s net earnings for that year, plus (2) its retained net earnings for the preceding two years, less any required transfers to surplus. Alabama law defines net earnings as the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all federal, state and local taxes. The Bank must be able to satisfy the conditions described above in order to declare or pay a dividend to Bancshares without obtaining the prior approval of the Superintendent of the ASBD. In addition, the FDIC prohibits the payment of cash dividends if (1) as a result of such payment, the bank would be undercapitalized or (2) the bank is in default with respect to any assessment due to the FDIC, including a deposit insurance assessment. These restrictions could materially influence the Bank’s, and therefore Bancshares’, ability to pay dividends. The Federal Reserve, which has authority to prohibit a bank holding company from paying dividends or making other distributions, has issued a Supervisory Letter stating that a bank holding company should not pay cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the holding company’s capital needs, asset quality, and overall financial condition. The Dodd-Frank Act, Basel III (described below), and their respective implementing regulations impose additional restrictions on the ability of banking institutions to pay dividends.
Capital Adequacy
In July 2013, the federal banking regulatory agencies adopted regulations to implement the framework developed by the Basel Committee on Banking Supervision (“Basel Committee”) for strengthening international capital and liquidity, known as “Basel III” (the “Basel III Rule”). The Basel III Rule provides risk-based capital guidelines designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks, to account for off-balance sheet exposures, and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate risk-weights. The net amount of assets remaining after applying the risk-weights to the gross asset values represents the institution’s total risk-weighted assets (“RWA”). An institution’s total RWA are used to calculate its regulatory capital ratios. The Basel III Rule establishes minimum capital and leverage ratios that supervised financial institutions are required to maintain, while also providing countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under the Basel III Rule, banks must maintain a specified capital conservation buffer above each of the required minimum capital levels in order to avoid limitations on paying dividends, engaging in share repurchases and paying certain discretionary bonuses.
In December 2017, the Basel Committee published the last version of the Basel III accord, generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets, which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios; constraining the use of internally modeled approaches; and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor. Leadership of the federal banking agencies who are tasked with implementing Basel IV has indicated that it is considering how to appropriately apply these revisions in the United States. Although it is uncertain at this time, some, if not all, of the Basel IV accord may be incorporated into the capital requirements framework applicable to Bancshares and the Bank.
Banking organizations must have appropriate capital planning processes, with proper oversight from the board of directors. Accordingly, pursuant to a separate, general supervisory letter from the Federal Reserve, bank holding companies are expected to conduct and document comprehensive capital adequacy analyses prior to the declaration of any dividends (on common stock, preferred stock, trust preferred securities or other Tier 1 capital instruments), capital redemptions or capital repurchases. Moreover, the federal banking agencies have adopted a joint agency policy statement, noting that the adequacy and effectiveness of a bank’s interest rate risk management process and the level of its interest rate exposures are critical factors in the evaluation of the bank’s capital adequacy.
In 2018, the U.S. Congress passed, and the President signed into law, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Growth Act”) to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with total assets of less than $10 billion and for large banks with total assets of more than $50 billion. The Growth Act, among other things, requires the federal banking agencies to issue regulations allowing community bank organizations with total assets of less than $10 billion and limited
amounts of certain assets and off-balance sheet exposures to access a simpler capital regime focused on a bank’s Tier 1 leverage capital levels rather than risk-based capital levels that are the focus of the capital rules issued under the Dodd-Frank Act implementing Basel III.
Among other changes, the Growth Act expands the definition of qualified mortgages that may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8% and 10% to replace the leverage and risk-based regulatory capital ratios. The Growth Act also includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures, and risk weights for certain high-risk commercial real estate loans.
Pursuant to the Growth Act, in October 2019, the federal banking agencies adopted regulations that exempt a qualifying community bank and its holding company that have Tier 1 leverage ratios of greater than 9% from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community organization is a depository institution or its holding company that has less than $10 billion in average total consolidated assets; has off-balance-sheet exposures of 25% or less of total consolidated assets; has trading assets plus trading liabilities of 5% or less of total consolidated assets; and is not an advanced approaches banking organization. A qualifying community banking organization and its holding company that have chosen the proposed framework will not be required to calculate the existing risk-based and leverage capital requirements. A qualifying community banking organization will also be considered to have met the capital ratio requirements to be well capitalized for the agencies’ prompt corrective action rules provided it has a community bank leverage ratio greater than 9%. The new community bank leverage ratio framework first became available for banking organizations to use on March 31, 2020. A qualifying community banking organization may opt into and out of the framework by completing the associated reporting requirements on its call report. We presently do not anticipate opting into the framework.
In July 2023, the federal banking regulators proposed revisions to the Basel III Capital Rules to implement the Basel Committee’s 2017 standards and make other changes to the Basel III Capital Rules. In September 2024, the federal banking regulators announced a reproposal of the revisions with some modifications. The proposed rules introduce revised credit risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes. However, the revised capital requirements of the proposed rule would not apply to the Company or the Bank because they have less than $100 billion in total consolidated assets and trading assets and liabilities below the threshold for market risk requirements.
Prompt Corrective Action
In addition to the required minimum capital levels described above, federal law establishes a system of “prompt corrective actions” that federal banking agencies are required to take, and certain actions that they have discretion to take, based on the capital category into which a federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution that is not adequately capitalized. Each institution is assigned to one of five categories based on its capital ratios: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Institutions categorized as “undercapitalized” or worse become subject to increasing levels of regulatory oversight and restrictions, which may include, among other things, limitations on growth and activities and payment of dividends.
As of December 31, 2024, the Bank was “well-capitalized” under the prompt corrective action rules. This classification is primarily for the purpose of applying the federal prompt corrective action provisions and is not intended to be, and should not be, interpreted as a representation of our overall financial condition or prospects.
Community Reinvestment Act
The Community Reinvestment Act (the “CRA”) requires the federal banking regulatory agencies to assess all financial institutions that they regulate to determine whether these institutions are meeting the credit needs of the communities that they serve, including their assessment area(s) (as established for these purposes in accordance with applicable regulations based principally on the location of the institution’s branch offices). Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” An institution’s record in meeting the requirements of the CRA is made publicly available and is taken into consideration in connection with any applications that it files with federal regulators to engage in certain activities, including approval of branches or other deposit facilities, mergers and acquisitions, office relocations or expansions into non-banking activities. The Bank received a “satisfactory” rating in its most recent CRA evaluation.
On October 24, 2023, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency (the “OCC”) issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar
years will be an “intermediate bank,” and banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test. The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. However, in March 2024, a federal district court issued a preliminary injunction of the regulations, and litigation addressing the constitutionality of the regulations is still pending.
Fair Access
On January 23, 2025, President Trump signed an Executive Order titled “Strengthening American Leadership in the Digital Financial Technology” (the “Order”). The primary focus of the Order is promoting U.S. developments in blockchain, digital assets and other emerging financial technologies, including cryptocurrency. The Order also states that one of the administration’s objectives is “protecting and promoting fair and open access to banking services for all law-abiding individual citizens and private-sector entities alike.” This objective appears to be related to a regulatory initiative in the first Trump administration that ultimately led to the OCC adopting a final rule on “Fair Access to Financial Services” (the “Fair Access Rule”) in the final days of that administration. The Fair Access Rule would require “covered banks” (generally, national banks with over $100 billion in assets) to:
•Make each financial service it offers available to all persons in the geographic market served by the covered bank on proportionally equal terms;
•Not deny any person a financial service the covered bank offers unless the denial is justified by such person’s quantified and documented failure to meet quantitative, impartial risk-based standards established in advance by the covered bank; and
•Not deny, in coordination with others, any person a financial service the covered bank offers.
The Trump administration expressed concern, in particular, for banks denying access due to political or social concerns. The Biden administration paused implementation of the Fair Access Rule, and it never became effective. The new Trump administration may revive the Fair Access Rule or enact similar regulations. Any such rule could impose a regulatory burden on covered banks to document compliance. The Company is not a covered bank under the existing version of the Fair Access Rule, but additional rulemaking could broaden its scope to apply to the Company.
Third-Party Risk Management
On June 9, 2023, the OCC, Federal Reserve, and FDIC issued final interagency guidance on risk management of third-party relationships, including third-party lending relationships. The interagency guidance is based, in part, on the OCC’s previously existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity. The final interagency guidance replaces each agency’s existing guidance on this topic (including the OCC's 2020 Frequently Asked Questions on Third-Party Relationships) and is directed to all banking organizations supervised by the OCC, Federal Reserve, and FDIC. Additionally, third party relationship risk management and banking as a service arrangements (including with respect to deposit products and services) have been topics of focus for federal bank regulators in 2024 and further rulemaking activity or guidance may be forthcoming.
Anti-Money Laundering Laws
Under various federal laws, including the Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”), as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. These laws also mandate that financial institutions establish anti-money laundering programs meeting certain standards and require the federal banking regulators to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act, was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards for testing technology and internal processes for Bank Secrecy Act compliance; expands
enforcement- and investigation-related authority, including increasing available sanctions for certain Bank Secrecy Act violations; and expands Bank Secrecy Act whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.
The Corporate Transparency Act (the “CTA”) was adopted as Title LXIV of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. FinCEN adopted a final regulation as 31 C.F.R. 101.380 on September 30, 2022 to implement the CTA. This became effective on January 1, 2024. These regulations require entities to report information about their beneficial owners and the individuals who created the entity (together, “beneficial ownership information” or “BOI”). FinCEN explained that the proposed rule would help protect the U.S. financial system from illicit use by making it more difficult for bad actors to conceal their financial activities through entities with opaque ownership structures. FinCEN also explained that the proposed reporting obligations would provide essential information to law enforcement and others to help prevent corrupt actors, terrorists, and proliferators from hiding money or other property in the United States. The new rules expand financial institutions’ obligations under the Customer Due Diligence Rule (the “CDD Rule”) to collect information and verify the beneficial ownership of legal entities. The constitutionality of the CTA has been challenged in federal court, and enforcement of the CTA is subject to an injunction pending the outcome of the related litigation. Although the Company and the Bank are exempt from the CTA’s requirements to report their respective beneficial owners, the new CTA reporting requirements, if they become effective, may increase the Bank’s anti-money laundering diligence activities and costs.
The United States has imposed various sanctions upon various foreign countries, such as China, Iran, North Korea, Russia and Venezuela, and certain of their government officials and persons. Banks are required to comply with these sanctions which require additional customer screening and transaction monitoring.
Russia’s February 2022 invasion of Ukraine has generated a significant number of new sanctions on Russia, Russian persons and suppliers of military or dual-purpose products to Russia. Federal bank regulators have issued alerts that Russia and others may step up cyber-attacks and data intrusions following the invasion. FinCEN has issued four alerts on potential Russian illicit financial activity since February 2022. On January 25, 2023 FinCEN issued an alert to financial institutions on potential investments in the U.S. commercial real estate sector by sanctioned Russian elites, oligarchs, their family members, and the entities through which they act. The alert listed potential red flags and typologies involving attempted sanctions evasion in the commercial real estate sector, and reminds financial institutions of their Bank Secrecy Act (BSA) reporting obligations.
Overdrafts
Federal bank regulators have updated their guidance several times on overdrafts, including overdrafts incurred at automated teller machines and point of sale terminals. Overdrafts also have been a CFPB concern, and in 2021, this entity began refocusing on this issue with a view to “insure that banks continue to evolve their businesses to reduce reliance on overdraft and not sufficient funds fees.” Among other things, federal regulators require banks to monitor accounts and to limit the use of overdrafts by customers as a form of short-term, high-cost credit, including, for example, giving customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling 12 month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage. It also encourages placing daily limits on overdraft fees, and asks banks to consider eliminating overdraft fees for transactions that overdraw an account by a de minimis amount. Overdraft policies, processes, fees and disclosures are frequently the subject of litigation against banks in various jurisdictions. Federal bank regulators have been considering responsible small dollar lending, including overdrafts and related fee issues. In May 2020, they issued principals for offering small-dollar loans in a responsible manner.
CFPB Consumer Financial Protection Circular 2022-06 (Oct. 26, 2022) concluded that overdraft fee practices must comply with Regulation Z, Regulation E, and the prohibition against unfair, deceptive, and abusive acts or practices in Section 1036 of the Consumer Financial Protection Act. Further, overdraft fees assessed by financial institutions on transactions that a consumer would not reasonably anticipate are likely unfair even if these comply with these other consumer laws and regulations. The CFPB proposed on February 6, 2019 to rescind its mandatory underwriting standards for loans covered by its 2017 Payday, Vehicle Title and Certain High-Cost Installment Loans rule, and has separately proposed delaying the effectiveness of such 2017 rule.
The CFPB has a broad mandate to regulate consumer financial products and services, whether or not offered by banks or their affiliates. The CFPB has the authority to adopt regulations and enforce various laws, including fair lending laws, the Truth in Lending Act, the Electronic Funds Transfer Act, mortgage lending rules, the Truth in Savings Act, the Fair Credit Reporting Act and Privacy of Consumer Financial Information rules. Although the CFPB does not examine or supervise banks with less than $10 billion in assets, banks of all sizes are affected by the CFPB’s regulations, and the precedents set in CFPB enforcement actions and interpretations.
Brokered Deposits
The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well capitalized. Institutions that are less than well capitalized cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC. The FDIC has defined the “national rate” for all interest-bearing deposits held by less-than-well-capitalized institutions as “a simple average of rates paid by all insured depository institutions and branches for which data are available” and has stated that its presumption is that this national rate is the prevailing rate in any market. As such, institutions that are less than well capitalized that are permitted to accept, renew or roll over brokered deposits via a FDIC waiver generally may not pay an interest rate in excess of the national rate plus 75 basis points on such brokered deposits. As of December 31, 2024, the Bank categorized $72.4 million, or 7.4% of its deposit liabilities, as brokered deposits.
On December 15, 2020, the FDIC issued a final rule establishing a new framework for analyzing whether bank deposits obtained through third-party arrangements are brokered deposits pursuant to Section 29 of the Federal Deposit Insurance Act. Generally, a person is a "deposit broker" if it is "engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties." The final rule clarifies what it means to be in the business of placing deposits and facilitating the placement of deposits for purpose of the deposit broker definition.
Section 29 provides, in particular, that a person with an exclusive deposit placement arrangement with one insured depository institution will not be considered a deposit broker because it is not in the business of placing deposits or facilitating the placement of deposits.
The final rule also clarifies application of the “primary purpose exception” to Section 29 by identifying a number of common business relationships described as “designated exceptions” and meeting the primary purpose exception. Many of these designated exceptions are arrangements previously addressed in advisory opinions and include: certain investment-related deposits; property management service deposits; deposits for cross-border clearing services; deposits related to real estate and mortgage servicing activities; retirement and 529 deposits; deposits related to employee benefits programs; deposits held to secure credit card loans; and deposits placed by agencies to disburse government benefits. As a result of this final rule, the Company's deposits that were classified as brokered deposits reduced significantly beginning with the June 30, 2021 reporting period.
On July 30, 2024, the FDIC proposed a rule that would amend the current rules governing brokered deposits. The proposed rule as drafted would, among other things, (1) amend the definition of “deposit broker”; (2) eliminate the exclusive deposit placement arrangement exception; (3) eliminate the enabling transactions designated business exception; (4) revise the “25 percent test” designated business exception for a primary purpose exception to be available only to broker-dealers and investment advisers and only if less than 10 percent of the total assets that the broker-dealer or investment adviser has under management for its customers is placed at one or more insured depository institutions; (5) revise the interpretation of the primary purpose exception to consider the third party’s intent in placing customer funds at a particular insured depository institution; (6) allow only insured depository institutions to file notices and applications for primary purpose exceptions; and (7) clarify how an insured depository institution that loses its “agent institution” status regains that status. The Company is currently evaluating the effect of the proposed rule on the Company were it to be adopted as a final rule and monitoring the status of this rulemaking. Based on recent statements from the new Acting Chairman of the FDIC, the proposed rule is unlikely to be adopted as proposed due to the change in Presidential administration and the prospects and timing for any re-proposal or supervisory action in this area remain uncertain at this time.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) comprehensively revised the laws affecting corporate governance, auditing, executive compensation and corporate reporting for entities with equity or debt securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Among other things, Sarbanes-Oxley and its implementing regulations established new membership requirements and additional responsibilities for audit committees, imposed restrictions on the relationships between public companies and their outside auditors (including restrictions on the types of non-audit services that auditors may provide), imposed additional responsibilities for public companies’ external financial statements on the chief executive officer and chief financial officer, and expanded the disclosure requirements for corporate insiders. The requirements are intended to allow stockholders to more easily and efficiently monitor the performance of companies and directors. We and our Board of Directors have, as appropriate, adopted or modified our policies and practices in order to comply with these regulatory requirements and to enhance our corporate governance practices.
As required by Sarbanes-Oxley, we have adopted a Code of Business Conduct and Ethics applicable to our Board, executives and employees. This Code of Business Conduct can be found on our website at http://www.fusb.com under the tabs “About - Investor Relations - FUSB Policies.”
Privacy of Customer Information
The Financial Services Modernization Act of 1999 (also known as the “Gramm-Leach-Bliley Act” or the “GLBA”) and the implementing regulations issued by federal banking regulatory agencies require financial institutions to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties. In general, financial institutions are required to explain to customers their policies and procedures regarding the disclosure of such nonpublic personal information, and, unless otherwise required or permitted by law, financial institutions are prohibited from disclosing such information except as provided in their policies and procedures. Specifically, the GLBA established certain information security guidelines that require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
The GLBA and related regulations require banks and their affiliated companies to adopt and disclose privacy policies, including policies regarding the sharing of personal information with third parties. The GLBA also permits bank subsidiaries to engage in financial activities, which are similar to those permitted to financial holding companies. In December 2015, Congress amended the GLBA as part of the Fixing America’s Surface Transportation Act. This amendment provided financial institutions, which meet certain conditions, an exemption from the requirement to deliver an annual privacy notice. On August 10, 2018, the CFPB announced that it had finalized conforming amendments to its implementing regulation, Regulation P.
On October 22, 2024, the CFPB issued a final rule to implement Section 1033 of the Dodd-Frank Act, which gives individuals the right to obtain data regarding consumer financial products and services they have obtained. The final rule requires certain entities, including the Bank, to comply with an established framework to govern consumer access to electronic financial data. Compliance with the rule will be phased in over several years with the Bank required to be in compliance by April 1, 2030. Following the issuance of this rule, two trade associations and a national bank headquartered in Kentucky filed a lawsuit challenging the rule in the United States District Court for the Eastern District of Kentucky. In this lawsuit, the plaintiffs alleged that the CFPB exceeded its statutory authority in adopting the rule.
A variety of federal and state privacy laws govern the collection, safeguarding, sharing and use of customer information, and require that financial institutions have policies regarding information privacy and security. Some state laws also protect the privacy of information of state residents and require adequate security of such data, and certain state laws may, in some circumstances, require us to notify affected individuals of security breaches of computer databases that contain their personal information. These laws may also require us to notify law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data. In March 2021, Virginia adopted the Consumer Data Protection Act (the “VCDPA”), which imposes certain restrictions and requirements on businesses that collect consumer data for at least 100,000 consumers in Virginia. The Bank currently has fewer than 100,000 customers in Virginia but may become subject to the VCDPA if its customer base grows above that level. The Company could face enforcement actions by the Virginia Attorney General and penalties for noncompliance with the VCDPA.
Cybersecurity
The Cybersecurity Information Sharing Act of 2015 (“CISA”) was intended to improve cybersecurity in the United States by enhanced sharing of information about security threats among the U.S. government and private sector entities, including financial institutions. CISA also authorizes companies to monitor their own systems notwithstanding any other provision of law and allows companies to carry out cybersecurity defensive measures on their own systems. The law includes liability protections for companies that share cyber threat information with third parties so long as such sharing activity is conducted in accordance with CISA.
In October 2016, the federal bank regulatory agencies issued an Advance Notice of Proposed Rulemaking regarding enhanced cyber risk management standards which would apply to a wide range of large financial institutions and their third-party service providers, including Bancshares and the Bank. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience, and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.
The federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management standards among financial institutions. A financial institution is expected to establish multiple lines of defense and to ensure its risk management processes address the risk posed by potential threats to the institution. A financial institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of cyber-attack.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located.
In November 2021, federal bank regulatory agencies adopted a rule regarding notification requirements for banking organizations related to significant computer security incidents. Under the final rule, a bank holding company, such as the Company, and an FDIC-supervised insured depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. Service providers are required under the rule to notify any affected bank client it provides services to as soon as possible when it determines it has experienced a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, covered services provided by that entity to the bank for four or more hours.
Furthermore, once administrative rules are adopted by the CISA, the Cyber Incident Reporting for Critical Infrastructure Act, enacted in March 2022, will require certain covered entities, including those in the financial services industry, to report a covered cyber incident to CISA within 72 hours once the covered entity reasonably believes an incident has occurred. Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
In July 2023, the SEC adopted amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Exchange Act. Specifically, the amendments require current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, management's cybersecurity expertise, if any, and the board of directors oversight of cybersecurity risk. Additionally, the rules require registrants to provide updates about previously reported cybersecurity incidents in their periodic reports.
On October 19, 2023, the CFPB announced a proposed rule to adopt a regulation regarding personal financial data rights that is designed to promote “open banking.” If enacted as proposed, the regulation would require, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties upon request certain covered transaction, account and payment information.
On October 30, 2023, the Biden administration issued an Executive Order on Safe, Secure and Trustworthy Development and Use of AI, emphasizing the need for transparency, accountability and fairness in the development and use of AI. The order seeks to balance innovation with addressing risks associated with AI by providing eight guiding principles and priorities, such as ensuring that consumers are protected from fraud, discrimination and privacy risks related to AI. The Executive Order also requires certain federal agencies, including the CFPB, to address potential discrimination in the housing and consumer financial markets relating to the use by financial institutions of AI technologies. Prior to the issuance of the Executive Order, the CFPB published a report addressing the use by financial institutions of AI chatbots in the provision of financial products and services, which report also highlighted the limitations and various risks posed by such activity. States have also started to regulate the use of AI technologies. For example, the California Privacy Protection Agency ("CCPA") is currently in the process of finalizing regulations under the CCPA regarding the use of automated decision making.
Regulation of Lending Practices
Our lending practices are subject to a number of federal and state laws, as supplemented by the rules and regulations of the various agencies charged with the responsibility of implementing these laws. These include, among others, the following:
•Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
•Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities that it serves;
•Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other specified factors in extending credit;
•Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures;
•Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies;
•Real Estate Settlement Procedures Act, requiring certain disclosures concerning loan closing costs and escrows, and governing transfers of loan servicing and the amounts of escrows in connection with loans secured by one-to-four family residential properties; and
•Rules and regulations established by the National Flood Insurance Program.
The CFPB has adopted a number of rules that impact our lending practices, including, among other things, (1) requiring financial institutions to make a “reasonable and good faith determination” that a consumer has a “reasonable ability” to repay a residential mortgage loan before making such a loan, (2) requiring sponsors of asset-backed securities to retain at least 5% of the credit risk of the assets underlying the securities (and generally prohibiting sponsors from transferring or hedging that credit risk), and (3) imposing a number of new and enhanced requirements on the mortgage servicing industry, including rules regarding communications with borrowers, maintenance of customer account records, procedures for responding to written borrower requests and complaints of errors, servicing delinquent loans, and conducting foreclosure proceedings, among other measures.
Regulation of Deposit Operations
Our deposit operations are subject to federal laws applicable to depository accounts, including, among others, the following:
•Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
•Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts;
•Electronic Fund Transfer Act and Regulation E, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and
•Rules and regulations of the various agencies charged with the responsibility of implementing these laws.
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank of Atlanta (“FHLBA”). Each member of the FHLBA is required to maintain a minimum investment in the Class B stock of the FHLBA. The Board of Directors of the FHLBA can increase the minimum investment requirements if it concludes that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase the level of investment in the FHLBA depends entirely on the occurrence of a future event, we are unable to determine the extent of future required potential payments to the FHLBA at this time. Additionally, in the event that a member financial institution fails, the right of the FHLBA to seek repayment of funds loaned to that institution will take priority over the rights of all other creditors.
Climate-Related Regulation and Risk Management
In recent years, the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system. Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: ensure that management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability. On December 16, 2021, the Office of the Comptroller of the Currency (the “OCC”) issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets. Although these risk management principles, if adopted as proposed, would not apply to the Bank directly based upon our current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management. The federal banking agencies, either independently or on an interagency basis, are expected to adopt a more formal climate risk management framework for larger banking organizations in the coming months. As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.
In March 2024, the SEC adopted final rules for "The Enhancement and Standardization of Climate-Related Disclosures for Investors,” which would have required issuers to provide climate-related disclosures. In April 2024, the SEC stayed the effectiveness of the final rules pending the outcome of certain legal challenges.
Website Information
The Bank’s website address is https://www.fusb.com. Bancshares does not maintain a separate website. Bancshares makes available free of charge on or through the Bank’s website, under the tabs “Investors - SEC filings,” its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with the SEC. These reports are also available on the SEC’s website, https://www.sec.gov. Bancshares will provide paper copies of these reports to shareholders free of charge upon written request. Bancshares is not including the information contained on or available through the Bank’s website as a part of, or incorporating such information into, this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Making or continuing an investment in our common stock involves certain risks that you should carefully consider. The risks and uncertainties described below are not the only risks that may have a material adverse effect on us. Additional risks and uncertainties also could adversely affect our business, consolidated financial condition, results of operations and cash flows. If any of the following risks actually occurs, our business, financial condition or results of operations could be negatively affected, the market price of your common stock could decline, and you could lose all or a part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
Risks Related to Credit and Liquidity
If loan losses are greater than anticipated, our earnings may be adversely affected.
As a lender, we are exposed to the risk that customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans. Our credit risk with respect to our real estate and construction loan portfolio relates principally to the creditworthiness of individuals and the value of the real estate serving as security for the repayment of loans, and the credit risk with respect to our commercial and consumer loan portfolio relates principally to the general creditworthiness of businesses and individuals within the local markets in which we operate. We make various assumptions and judgments about the collectability of our loan portfolio and
provide an allowance for potential credit losses based on a number of factors. We believe that our allowance for credit losses is adequate. However, if estimates, assumptions or judgments used in calculating this allowance are incorrect, the allowance for credit losses may not be sufficient to cover our actual loan losses. Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans and other factors, both within and outside of our control, may result in higher levels of nonperforming assets and charge-offs and loan losses in excess of our current allowance for credit losses, requiring us to make material additions to our allowance for credit losses, which could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows. The actual amount of future provisions for credit losses cannot be determined at this time and may vary from the amounts of past provisions. In addition, banking regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further charge-offs if the regulators’ judgments are different than those of our management. Material additions to the allowance could materially decrease our net income.
CRE lending may expose us to increased lending risks.
Our policy generally has been to originate CRE loans primarily in the states in which the Bank operates. At December 31, 2024, CRE loans, including owner occupied, investor, and real estate construction loans, totaled $293.3 million or 35.6%, of our total loan portfolio. As a result of our growth in this portfolio over the past several years and planned future growth, these loans require more ongoing evaluation and monitoring and we are implementing enhanced risk management policies, procedures and controls. CRE loans generally involve a greater degree of credit risk than residential mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by CRE often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In recent years, CRE markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. However, CRE markets have been facing downward pressure since 2022 due in large part to increasing interest rates and declining property values. Accordingly, the federal banking agencies have expressed concerns about weaknesses in the current CRE market and have applied increased regulatory scrutiny to institutions with CRE loan portfolios that are fast growing or large relative to the institutions' total capital. To address supervisory expectations with respect to financial institutions' handling of CRE borrowers who are experiencing financial difficulty, in June of 2023, the federal banking agencies, including the OCC, issued an interagency policy statement addressing prudent CRE loan accommodations and workouts. Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. At December 31, 2024, the Company had no CRE loans on nonaccrual status.
Weakness in the residential real estate markets could adversely affect our performance.
As of December 31, 2024, 1-4 family residential real estate loans represented approximately 9% of our total loan portfolio. A general decline in home values would adversely affect the value of collateral securing the residential real estate that we hold, as well as the volume of loan originations and the amount we realize on the sale of real estate loans. Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, the decreases in the value of collateral securing our loans as a result of natural disasters or other related events could adversely impact our financial condition and results of operations. If insurance coverage is unavailable to our borrowers due to the reluctance of insurance companies to renew policies covering the collateral or due to other factors, the resulting increase in cost of home ownership could affect the ability of borrowers to repay loans. These factors could result in higher delinquencies and greater charge-offs in future periods, which could materially adversely affect our business, financial condition or results of operations.
Our business is subject to liquidity risk, which could disrupt our ability to meet financial obligations.
Liquidity risk refers to the ability of the Company to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs and other corporate purposes. Liquidity risk arises whenever the maturities of financial instruments included in assets and liabilities differ or when assets cannot be liquidated at fair market value as needed. The Company obtains funding through deposits and various short-term and long-term wholesale borrowings, including federal funds purchased and securities sold under repurchase agreements, the Federal Reserve Discount Window and Federal Home Loan Bank (FHLB) advances. Any restriction or disruption of the Company’s ability to obtain funding from these or other sources could have a negative effect on the Company’s ability to satisfy its current and future financial obligations, which could materially affect the Company’s condition or results of operations.
Liquidity risks could affect our operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the repayment or sale of loans and other sources could have a substantial negative effect on our liquidity. Our funding sources include federal funds, purchased
securities sold under repurchase agreements, core and non-core deposits, and short- and long-term debt. We maintain a portfolio of securities that can be used as a source of liquidity. In addition, certain loans in the Company's loan portfolio may be pledged to the FHLB or Federal Reserve Bank ("FRB") as a source of liquidity. Other sources of liquidity are available should they be needed, such as through our acquisition of additional non-core deposits. Bancshares may be able, depending on market conditions, to issue and sell debt securities and preferred or common equity securities in public or private transactions. Our access to funding sources in amounts adequate to finance or capitalize our activities or on acceptable terms could be impaired by factors that affect us specifically or the financial services industry or economy in general, such as further disruption in the financial markets, negative views and expectations about the prospects for the financial services industry, deterioration within the credit markets, or the financial condition, liquidity or profitability of the financial institutions with which we transact.
Risks Related to Our Market and Industry
Our business and operations may be materially adversely affected by national and local market economic conditions.
Our business and operations, which primarily consist of banking activities, including lending money to customers in the form of loans and borrowing money from customers in the form of deposits, are sensitive to general business and economic conditions in the United States generally, and in our local markets in particular. If economic conditions in the United States or any of our local markets weaken, our growth and profitability from our operations could be constrained. The current economic environment is characterized by high inflation levels and interest rates. These conditions impact our ability to attract deposits and to generate attractive earnings through our loan and investment portfolios. All of these factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of delinquencies, defaults and charge-offs, additional provisions for loan losses, a decline in the value of our collateral, and an overall material adverse effect on the quality of our loan portfolio. Additionally, national financial markets may be adversely affected by sustained high levels of inflation, the current or anticipated impact of military conflict, including the current conflicts in the Middle East and Ukraine, terrorism, and other geopolitical events.
The economic conditions in our local markets may be different from the economic conditions in the United States as a whole. Our success depends to a certain extent on the general economic conditions of the geographic markets that we serve in Alabama, Tennessee and Virginia, as well as other states in which our indirect lending team operates. Local economic conditions in these areas have a significant impact on our commercial, real estate and construction loans, the ability of borrowers to repay these loans and the value of the collateral securing these loans. Adverse changes in the economic conditions of the southeastern United States in general or any one or more of these local markets could negatively impact the financial results of our banking operations and have a negative effect on our profitability.
Significant changes to the size, structure, powers and operations of the federal government may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial condition.
The Trump administration has commenced efforts to implement significant changes to the size and scope of the federal government and reform its operations to achieve stated goals that include reducing the federal budget deficit and national debt, improving the efficiency of government operations, and promoting innovation and economic growth. To date, these efforts have been carried out through a mix of executive actions aimed at eliminating or modifying federal agency and federal program funding, reducing the size of the federal workforce, reducing or altering the scope of activities conducted by, and possibly eliminating, various federal agencies and bureaus, and encouraging the use of AI and other advanced technologies within the public and private sectors. These changes, if implemented and taken as a whole, may have varied effects on the economy that are difficult to predict. For instance, the delivery of government services and the distribution of federal program funds and benefits may be disrupted or, in some cases, eliminated as a result of funding cuts or recasting of federal agency mandates. Further, a substantial reduction of the federal workforce could adversely affect regional and local economies, both directly and indirectly, in geographies with significant concentrations of federal employees and contractors. It is possible that such comprehensive changes to the federal government may be materially adverse to the regional and local economies where we conduct business and to our customers, which, in turn, could be materially adverse to our business, financial condition and results of operations.
The banking industry is highly competitive, which could result in loss of market share and adversely affect our business.
We encounter strong competition in making loans, acquiring deposits and attracting customers for investment services. We compete with commercial banks, online banks, credit unions, finance companies, mutual funds, insurance companies, investment banking companies, brokerage firms and other financial intermediaries operating in our markets and elsewhere in various segments of the financial services market. Many of these competitors, some of which are affiliated with large bank holding companies, have substantially greater resources and lending limits than we do. In addition, many of our non-bank competitors are not subject to the
same extensive federal regulations that govern bank holding companies and federally insured banks, and, as a result, may be able to offer certain products and services at a lower cost than we are able to offer, which could adversely affect our business.
Rapid and significant changes in market interest rates may adversely affect our performance.
Most of our assets and liabilities are monetary in nature and are therefore subject to significant risks from changes in interest rates. Our profitability depends to a large extent on net interest income, and changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities. Our consolidated results of operations are affected by changes in interest rates and our ability to manage interest rate risks. Changes in market interest rates, changes in the relationships between short-term and long-term market interest rates and changes in the relationships between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. These differences could result in an increase in interest expense relative to interest income or a decrease in our interest rate spread. Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our ability to originate new loans and our ability to grow.
Beginning in early 2022, in response to growing signs of inflation, the FRB increased interest rates rapidly, causing the federal funds rate to reach a 22-year high. Although the FRB reduced its benchmark rates in the latter part of 2024, the inflationary outlook in the United States is currently uncertain. Rapid changes in interest rates make it difficult for the Bank to balance its loan and deposit portfolios, which may adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having other adverse impacts on our business. Persistent inflation could lead to higher interest rates, which could, in turn, increase the borrowing costs of our customers, making it more difficult for them to repay their loans or other obligations. High interest rates could also push down asset prices and weaken economic activity. For a more detailed discussion of these risks and our management strategies for these risks, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our net interest margin depends on many factors that are partly or completely out of our control, including competition, federal economic monetary and fiscal policies and general economic conditions. Despite the implementation of strategies to manage interest rate risks, changes in interest rates may have a material adverse impact on our profitability.
The performance of our investment portfolio is subject to fluctuations due to changes in interest rates and market conditions.
Changes in interest rates can negatively affect the performance of most of our investments. Interest rate volatility can reduce gains or create losses in our investment portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect returns on, and the market value of, investment securities. The fair market value of the securities in our portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. The potential effect of these factors is heightened due to the current conditions in the financial markets and economic conditions generally.
Fiscal challenges facing the U.S. government could negatively impact financial markets which in turn could have an adverse effect on our financial position or results of operations.
Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S. government operations and raise the U.S. government’s debt limit may increase the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States. On January 21, 2025, the U.S. Treasury began taking extraordinary measures to prevent a default on U.S. government debt, which measures are expected to continue until such time as the U.S. Congress increases the debt ceiling. However, it is unclear how long such extraordinary measures will forestall a default in the event of extended Congressional negotiations or inaction. Many of our investment securities are issued by the U.S. government and government agencies and sponsored entities. As a result of uncertain domestic political conditions, including potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks. In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+. In 2023, Congress narrowly averted two separate government shutdowns by passing continuing resolutions. In part due to repeated debt-limit political standoffs and last-minute resolutions, in 2023 a rating agency downgraded the U.S. long-term foreign-currency issuer default rating to AA+ from AAA. A further downgrade, or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide and, therefore, materially adversely affect our business, financial condition and results of operations.
Any government shutdown could adversely affect the U.S. and global economy and our liquidity, financial condition and earnings.
Disagreement over the federal budget has previously caused the U.S. federal government to shut down for periods of time. On December 21, 2024, President Biden signed a bipartisan continuing resolution to extend federal spending and avert a government shutdown through March 14, 2025. Accordingly, without a final agreement regarding the federal budget in place prior to the expiration of the continuing resolution, or another continuing resolution, it is still possible that a partial shutdown of the U.S. government may occur. An extended period of shutdown of portions of the U.S. federal government could negatively impact the financial performance of certain customers and could negatively impact customers’ future access to certain loan and guaranty programs. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations. During any protracted federal government shutdown, we may not be able to close certain loans and we may not be able to recognize non-interest income on the sale of loans. In addition, we believe that some borrowers may decide not to proceed to close on their loans, which would result in a permanent loss of the related non-interest income. A federal government shutdown could also result in reduced income for government employees or employees of companies that engage in business with the federal government, which could result in greater loan delinquencies, increased in our non-performing, criticized, and classified assets, and a decline in demand for our products and services.
Changes in the policies of monetary authorities and other government action could adversely affect our profitability.
Our consolidated results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open market operations in United States government securities, changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, we cannot predict future changes in interest rates, deposit levels, loan demand or our business and earnings. Furthermore, the actions of the United States government and other governments in responding to such conditions may result in currency fluctuations, exchange controls, market disruption and other adverse effects.
Risks Related to Privacy and Technology
Technological changes in the banking and financial services industries may negatively impact our results of operations and our ability to compete.
The banking and financial services industries are undergoing rapid changes, with frequent introductions of new technology-driven products and services. In addition to enhancing the level of service provided to customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. To remain competitive, financial institutions must continuously evaluate changing customer preferences with respect to emerging technologies and develop plans to address such changes in the most cost-effective manner possible. Our future success will depend, in part, on our ability to use technology to offer products and services that provide convenience to customers and create additional efficiencies in operations, and our failure to do so could negatively impact our business. Additionally, our competitors may have greater resources to invest in technological improvements than we do, and we may not be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete.
Our information systems may experience a failure or interruption.
We rely heavily on communications and information systems to conduct our business. Any failure or interruption in the operation of these systems could impair or prevent the effective operation of our customer relationship management, general ledger, deposit, lending or other functions. While we have policies and procedures designed to prevent or limit the effect of a failure or interruption in the operation of our information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures or interruptions impacting our information systems could damage our reputation, result in a loss of customer business, and expose us to additional regulatory scrutiny, civil litigation and possible financial liability, any of which could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.
We use information technology in our operations and offer online banking services to our customers, and unauthorized access to our customers’ confidential or proprietary information as a result of a cyber-attack or otherwise could expose us to reputational harm and litigation and adversely affect our ability to attract and retain customers.
Information security risks for financial institutions have generally increased in recent years, in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased
sophistication and activities of organized crime, hackers, terrorists, activists and other external parties. We are under continuous threat of loss due to hacking and cyber-attacks, especially as we continue to expand customer capabilities to utilize the internet and other remote channels to transact business. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. Therefore, the secure processing, transmission and storage of information in connection with our online banking services are critical elements of our operations. However, our network could be vulnerable to unauthorized access, computer viruses and other malware, phishing schemes or other security failures. In addition, our customers may use personal smartphones, tablet PCs or other mobile devices that are beyond our control systems in order to access our products and services. Our technologies, systems and networks, and our customers’ devices, may become the target of cyber-attacks, electronic fraud or information security breaches that could result in the unauthorized release, gathering, monitoring, use, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations. As cyber threats continue to evolve, we may be required to spend significant capital and other resources to protect against these threats or to alleviate or investigate problems caused by such threats. To the extent that our activities or the activities of our customers involve the processing, storage or transmission of confidential customer information, any breaches or unauthorized access to such information could present significant regulatory costs and expose us to litigation and other possible liabilities. Any inability to prevent these types of security threats could also cause existing customers to lose confidence in our systems and could adversely affect our reputation and ability to generate deposits. In addition, we may not have adequate insurance coverage to compensate for losses from a cyber threat event. While we have not experienced any material losses relating to cyber-attacks or other information security breaches to date, we may suffer such losses in the future. The occurrence of any cyber-attack or information security breach could result in potential legal liability, reputational harm, damage to our competitive position, additional compliance costs, and the disruption of our operations, all of which could adversely affect our business, consolidated financial condition, results of operations and cash flows.
We depend on outside third parties for the processing and handling of our records and data, which exposes us to additional risk for cybersecurity breaches and regulatory action.
We rely on software and internet-based platforms developed by third-party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing and securities portfolio accounting. If these third-party service providers experience difficulties, are subject to cybersecurity breaches or terminate their services, and we are unable to replace them with other service providers on a timely basis, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, consolidated financial condition and results of operations could be adversely affected. While we perform a review of controls instituted by the applicable vendors over these programs in accordance with industry standards and perform our own testing of user controls, we must rely on the continued maintenance of controls by these third-party vendors, including safeguards over the security of customer data. In addition, we maintain, or contract with third parties to maintain, daily backups of key processing outputs in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary disruption in our ability to conduct business or process transactions, or damage to our reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Such a disruption or breach of security could have a material adverse effect on our business.
In addition, federal regulators have issued guidance outlining their expectations for third-party service provider oversight and monitoring by financial institutions. Any failure to adequately oversee the actions of our third-party service providers could result in regulatory actions against us, which could adversely affect our business, consolidated financial condition, results of operations and cash flows.
The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business.
We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presents a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI
models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
Risks Related to Legal, Reputational and Compliance Matters
We are subject to extensive governmental regulation, and the costs of complying with such regulation could have an adverse impact on our operations.
The financial services industry is extensively regulated and supervised under both federal and state law. We are subject to the supervision and regulation of the Federal Reserve, the FDIC and the ASBD. These regulations are intended primarily to protect depositors, the public and the FDIC’s Deposit Insurance Fund, rather than shareholders. Additionally, we are subject to supervision, regulation and examination by other regulatory authorities, such as the SEC and state securities and insurance regulators. If, as a result of an examination, the Federal Reserve, the FDIC or the ASBD were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to require us to remediate any such adverse examination findings. We are also subject to changes in federal and state laws, as well as regulations and governmental policies, income tax laws and accounting principles. Regulations affecting banks and other financial institutions are undergoing continuous change, and the ultimate effect of such changes cannot be predicted. Regulations and laws may be modified at any time, and new legislation may be enacted that could affect us.
The recent turnover of the Presidential administration will result in certain changes in the leadership and senior staffs of the FDIC, the CFPB, the SEC, the Treasury Department, and other agencies. These changes are expected to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies, including the possible reversal of a number of final and proposed rules and policy statements promulgated under the Biden administration. The potential impact of any changes in agency personnel, policies and priorities on the financial services sector, including the Bank, cannot be predicted at this time. We cannot assure you that any changes in regulations or new laws will not adversely affect our performance or consolidated results of operations. Our regulatory framework is discussed in greater detail under “Item 1. Business - Supervision and Regulation.”
We are subject to laws regarding the privacy, information security and protection of personal information, and any violation of these laws or unauthorized disclosure of such information could damage our reputation and otherwise adversely affect our operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal data, such as personally identifiable information about our employees and information relating to our operations. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act, which, among other things: (1) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (2) requires us to provide certain disclosures to customers about our information collection, sharing and security practices and to afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (3) requires us to develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and state legislatures have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to unauthorized persons, or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under applicable laws and regulations. Concerns about the effectiveness of our measures to safeguard personal information could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in
significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our business, consolidated financial condition, results of operations and cash flows.
Our FDIC deposit insurance premiums and assessments may increase and thereby adversely affect our financial results.
The Bank’s deposits are insured by the FDIC up to legal limits, and, accordingly, the Bank is subject to periodic insurance assessments by the FDIC. The Bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses. Numerous bank failures during the financial crisis and increases in the statutory deposit insurance limits increased resolution costs to the FDIC and put significant pressure on the Deposit Insurance Fund. The FDIC has authority to increase insurance assessments, and any significant increase in insurance assessments would likely have an adverse effect on us.
We face a risk of noncompliance and enforcement action under the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act of 1970, the USA PATRIOT Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. Our federal and state banking regulators, the Financial Crimes Enforcement Network and other government agencies are authorized to impose significant civil money penalties for violations of anti-money laundering requirements. We are also subject to increased scrutiny with respect to our compliance with the regulations issued and enforced by the Office of Foreign Assets Control. If our program is deemed deficient, we could be subject to liability, including fines, civil money penalties and other regulatory actions, which may include restrictions on our business operations and our ability to pay dividends, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have significant reputational consequences for us. Any of these circumstances could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and a failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations (collectively, “fair lending laws”) impose community investment and nondiscriminatory lending requirements on financial institutions. The CFPB, the Department of Justice and other federal and state agencies are responsible for enforcing these federal laws and regulations and comparable state provisions. Various federal banking agencies have recently completed significant changes to their respective CRA regulations. Federal, state or local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans. A successful regulatory challenge to an institution's performance under the fair lending laws could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
Bancshares’ liquidity is subject to various regulatory restrictions applicable to its subsidiaries.
There are various regulatory restrictions on the ability of Bancshares’ subsidiaries to pay dividends or to make other payments to Bancshares. In addition, Bancshares’ right to participate in any distribution of assets of any of its subsidiaries upon a subsidiary’s liquidation or otherwise will be subject to the prior claims of creditors of that subsidiary, except to the extent that any of Bancshares’ claims as a creditor of such subsidiary may be recognized.
The internal controls that we have implemented to mitigate risks inherent to the business of banking might fail or be circumvented.
Management regularly reviews and updates our internal controls and procedures that are designed to manage the various risks in our business, including credit risk, operational risk, financial risk, compliance risk and interest rate risk. No system of controls, however well-designed and operated, can provide absolute assurance that the objectives of the system will be met. If such a system fails or is circumvented, there could be a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.
Changes in tax laws and interpretations and tax challenges may adversely affect our financial results.
The enactment of federal tax reform has had, and is expected to continue to have, far reaching and significant effects on us, our customers and the United States economy. Further, the income tax treatment of corporations may at any time be clarified and/or
modified through legislation, administration or judicial changes or interpretations. These changes or interpretations could adversely affect us, either directly or as a result of the effects on our customers.
In the course of our business, we are sometimes subject to challenges from taxing authorities, including the Internal Revenue Service, individual states and municipalities, regarding amounts due. These challenges may result in adjustments to the timing or amount of taxable income or deductions or allocation of income among tax jurisdictions, all of which may require a greater provisioning for taxes or otherwise negatively affect our financial results.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company’s business.
Political and social attention to the issue of climate change has increased in recent years. Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. The federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks’ risk management practices. In December 2021, the OCC published proposed principles for climate risk management by banking organizations with more than $100 billion in assets. The OCC also has appointed its first ever Climate Change Risk Officer and established an internal climate risk implementation committee in order to assist with these initiatives and to support the agency’s efforts to enhance its supervision of climate change risk management. Similar and even more expansive initiatives are expected, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. In March 2024, the SEC adopted final rules for "The Enhancement and Standardization of Climate-Related Disclosures for Investors,” which would have required issuers to provide climate-related disclosures. In April 2024, the SEC stayed the effectiveness of the final rules pending the outcome of certain legal challenges. To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to the Company or the Bank, we would likely experience increased compliance costs and other compliance-related risks. The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company’s financial condition and results of operations.
Risks Related to Strategic Planning
We intend to engage in acquisitions of other banking institutions from time to time. These acquisitions may not produce revenue or earnings enhancements or cost savings at levels, or within time frames, originally anticipated and may result in unforeseen integration difficulties.
We regularly evaluate opportunities to strengthen our current market position through acquisitions, subject to regulatory approval. Such transactions could, individually or in the aggregate, have a material effect on our operating results and financial condition, including short and long-term liquidity. Our acquisition activities could be material to our business. These activities could require us to use a substantial amount of cash or other liquid assets and/or incur debt. In addition, if goodwill recorded in connection with acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Our acquisition activities could involve a number of additional risks, including the risks of:
•incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating the terms of potential transactions, resulting in our attention being diverted from the operation of our existing business;
•using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets;
•being potentially exposed to unknown or contingent liabilities of banks and businesses we acquire;
•changes in asset quality and credit risk as a result of the transaction;
•being required to expend time and expense to integrate the operations and personnel of the combined businesses;
•experiencing higher operating expenses relative to operating income from the new operations;
•creating an adverse short-term effect on our results of operations;
•losing key team members and customers as a result of an acquisition that is poorly received; and
•incurring significant problems relating to the conversion of the financial and customer data of the entity being acquired into our financial and customer product systems.
Depending on the condition of any institutions or assets that are acquired, any acquisition may, at least in the near term, materially adversely affect our capital and earnings and, if not successfully integrated following the acquisition, may continue to have such effects.
Generally, any acquisition of target financial institutions, banking centers or other banking assets by us may require approval by, and cooperation from, a number of governmental regulatory agencies, possibly including the Federal Reserve and the FDIC, as well as state banking regulators. Such regulators could deny our application based on their regulatory criteria or other considerations, which could restrict our growth, or the regulatory approvals may not be granted on terms that are acceptable to us. For example, we could be required to sell banking centers as a condition to receiving regulatory approvals, and such a condition may not be acceptable to us or may reduce the benefit of any acquisition.
We cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions. Our inability to overcome these risks could have an adverse effect on levels of reported net income, return on equity and return on assets and the ability to achieve our business strategy and maintain market value.
We may not be able to maintain consistent growth, earnings or profitability.
There can be no assurance that we will be able to continue to grow and to remain profitable in future periods, or, if profitable, that our overall earnings will remain consistent with our prior results of operations or increase in the future. Our growth in recent years has been driven by a number of factors, including strong growth in our indirect lending portfolio and demand in the commercial and real estate loan markets in certain of the communities that we serve. A downturn in economic conditions in our markets, heightened competition from other financial services providers, an inability to retain or grow our core deposit base, regulatory and legislative considerations, and failure to attract and retain high-performing talent, among other factors, could limit our ability to grow our assets or increase our profitability to the same extent as in recent periods. Sustainable growth requires that we manage our risks by following prudent loan underwriting standards, balancing loan and deposit growth without materially increasing interest rate risk or compressing our net interest margin, maintaining adequate capital, hiring and retaining qualified employees and successfully implementing our strategic initiatives. A failure to sustain our recent rate of growth or adequately manage the factors that have contributed to our growth or successfully enter new markets could have a material adverse effect on our earnings and profitability and, therefore on our business, consolidated financial condition, results of operations and cash flows.
General Risks
We cannot guarantee that we will pay dividends in the future.
Dividends from the Bank are Bancshares’ primary source of funds for the payment of dividends to its shareholders, and there are various legal and regulatory limits regarding the extent to which the Bank may pay dividends or otherwise supply funds to Bancshares. The ability of both the Bank and Bancshares to pay dividends will continue to be subject to and limited by the results of operations of the Bank and by certain legal and regulatory restrictions. Further, any lenders making loans to Bancshares or the Bank may impose financial covenants that may be more restrictive than the legal and regulatory requirements with respect to the payment of dividends. There can be no assurance as to whether or when Bancshares may pay dividends to its shareholders.
Extreme weather could cause a disruption in our operations, which could have an adverse impact on our profitability.
Some of our operations are located in areas near the Gulf of America, a region that is susceptible to hurricanes and other forms of extreme weather. Such weather events could disrupt our operations and have a material adverse effect on our overall results of operations. Further, a hurricane, tornado or other extreme weather event in any of our market areas could adversely impact the ability of borrowers to timely repay their loans and may adversely impact the value of collateral that we hold.
Securities issued by us, including our common stock, are not insured.
Securities issued by us, including our common stock, are not savings or deposit accounts or other obligations of any bank and are not insured by the Deposit Insurance Fund maintained by the FDIC or by any other governmental agency or instrumentality, or any private insurer, and are subject to investment risk, including the possible loss of principal.
Future issuances of additional securities by us could result in dilution of your ownership.
We may decide from time to time to issue additional securities in order to raise capital, support growth or fund acquisitions. Further, we may issue stock options or other stock grants to retain and motivate employees. Such issuances of securities by us would dilute the respective ownership interests of our shareholders.
Our common stock price could be volatile, which could result in losses for individual shareholders.
The market price of our common stock may be subject to significant fluctuations in response to a variety of factors, including, but not limited to:
•general economic, business and political conditions;
•changing market conditions in the broader stock market in general, or in the financial services industry in particular;
•monetary and fiscal policies, laws and regulations and other activities of the government, agencies and similar organizations;
•actual or anticipated variations in our operating results, financial condition or asset quality;
•our failure to meet analyst predictions and projections;
•collectability of loans;
•cost and other effects of legal and administrative cases and proceedings, claims, settlements and judgments;
•additions or departures of key personnel;
•trades of large blocks of our stock;
•announcements of innovations or new services by us or our competitors;
•future sales of our common stock or other securities; and
•other events or factors, many of which are beyond our control.
Due to these factors, you may not be able to sell your stock at or above the price you paid for it, which could result in substantial losses.
Our performance and results of operations depend in part on the soundness of other financial institutions.
Our ability to engage in routine investment and banking transactions, as well as the quality and value of our investments in equity securities and obligations of other financial institutions, could be adversely affected by the actions, financial condition and profitability of such other financial institutions with which we transact, including, without limitation, the FHLBA and our correspondent banks. Financial services institutions are interrelated as a result of shared credits, trading, clearing, counterparty and other relationships. As a result, defaults by, or even rumors or questions about, one or more financial institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses of depositor, creditor or counterparty confidence in certain institutions, and could lead to losses or defaults by other institutions. Any defaults by, or failures of, the institutions with whom we transact could adversely affect our debt and equity holdings in such other institutions, our participation interests in loans originated by other institutions, and our business, including our liquidity, consolidated financial condition and earnings.
We depend on the services of our management team and board of directors, and the unexpected loss of key officers or directors may adversely affect our operations.
A departure of any of our executive officers, other key personnel or directors could adversely affect our operations. The community involvement of our executive officers and directors and our directors’ diverse and extensive business relationships are
important to our success. A material change in the composition of our management team or board of directors could cause our business to suffer.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

---

ITEM 2. PROPERTIES
Item 2. Properties.
With the exception of its offices located in Knoxville and Powell, Tennessee, and Mobile, Alabama, which are leased, the Bank owns all of its offices, including its executive offices, without encumbrances. Bancshares does not separately own any property, and to the extent that its activities require the use of physical office facilities, such activities are conducted at the offices of the Bank. We believe that our properties are sufficient for our operations at the current time.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
We are party to certain ordinary course litigation, and we intend to vigorously defend ourselves in all such litigation. In the opinion of management, based on a review and consultation with our legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on our consolidated financial statements or results of operation.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Bancshares’ common stock is listed on the Nasdaq Capital Market under the symbol “FUSB.” Prior to our name change on October 11, 2016, our common stock was listed on the Nasdaq Capital Market under the symbol “USBI.” As of March 3, 2025, there were approximately 616 record holders of Bancshares’ common stock (excluding any participants in any clearing agency and “street name” holders).
Bancshares declared total dividends of $0.22 per common share and $0.20 per common share during the years ended December 31, 2024 and 2023, respectively. Bancshares expects to continue to pay comparable cash dividends in the future, subject to the results of operations of Bancshares and the Bank, legal and regulatory requirements and potential limitations imposed by financial covenants with third parties. See Note 14, "Shareholders' Equity," in the consolidated financial statements for additional information on dividend restrictions.
Share Repurchases
The following table sets forth purchases made by or on behalf of Bancshares or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of Bancshares’ common stock during the fourth quarter of 2024.
Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased (1)
Average
Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs (2)
Maximum Number of
Shares that May
Yet Be Purchased
Under the Programs (2)
October 1-31, 2024
$
11.61
-
352,813
November 1-30, 2024
30,036
$
12.32
30,000
922,813
December 1-31, 2024
10,060
$
13.75
10,000
912,813
Total
40,691
$
12.66
40,000
912,813
(1)691 shares were purchased in open-market transactions by an independent trustee for Bancshares' 401(k) Plan during the fourth quarter of 2024.
(2)40,000 shares were repurchased during the fourth quarter pursuant to Bancshares’ publicly announced share repurchase program, which was initially approved by the Board of Directors on January 19, 2006 and authorized the repurchase of up to 642,785 shares of common stock. In November 2024, the Board of Directors authorized the Company to repurchase an additional 600,000 shares under the program and to extend the expiration date of the program to December 31, 2025. As of December 31, 2024, Bancshares was authorized to repurchase up to 912,813 shares of common stock under the share repurchase program.
Securities Authorized for Issuance under Equity Compensation Plans
Information regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to Item 12 of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
You should read the following discussion of our financial condition and results of operations in conjunction with the “Selected Financial Data” and our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K for the year
ended December 31, 2024. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, and our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under Item 1A “Risk Factors” and elsewhere in this Annual Report.
Selected Financial Data
The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the consolidated financial statements and related notes, appearing elsewhere herein.
Year Ended December 31,
(Dollars in Thousands, except Per Share Amounts)
Results of Operations:
Interest income
$
58,260
$
52,806
$
41,197
$
39,921
$
40,377
Interest expense
22,111
15,456
4,256
2,950
4,611
Net interest income
36,149
37,350
36,941
36,971
35,766
Provision for credit losses
3,308
2,010
2,945
Non-interest income
3,583
3,381
3,451
3,521
5,010
Non-interest expense
28,356
29,141
28,072
32,756
34,299
Income before income taxes
10,754
11,271
9,012
5,726
3,532
Provision for income taxes
2,584
2,786
2,148
1,275
Net income
$
8,170
$
8,485
$
6,864
$
4,451
$
2,707
Per Share Data:
Basic net income per share
$
1.40
$
1.42
$
1.13
$
0.70
$
0.43
Diluted net income per share
$
1.33
$
1.33
$
1.06
$
0.66
$
0.40
Dividends per share
$
0.22
$
0.20
$
0.14
$
0.12
$
0.12
Common stock price - High
$
14.30
$
10.44
$
12.00
$
12.50
$
12.00
Common stock price - Low
$
8.66
$
6.54
$
6.46
$
7.54
$
5.18
Period end price per share
$
12.59
$
10.31
$
8.68
$
10.57
$
9.02
Period end shares outstanding (in thousands)
5,696
5,735
5,812
6,172
6,177
Period-End Balance Sheet:
Total assets
$
1,101,086
$
1,072,940
$
994,667
$
958,302
$
890,511
Total loans
823,039
821,791
773,873
708,350
645,844
Allowance for credit losses on loans
10,184
10,507
9,422
8,320
7,470
Investment securities, net
168,570
136,669
132,657
134,319
91,422
Total deposits
972,557
950,191
870,025
838,126
782,212
Short-term borrowings
10,000
10,000
20,038
10,046
10,017
Long-term borrowings
10,872
10,799
10,726
10,653
-
Total shareholders’ equity
98,624
90,593
85,135
90,064
86,678
Book value per share
17.31
15.80
14.65
14.59
14.03
Performance Ratios:
Total loans to deposits
84.6
%
86.5
%
88.9
%
84.5
%
82.6
%
Net interest margin
3.59
%
3.87
%
4.07
%
4.23
%
4.69
%
Return on average assets
0.76
%
0.82
%
0.70
%
0.47
%
0.32
%
Return on average equity
8.62
%
9.88
%
7.99
%
5.01
%
3.17
%
Asset Quality:
Allowance for credit losses as % of loans
1.24
%
1.28
%
1.22
%
1.17
%
1.16
%
Nonperforming assets as % of loans and other real estate
0.66
%
0.37
%
0.30
%
0.59
%
0.62
%
Nonperforming assets as % of total assets
0.50
%
0.28
%
0.24
%
0.43
%
0.45
%
Net charge-offs as a % of average loans
0.14
%
0.14
%
0.30
%
0.16
%
0.21
%
Capital Adequacy:
Common equity tier 1 risk-based capital ratio
11.31
%
10.88
%
11.07
%
11.36
%
11.78
%
Tier 1 risk-based capital ratio
11.31
%
10.88
%
11.07
%
11.36
%
11.78
%
Total risk-based capital ratio
12.47
%
12.11
%
12.19
%
12.44
%
12.92
%
Tier 1 leverage ratio
9.50
%
9.36
%
9.39
%
9.17
%
8.98
%
DESCRIPTION OF THE BUSINESS
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly-owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two additional wholly-owned subsidiaries, Acceptance Loan Company ("ALC") and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.
The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.
The following discussion and financial information are presented to aid in an understanding of the Company’s consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the consolidated financial statements and notes thereto included herein. The emphasis of the discussion is on the years 2024 and 2023. All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.
RECENT MARKET CONDITIONS
During the year ended December 31, 2024, the banking industry continued to be impacted by economic volatility and the higher interest rate environment that has persisted since 2022. The U.S. inflation rate, as measured by the consumer price index, generally slowed during the first three quarters of the year, but increased during the fourth quarter, ending at 2.9% in December. While the inflation rate remained elevated above the Federal Reserve Bank’s (“FRB”) longer run target of 2%, the earlier trend downward led the Open Market Committee of the FRB to reduce the federal funds rate by 50 basis points in September, followed by two additional 25-basis point decreases (one in November and one in December), bringing the target federal funds rate to a range of 4.25% to 4.50% as of December 31, 2024. This signaled a shift in focus by the FRB to managing employment levels more closely, while continuing to monitor inflation levels. The U.S. unemployment rate increased slightly during certain months of 2024, but trended downward to 4.1% in December. The U.S. economy, as measured by gross domestic product (“GDP”), expanded at an annualized pace of 2.8% in 2024, while fourth quarter 2024 GDP trended downward to 2.5% year-over-year.
As 2024 closed, U.S. treasury rates flattened with longer-term rates increasing, while shorter-term rates decreased. As of December 31, 2024, the treasury curve (as measured from the two-year to the 10-year treasury instrument) was no longer inverted. Competitive pressures related to both loan and deposit pricing remained elevated. In addition, geopolitical uncertainty, particularly in the Mid-east and Ukraine, continued, and political uncertainty with respect to the impact on markets and interest rates of the Trump presidential administration persisted. Expectations are for the economy to hold up well for the first half of 2025, with more risks of a potential slowdown in the back half of the year. Management continues to carefully navigate the Company’s course through these challenges, and believes the Company is well positioned to respond effectively in multiple operating environments. However, additional inflationary pressure, significant changes in interest rates, and a fiercely competitive environment could put downward pressure on the Company’s positioning and results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. The estimates include accounting for the allowance for credit losses, goodwill and other intangible assets, other real estate owned, valuation of deferred tax assets and fair value measurements.
Allowance for Credit Losses on Loans and Leases
The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for credit losses.
Management estimates the allowance by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty as of the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company, or management has a reasonable expectation at the reporting date that a loan modification will be made to a borrower experiencing financial difficulty.
Allowance for Credit Losses on Unfunded Lending Commitments
Off-balance sheet credit exposures include unfunded lending commitments that represent unconditional commitments of the Company to lend to a borrower. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is included in other liabilities on the Company’s consolidated balance sheet and is adjusted through the provision for credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.
Allowance for Credit Losses on Investment Securities Held-to-Maturity
Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for credit losses.
Allowance for Credit Losses on Investment Securities Available-for-Sale
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is generally determined as the excess of cost over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is determined to have an indefinite useful life and is not amortized, but is tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs its annual goodwill impairment test as of October 1. Impairment exists when a reporting unit’s carrying amount of goodwill exceeds its implied fair value. In testing goodwill for
impairment, U.S. GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In this qualitative assessment, the Company evaluates events and circumstances that may include, but are not limited to, the general economic environment, banking industry and market conditions, the overall financial performance of the Company, the performance of the Company’s common stock, the key financial performance metrics of the Company’s reporting units and events affecting the reporting units to determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the quantitative impairment test is required or the decision to bypass the qualitative assessment is elected, the Company performs the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. A recognized impairment loss cannot be reversed in future periods even if the fair value of the reporting unit subsequently recovers. Goodwill impairment was neither indicated nor recorded during the years ended December 31, 2024 or 2023. In both years, the Company identified one reporting unit (the "Bank reporting unit") for goodwill impairment testing. As of October 1, 2024, the date of the Company's most recent impairment test, the Bank reporting unit had a fair value that was in excess of its carrying value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.
Other intangible assets consist of core deposit intangible assets arising from acquisitions. Core deposit intangible assets have definite useful lives and are amortized on an accelerated basis over their estimated useful lives. The Company’s core deposit intangibles have estimated useful lives of seven years. Intangible assets are evaluated for impairment whenever events or circumstances exist that indicate that the carrying amount should be reevaluated. As of December 31, 2024, there was no indication of impairment associated with the Company's other intangible assets.
Other Real Estate Owned
Other real estate owned (“OREO”) consists of properties obtained through foreclosure or in satisfaction of loans, as well as closed Bank and ALC branches. It is reported at the net realizable value of the property, less estimated costs to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.
Deferred Tax Asset Valuation
Income tax expense and current and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. Deferred tax assets may also arise from the carryforward of operating loss or tax credit carryforwards as allowed by applicable federal or state tax jurisdictions. In addition, there may be transactions and calculations for which the ultimate tax outcomes are uncertain and the Company’s tax returns are subject to audit by various tax authorities. Although we believe that estimates related to income taxes are reasonable, no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the consolidated financial statements. In evaluating the ability to recover deferred tax assets in the tax jurisdictions from which they arise, management considers all available positive and negative evidence, including the Company’s historical earnings and, in particular, the results of recent operations, expected reversals of temporary differences, the ability to utilize tax planning strategies and the expiration dates of any operating loss and tax credit carryforwards. A valuation allowance is recognized for a deferred tax asset if, based on the weight of all available evidence, it is more likely than not that some portion of or the entire deferred tax asset will not be realized. The assumptions about the amount of future taxable income require the use of significant judgment and are consistent with the plans and estimates that management uses in the underlying business. At this time, management considers it to be more likely than not that the Company will have sufficient taxable income in the future to allow all deferred tax assets to be realized. Accordingly, a valuation allowance was not established for deferred tax assets as of either December 31, 2024 or 2023.
Fair Value Measurements
Portions of the Company’s assets and liabilities are carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These assets and liabilities include securities available-for-sale, impaired loans and derivative instruments. Additionally, other real estate and certain other assets acquired in foreclosure are reported at the lower of the recorded investment or fair value of the property, less estimated cost to sell. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third party under current market conditions. The value to the Company if the asset or liability were held to maturity is not included in the fair value estimates.
A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs that the Company utilizes. Fair value may be based on
quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, the Company may use quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but that are observable based on Company-specific data (Level 3 valuations). These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. The valuation of financial instruments when quoted market prices are not available (Levels 2 and 3) may require significant management judgment to assess assumptions and observable inputs. Detailed information regarding fair value measurements can be found in Note 19, "Fair Value of Financial Instruments," in the consolidated financial statements contained herein.
Other Significant Accounting Policies
Other significant accounting policies, not involving the same level of measurable uncertainties as those discussed above, are nevertheless important to an understanding of the consolidated financial statements. Policies related to the right of use asset and lease liability, revenue recognition, and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance. See Note 2, “Summary of Significant Accounting Policies,” in the consolidated financial statements, which discusses accounting policies that we have selected from acceptable alternatives.
EXECUTIVE OVERVIEW
For the year ended December 31, 2024, the Company earned net income of $8.2 million, or $1.33 per diluted common share, compared to net income of $8.5 million, or $1.33 per diluted common share, for the year ended December 31, 2023. Summarized condensed consolidated statements of operations are included below for the years ended December 31, 2024 and 2023, respectively.
Year Ended December 31,
(Dollars in Thousands)
Interest income
$
58,260
$
52,806
Interest expense
22,111
15,456
Net interest income
36,149
37,350
Provision for credit losses
Net interest income after provision for credit losses
35,527
37,031
Non-interest income
3,583
3,381
Non-interest expense
28,356
29,141
Income before income taxes
10,754
11,271
Provision for income taxes
2,584
2,786
Net income
$
8,170
$
8,485
Basic net income per share
$
1.40
$
1.42
Diluted net income per share
$
1.33
$
1.33
Dividends per share
$
0.22
$
0.20
The discussion that follows summarizes the most significant activity that impacted changes in the Company’s operations during 2024 as compared to 2023, as well as significant changes in the Company’s balance sheet comparing December 31, 2024 to December 31, 2023.
Net Interest Income and Margin
Net interest income decreased by $1.2 million, or 3.2%, comparing the year ended December 31, 2024 to the year ended December 31, 2023. The decrease was primarily attributable to increased interest expense during 2024, as average rates on interest bearing liabilities increased at a faster pace than average yields on interest earning assets. Net interest margin totaled 3.59% in 2024, compared to 3.87% in 2023. The decrease in net interest margin, comparing 2024 to 2023, was driven by an increase in total funding costs of 63 basis points, partially offset by an increase in yield on interest earning assets of 31 basis points. The rate-based decrease in net interest income was partially offset by increased volume in interest earning assets. Average loans during the year ended December 31, 2024 increased to $818.5 million, compared to $795.4 million during the year ended December 31, 2023.
Provision for Credit Losses
The provision for credit losses was $0.6 million for the year ended December 31, 2024, compared to $0.3 million during the year ended December 31, 2023. The increase resulted primarily from loan growth during the year, as well as an increase in the
allowance for credit losses ("ACL") on individually evaluated loans. The Company’s net charge-offs as a percentage of average loans totaled 0.14% during both the years ended December 31, 2024 and 2023. As of December 31, 2024, the Company’s allowance for credit losses on loans as a percentage of total loans was 1.24%, compared to 1.28% as of December 31, 2023.
Non-interest Income
Non-interest income totaled $3.6 million and $3.4 million for the years ended December 31, 2024 and 2023, respectively. The increase in non-interest income resulted primarily from increases in lease income, bank owned life insurance, and other miscellaneous revenue sources comparing 2024 to 2023.
Non-interest Expense
Non-interest expense decreased to $28.4 million for the year ended December 31, 2024, compared to $29.1 million for the year ended December 31, 2023. The expense reduction resulted primarily from decreases in salaries and benefits and other expense categories. Salaries and benefits expense decreased during 2024 primarily due to lower staff levels resulting from strategic initiatives implemented by the Company in prior years. In addition, other expenses were lower during 2024 compared to 2023, primarily due to the recovery of check fraud losses and reduced collection expenses. The reductions in non-interest expense during the year ended December 31, 2024 were partially offset by increased occupancy and equipment expenses, and other real estate/foreclosure expenses.
Total Assets
As of December 31, 2024, the Company's assets totaled $1,101.1 million, compared to $1,072.9 million as of December 31, 2023, an increase of 2.6%.
Loans
Total loans increased by $1.2 million, or 0.2%, as of December 31, 2024, compared to December 31, 2023. Loan volume increases during 2024 were driven primarily by growth in multi-family and non-farm, non-residential portfolios, partially offset by decreases in construction, commercial and industrial, 1-4 family residential and consumer categories.
Asset Quality
Nonperforming assets, including loans in non-accrual status and OREO, totaled $5.5 million as of December 31, 2024, compared to $3.0 million as of December 31, 2023. The increase in nonperforming assets during 2024 resulted primarily from one loan that was foreclosed and moved into OREO and another loan that moved into non-accrual status during 2024. As a percentage of total assets, nonperforming assets totaled 0.50% as of December 31, 2024, compared to 0.28% as of December 31, 2023.
Deposit Growth
Deposits totaled $972.6 million as of December 31, 2024, compared to $950.2 million as of December 31, 2023. The growth in 2024 included an increase of $20.0 million in interest-bearing deposits and an increase in certificates of deposit of $16.9 million, partially offset by a decrease of $8.9 million in money market and savings deposits. The deposit growth in 2024 was partially offset by a decrease of $10.3 million in wholesale brokered deposits. As of December 31, 2024, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $837.7 million, or 86.1% of total deposits, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Deployment of Funds
As of December 31, 2024, the Company held cash, federal funds sold and securities purchased under reverse repurchase agreements totaling $52.9 million, or 4.8% of total assets, compared to $59.8 million, or 5.6% of total assets, as of December 31, 2023. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $168.6 million as of December 31, 2024, compared to $136.7 million as of December 31, 2023. During the year ended December 31, 2024, the Company invested $58.0 million in taxable U.S. agency-sponsored bonds, resulting in improved yields in the investment portfolio. As of December 31, 2024, the expected average life of securities in the investment portfolio was 3.6 years, compared to 3.9 years as of December 31, 2023.
Shareholders’ Equity
As of December 31, 2024, shareholders’ equity totaled $98.6 million, or 8.96% of total assets, compared to $90.6 million, or 8.44% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the year ended December 31, 2024 resulted primarily from earnings, net of dividends paid, which was partially offset by repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during 2024 by reductions in the Company's accumulated other comprehensive loss resulting from changes in market interest rates, as well as the maturity of lower yielding investment securities.
Cash Dividends
The Company declared cash dividends totaling $0.22 per share on its common stock during 2024, compared to cash dividends totaling $0.20 per share on its common stock during 2023.
Share Repurchases
During 2024, the Company completed share repurchases totaling 146,500 shares of its common stock at a weighted average price of $11.22 per share. The repurchases were completed under the Company’s previously announced share repurchase program, which was expanded in 2024 to authorize the purchase of 600,000 additional shares. As of December 31, 2024, a total of 912,813 shares remained available for repurchase under the program.
Regulatory Capital
During 2024, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of December 31, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.31%. Its total capital ratio was 12.47%, and its Tier 1 leverage ratio was 9.50%.
Liquidity
As of December 31, 2024, the Company continued to maintain excess funding capacity sufficient to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong core deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines, FHLB advances, brokered deposits, funding capacity with the FRB, and brokered deposits.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is calculated as the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company’s earning assets consist of loans, taxable and tax-exempt investments, Federal Home Loan Bank stock, federal funds sold by the Bank and interest-bearing deposits in banks. Interest-bearing liabilities consist of interest-bearing demand deposits and savings and time deposits, as well as borrowings.
The following table shows the average balances of each principal category of assets, liabilities and shareholders’ equity for the years ended December 31, 2024 and 2023. Additionally, the table provides an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.
Year Ended December 31,
Average
Balance
Interest
Annualized
Yield/
Rate %
Average
Balance
Interest
Annualized
Yield/
Rate %
(Dollars in Thousands)
ASSETS
Interest-earning assets:
Total loans (1)
$
818,524
$
51,469
6.29
%
$
795,446
$
47,749
6.00
%
Taxable investment securities
144,503
4,387
3.04
%
127,653
2,858
2.24
%
Tax-exempt investment securities
1,020
1.27
%
1,042
1.25
%
Federal Home Loan Bank stock
7.74
%
1,264
7.36
%
Federal funds sold
6,930
5.28
%
1,841
5.16
%
Interest-bearing deposits in banks
36,399
1,956
5.37
%
38,111
1,998
5.24
%
Total interest-earning assets
1,008,267
58,260
5.78
%
965,357
52,806
5.47
%
Noninterest-earning assets
65,931
63,765
Total
$
1,074,198
$
1,029,122
LIABILITIES AND SHAREHOLDERS’
EQUITY
Interest-bearing liabilities:
Demand deposits
$
205,581
$
1,779
0.87
%
$
212,010
$
0.37
%
Savings deposits
251,772
6,856
2.72
%
229,238
5,007
2.18
%
Time deposits
346,541
12,914
3.73
%
305,848
8,566
2.80
%
Total interest-bearing deposits
803,894
21,549
2.68
%
747,096
14,350
1.92
%
Noninterest-bearing demand deposits
152,252
-
-
160,598
-
-
Total deposits
956,146
21,549
2.25
%
907,694
14,350
1.58
%
Borrowings
13,404
4.19
%
26,252
1,106
4.21
%
Total funding costs
969,550
22,111
2.28
%
933,946
15,456
1.65
%
Other noninterest-bearing liabilities
9,898
9,302
Shareholders’ equity
94,750
85,874
Total
$
1,074,198
$
1,029,122
Net interest income (2)
$
36,149
$
37,350
Net interest margin
3.59
%
3.87
%
(1) For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. Non-accruing loans averaged $3.1 million and $1.7 million for the years ended December 31, 2024 and 2023, respectively.
(2) Loan fees are included in the interest amounts presented. Loan fees totaled $0.7 million and $0.6 million for the years ended December 31, 2024 and December 31, 2023, respectively.
The following table summarizes the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.
2024 Compared to 2023
Increase (Decrease)
Due to Change In:
2023 Compared to 2022
Increase (Decrease)
Due to Change In:
Volume
Average
Rate
Net
Volume
Average
Rate
Net
(Dollars in Thousands)
Interest earned on:
Total loans
$
1,385
$
2,335
$
3,720
$
3,715
$
6,019
$
9,734
Taxable investment securities
1,152
1,529
(254
)
Tax-exempt investment securities
-
-
(20
)
(3
)
(23
)
Federal Home Loan Bank stock
(27
)
(24
)
Federal funds sold
Interest-bearing deposits in banks
(90
)
(42
)
(3
)
1,562
1,559
Total interest-earning assets
1,908
3,546
5,454
3,486
8,123
11,609
Interest expense on:
Demand deposits
(24
)
1,026
1,002
(88
)
Savings deposits
1,357
1,849
3,684
3,803
Time deposits
1,140
3,208
4,348
6,350
7,026
Borrowings
(541
)
(3
)
(544
)
(110
)
Total interest-bearing liabilities
1,067
5,588
6,655
10,603
11,200
Increase (decrease) in net interest income
$
$
(2,042
)
$
(1,201
)
$
2,889
$
(2,480
)
$
Note: Changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates.
Interest income increased by $5.5 million, comparing 2024 to 2023. Of the increase, $3.5 million was attributable to higher average yields on interest-earning assets, while $1.9 million was attributable to growth in average loan volume comparing the two periods. The increase in average yield was attributable to elevated market interest rates that began in 2022 and remained throughout most of 2024 before the FRB began reducing the federal funds rate in September 2024. The increase in interest income associated with loan volume increases was attributable to higher average loan and investment balances in 2024 compared to 2023.
The increase in interest income was offset by an increase in interest expense of $6.7 million, comparing 2024 to 2023. Of the increase, $5.6 million was attributable to the rise in market interest rates, while $1.1 million was attributable to growth in interest-bearing liabilities, primarily interest-bearing demand deposits and time deposits. The shift to interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts amid the elevated interest rate environment.
The elevated market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. The decrease in net interest income and margin during 2024 compared to 2023 was primarily driven by the accelerated repricing of interest-bearing liabilities through the first three quarters of 2024. From September 2024 through December 2024, the federal funds rate was reduced by 100 basis points and the cost of interest-bearing liabilities decreased; however, similar reductions occurred on certain market interest rates that are used to price the Company’s variable rate loans. Amid these interest rate reductions, the Company’s interest earning assets repriced downward more quickly than its interest-bearing liabilities during the fourth quarter of 2024. Competition for both loans and deposits remains intense and is expected to continue to put pressure on net interest margin. Should market interest rates continue to increase or decrease at significant levels, the Company’s net interest income could be negatively impacted.
Provision for Credit Losses
The provision for credit losses was $0.6 million for the year ended December 31, 2024, compared to $0.3 million for the year ended December 31, 2023. The increase in the provision for credit losses in 2024 compared to 2023 resulted primarily from an increase in the allowance for credit losses ("ACL") on individually evaluated loans and adjustments in economic forecasts that impact the calculation of the ACL on loans and leases. Net charge-offs on loans totaled $1.1 million, or 0.14% of average loans, for both 2024 and 2023. As of December 31, 2024, the Company's allowance for credit losses was 1.24% of total loans, compared to 1.28% as of December 31, 2023.
Non-Interest Income
Non-interest income represents fees and income derived from sources other than interest-earning assets. The following table presents the major components of non-interest income for the periods indicated:
Year Ended December 31,
$ Change
% Change
(Dollars in Thousands)
Service charges and other fees on deposit accounts
$
1,232
$
1,197
$
2.9
%
Bank-owned life insurance
14.2
%
Gain on sales of premises and equipment and other assets
-
(17
)
(100.0
)%
Lease income
1,033
8.9
%
ATM fee income
(34
)
(8.2
)%
Other income
20.2
%
Total non-interest income
$
3,583
$
3,381
$
6.0
%
The Company’s non-interest income increased by $0.2 million comparing 2024 to 2023, due primarily to increases in lease income, bank-owned life insurance, and other miscellaneous revenue sources. The majority of the Company’s sources of non-interest income are relatively stable and are not expected to change significantly in the near term.
Non-Interest Expense
Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods indicated:
Year Ended December 31,
$ Change
% Change
(Dollars in Thousands)
Salaries and employee benefits
$
15,460
$
16,076
$
(616
)
(3.8
)%
Net occupancy and equipment
3,761
3,479
8.1
%
Computer services
1,687
1,756
(69
)
(3.9
)%
Insurance expense and assessments
1,510
1,583
(73
)
(4.6
)%
Fees for professional services
1,184
1,105
7.1
%
Postage, stationery and supplies
(60
)
(9.7
)%
Telephone/data communication
7.9
%
Collection and recoveries
(123
)
(42.1
)%
Directors fees
(91
)
(19.3
)%
Software amortization
(56
)
(13.6
)%
Other real estate/foreclosure expense, net
238.2
%
Other expense
2,280
2,557
(277
)
(10.8
)%
Total non-interest expense
$
28,356
$
29,141
$
(785
)
(2.7
)%
The Company’s non-interest expense decreased by $0.8 million comparing 2024 to 2023. The expense reduction comparing 2024 to 2023 resulted primarily from decreases in salaries and benefits, collections, and other expense categories. Salaries and benefits expense decreased during 2024 due, in part, to lower staff levels resulting from strategic initiatives implemented by the Company in prior years. In addition, other expenses were lower during 2024 compared to 2023, primarily due to the recovery of check fraud losses. The reductions in non-interest expense during the year ended December 31, 2024 were partially offset by increased occupancy and equipment expenses, as well as other real estate/foreclosure expense.
Provision for Income Taxes
The provision for income taxes was $2.6 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. The Company’s effective tax rate was 24.0% and 24.7%, respectively, for the same periods.
The effective tax rate is impacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.
BALANCE SHEET ANALYSIS
Investment Securities
The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 3.6 years and 3.9 years as of December 31, 2024 and 2023, respectively.
Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of December 31, 2024, available-for-sale securities totaled $167.9 million, or 99.6% of the total investment portfolio, compared to $135.6 million, or 99.2% of the total investment portfolio, as of December 31, 2023. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate notes, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of December 31, 2024, held-to-maturity securities totaled $0.7 million, or 0.4% of the total investment portfolio, compared to $1.1 million, or 0.8% of the total investment portfolio, as of December 31, 2023. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of states and political subdivisions.
Net unrealized losses in the available-for-sale portfolio totaled $6.7 million as of December 31, 2024, compared to $9.3 million as of December 31, 2023. Net unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.
As of December 31, 2024, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit losses and concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.
During the year ended December 31, 2024, the Company purchased $58.0 million in taxable U.S. agency-sponsored securities that are included in the available-for-sale portfolio. The purchased securities offset $28.5 million in proceeds received by the Company associated with maturities and prepayments in the portfolio. In the higher interest rate environment, the securities purchased have served to increase the Company’s yield on taxable investment securities. For the year ended December 31, 2024, the yield on taxable investment securities totaled 3.04%, compared to 2.24% for the year ended December 31, 2023.
Investment Securities Maturity Schedule
The following tables summarize the carrying values and weighted average yield of the available-for-sale and held-to-maturity securities portfolios as of December 31, 2024, according to contractual maturity. Available-for-sale securities are stated at fair value. Held-to-maturity securities are stated at amortized cost. The calculations of the weighted average yields for each maturity category are based upon yield weighted by the respective costs of the securities.
Available-for-Sale
Stated Maturity as of December 31, 2024
Within One
Year
After One But
Within Five
Years
After Five But
Within Ten
Years
After
Ten Years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(Dollars in Thousands)
Investment securities available-for-sale:
Mortgage-backed securities:
Residential
$
4.41
%
$
3,034
2.20
%
$
31,880
2.56
%
$
50,367
5.14
%
Commercial
1.72
%
1,925
1.75
%
2,022
0.59
%
7,968
5.87
%
Obligations of U.S. government-sponsored agencies
-
-
-
-
6,956
2.77
%
3,878
5.44
%
Obligations of states and political subdivisions
0.88
%
1.11
%
1,010
1.09
%
-
-
Corporate notes
-
-
2,058
7.54
%
13,886
3.20
%
-
-
U.S. Treasury securities
23,628
1.34
%
18,731
1.06
%
-
0.00
%
-
-
Total
$
23,882
1.34
%
$
26,039
1.71
%
$
55,754
2.81
%
$
62,213
5.14
%
Total securities with stated maturity
$
167,888
3.27
%
Held-to-Maturity
Stated Maturity as of December 31, 2024
Within One
Year
After One But
Within Five
Years
After Five But
Within Ten
Years
After
Ten Years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(Dollars in Thousands)
Investment securities held-to-maturity:
Mortgage-backed securities:
Residential
$
-
-
$
-
0.00
%
$
-
-
$
-
-
Commercial
-
-
2.76
%
1.58
%
1.90
%
Obligations of U.S. government-sponsored agencies
-
-
2.44
%
2.20
%
-
-
Obligations of states and political subdivisions
-
-
-
0.00
%
3.05
%
-
0.00
%
Total
$
-
-
$
2.63
%
$
2.28
%
$
1.90
%
Total securities with stated maturity
$
2.35
%
Condensed Investment Portfolio Maturity Schedule
Maturity Summary as of December 31, 2024
Dollar
Amount
Portfolio
Percentage
(Dollars in Thousands)
Maturing in three months or less
$
3,978
2.36
%
Maturing after three months to one year
19,904
11.81
%
Maturing after one year to three years
17,612
10.45
%
Maturing after three years to five years
8,692
5.16
%
Maturing after five years to fifteen years
60,746
36.03
%
Maturing in more than fifteen years
57,638
34.19
%
Total
$
168,570
100.00
%
Loans and Leases
The Company's total loan portfolio increased by $1.2 million, or 0.2%, as of December 31, 2024, compared to December 31, 2023. The table below summarizes loan balances by portfolio category at the end of each of the most recent five years as of December 31, 2024:
Year Ended December 31,
(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans
$
65,537
$
88,140
$
53,914
$
67,393
$
37,377
Secured by 1-4 family residential properties
69,999
76,200
87,995
72,670
88,936
Secured by multi-family residential properties
101,057
62,397
67,852
46,021
54,421
Secured by non-farm, non-residential properties
227,751
213,586
200,156
198,000
184,622
Commercial and industrial loans
44,238
60,515
73,546
73,865
81,562
Consumer loans:
Direct consumer
4,774
5,938
9,851
20,090
27,229
Branch retail
5,558
8,670
13,992
24,380
30,176
Indirect
304,125
306,345
266,567
205,931
141,521
Total loans
$
823,039
$
821,791
$
773,873
$
708,350
$
645,844
Allowance for credit losses
10,184
10,507
9,422
8,320
7,470
Net loans
$
812,855
$
811,284
$
764,451
$
700,030
$
638,374
As of December 31, 2024 and December 31, 2023, the composition of the non-farm, non-residential loan portfolio was as follows:
December 31, 2024
December 31, 2023
Owner Occupied
Non-Owner Occupied
Total
Owner Occupied
Non-Owner Occupied
Total
(Dollars in Thousands)
Office
$
10,093
$
36,811
$
46,904
$
14,686
$
30,693
$
45,379
Hospitality
-
-
-
5,346
5,847
Industrial
5,696
45,477
51,173
12,480
35,265
47,745
Nursing homes
17,961
-
17,961
-
-
-
Retail services
15,031
-
15,031
16,016
-
16,016
Retail single credit tenant
-
41,357
41,357
-
43,113
43,113
Retail with anchor
3,075
13,628
16,703
11,953
12,329
Retail without anchor
-
-
-
3,166
8,010
11,176
Storage
14,835
15,615
15,254
16,085
Other
11,989
11,018
23,007
10,552
5,344
15,896
Total loans
$
64,625
$
163,126
$
227,751
$
58,608
$
154,978
$
213,586
As of December 31, 2024 and December 31, 2023, the composition of the construction, land development, and other land loans loan portfolio was as follows:
December 31, 2024
December 31, 2023
Owner Occupied
Non-Owner Occupied
Total
Owner Occupied
Non-Owner Occupied
Total
(Dollars in Thousands)
Apartments
$
-
$
61,118
$
61,118
$
-
$
66,789
$
66,789
Senior housing
-
-
-
8,362
-
8,362
Medical office
-
-
-
-
6,584
6,584
Farmland
3,057
-
3,057
3,174
-
3,174
Residential
-
-
-
1,152
-
1,152
Retail without anchor
-
-
-
-
Other
1,362
1,316
Total loans
$
3,497
$
62,040
$
65,537
$
14,176
$
73,964
$
88,140
The following table classifies the Company's fixed and variable rate loans as of December 31, 2024 according to contractual maturities of: (1) one year or less, (2) after one year through five years, (3) after five years through fifteen years, and (4) after fifteen years:
December 31, 2024
One Year or Less
After One Year Through Five Years
After Five Years Through Fifteen Years
After Fifteen Years
Total
(Dollars in Thousands)
Total loans:
Real estate loans:
Construction, land development and other land loans
$
12,561
$
52,832
$
$
-
$
65,537
Secured by 1-4 family residential properties
1,201
14,107
23,659
31,032
69,999
Secured by multi-family residential properties
36,406
54,526
8,188
1,937
101,057
Secured by non-farm, non-residential properties
37,095
112,124
78,532
-
227,751
Commercial and industrial loans
15,540
22,768
5,930
-
44,238
Consumer loans:
Direct consumer
1,547
3,179
-
4,774
Branch retail
2,701
2,636
-
5,558
Indirect
13,848
290,071
-
304,125
Total loans
$
104,777
$
276,085
$
409,208
$
32,969
$
823,039
Loans with fixed interest rates:
Real estate loans:
Construction, land development and other land loans
$
$
2,721
$
$
-
$
3,428
Secured by 1-4 family residential properties
1,093
6,348
5,438
14,283
27,162
Secured by multi-family residential properties
35,545
36,107
Secured by non-farm, non-residential properties
19,772
53,722
61,996
-
135,490
Commercial and industrial loans
6,273
16,473
5,930
-
28,676
Consumer loans:
Direct consumer
1,535
3,179
-
4,762
Branch retail
2,701
2,636
-
5,558
Indirect
13,848
290,071
-
304,125
Total loans with fixed interest rates
$
29,695
$
134,537
$
366,626
$
14,450
$
545,308
Loans with variable interest rates:
Real estate loans:
Construction, land development and other land loans
$
11,998
$
50,111
$
-
$
-
$
62,109
Secured by 1-4 family residential properties
7,759
18,221
16,749
42,837
Secured by multi-family residential properties
36,374
18,981
7,825
1,770
64,950
Secured by non-farm, non-residential properties
17,323
58,402
16,536
-
92,261
Commercial and industrial loans
9,267
6,295
-
-
15,562
Consumer loans:
Direct consumer
-
-
-
Branch retail
-
-
-
-
-
Indirect
-
-
-
-
-
Total loans with variable interest rates
$
75,082
$
141,548
$
42,582
$
18,519
$
277,731
Allowance for Credit Losses on Loans and Leases
The table below summarizes changes in the allowance for credit losses on loans and leases for each of the most recent five years as of December 31, 2024. For years ended December 31, 2022 and prior, information presented is as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326, Financial Instruments - Credit losses:
Year Ended December 31,
(Dollars in Thousands)
Balance at beginning of period
$
10,507
$
9,422
$
8,320
$
7,470
$
5,762
Impact of adopting ASC 326 accounting guidance
-
2,123
-
-
-
Charge-offs:
Real estate loans:
Construction, land development and other loan loans
-
-
-
(23
)
-
Secured by 1-4 family residential properties
(2
)
(97
)
(40
)
(12
)
(61
)
Secured by multi-family residential properties
-
-
-
-
-
Secured by non-farm, non-residential properties
(248
)
-
-
-
-
Commercial and industrial loans
(121
)
-
-
(6
)
-
Consumer loans:
Direct consumer
(62
)
(571
)
(1,958
)
(1,230
)
(1,621
)
Branch retail
(63
)
(445
)
(633
)
(377
)
(374
)
Indirect
(1,318
)
(932
)
(382
)
(483
)
(152
)
Total charge-offs
(1,814
)
(2,045
)
(3,013
)
(2,131
)
(2,208
)
Recoveries
Construction, land development and other loan loans
-
-
Secured by 1-4 family residential properties
Secured by multi-family residential properties
-
-
-
-
-
Secured by non-farm, non-residential properties
-
-
Commercial and industrial loans
-
-
Consumer loans:
Direct consumer
Branch retail
Indirect
Total recoveries
Net charge-offs
(1,138
)
(1,080
)
(2,206
)
(1,160
)
(1,237
)
Provision for credit losses
3,308
2,010
2,945
Ending balance
$
10,184
$
10,507
$
9,422
$
8,320
$
7,470
Ending balance as a percentage of loans
1.24
%
1.28
%
1.22
%
1.17
%
1.16
%
Net charge-offs as a percentage of average loans
0.14
%
0.14
%
0.30
%
0.16
%
0.21
%
Allowance for Credit Losses on Unfunded Lending Commitments
Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. ASC 326 guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of December 31, 2024 and 2023, the Company’s allowance for credit losses on unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.4 million and $0.6 million, respectively. No allowance for credit losses on unfunded commitments was recorded by the Company in the years prior to 2023.
Allocation of Allowance for Credit Losses on Loans and Leases
While no portion of the allowance is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for credit losses as of December 31, 2024 and 2023.
Allowance Allocation
Allowance as Percentage of Total Loans
Net Charge-offs as a Percentage of Average Loans
Allocation
Allowance
Allowance as Percentage of Total Loans
Net Charge-offs as a Percentage of Average Loans
(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans
$
0.54
%
-0.03
%
$
0.64
%
-
Secured by 1-4 family residential properties
0.58
%
-0.07
%
0.78
%
0.05
%
Secured by multi-family residential properties
0.54
%
-
0.66
%
-
Secured by non-farm, non-residential properties
1,428
0.63
%
0.11
%
1,425
0.67
%
-
Commercial and industrial loans
1,531
3.46
%
0.22
%
0.85
%
-
Consumer loans:
Direct consumer
1.03
%
-4.09
%
1.06
%
-0.06
%
Branch retail
1.26
%
-1.08
%
5.03
%
1.82
%
Indirect
5,802
1.91
%
0.39
%
6,498
2.12
%
0.31
%
Total
$
10,184
1.24
%
0.14
%
$
10,507
1.28
%
0.14
%
Nonperforming Assets
Nonperforming assets at the end of the five most recent years as of December 31, 2024 were as follows:
Year Ended December 31,
(Dollars in Thousands)
Non-accrual loans
$
3,949
$
2,400
$
1,651
$
2,008
$
3,086
Other real estate owned
1,509
2,149
Total
$
5,458
$
3,002
$
2,337
$
4,157
$
4,035
Nonperforming assets as a percentage of total loans and other
real estate
0.66
%
0.37
%
0.30
%
0.59
%
0.62
%
Nonperforming assets as a percentage of total assets
0.50
%
0.28
%
0.24
%
0.43
%
0.45
%
Non-accrual loans as a percentage of total loans
0.48
%
0.29
%
0.21
%
0.28
%
0.48
%
ACL as a percentage of non-accrual loans
257.89
%
437.79
%
570.68
%
414.34
%
242.06
%
The increase in nonperforming assets during 2024 resulted primarily from one loan that was foreclosed and moved into OREO and another loan that moved into non-accrual status during the year.
Summarized below is information concerning income on those loans with deferred interest or principal payments resulting from deterioration in the financial condition of the borrower.
December 31,
(Dollars in Thousands)
Total loans accounted for on a non-accrual basis
$
3,949
$
2,400
Interest income that would have been recorded under original
terms
Interest income reported and recorded during the year
Deposits
Deposits totaled $972.6 million as of December 31, 2024, compared to $950.2 million as of December 31, 2023. The growth in 2024 included an increase of $20.0 million in interest-bearing deposits and an increase in certificates of deposit of $16.9 million, partially offset by a decrease of $8.9 million in money market and savings deposits. The shift to interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts amid the elevated interest rate environment. The deposit growth in 2024 was also partially offset by a decrease of $10.3 million in wholesale brokered deposits. As of December 31, 2024, core
deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $837.7 million, or 86.1% of total deposits, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Core deposits have historically been the Company’s primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that core deposits will continue to be the Company’s primary source of funding in the future. Management will continue to monitor core deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions, and interest rate policies adopted by the FRB and other central banks.
Average Daily Amount of Deposits and Rates
The average daily amount of deposits and rates paid on such deposits are summarized for the periods indicated in the following table:
Average
Amount
Rate
Average
Amount
Rate
(Dollars in Thousands)
Non-interest-bearing demand deposit accounts
$
152,252
-
$
160,598
-
Interest-bearing demand deposit accounts
205,581
0.87
%
212,010
0.37
%
Savings deposits
251,772
2.72
%
229,238
2.18
%
Time deposits
346,541
3.73
%
305,848
2.80
%
Total deposits
$
956,146
2.25
%
$
907,694
1.58
%
Total interest-bearing deposits
$
803,894
2.68
%
$
747,096
1.92
%
Maturities of time deposits of greater than $250 thousand, as well as brokered deposits, outstanding as of December 31, 2024 and 2023 are summarized in the following table:
Maturities
December 31,
(Dollars in Thousands)
Three months or less
$
43,397
$
12,167
Over three through six months
23,865
26,032
Over six through twelve months
43,362
24,258
Over twelve months
24,267
68,213
Total
$
134,891
$
130,670
Maturities of time certificates of deposit of greater than $100 thousand and less than $250 thousand outstanding as of December 31, 2024 and 2023 are summarized as follows:
Maturities
December 31,
(Dollars in Thousands)
Three months or less
$
37,606
$
7,521
Over three through six months
22,148
9,257
Over six through twelve months
25,912
32,323
Over twelve months
9,708
46,788
Total
$
95,374
$
95,889
Other Interest-Bearing Liabilities
Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and subordinated debt that are used by the Company as alternative sources of funds. As of both December 31, 2024 and 2023, these liabilities represented 2.5% of interest-bearing liabilities. The table below summarizes short- and long-term liabilities and related interest rate data as of and for the years ended December 31, 2024 and 2023.
Short-Term
Borrowings
(Maturity
Less Than
One Year)
Long-Term
Borrowings
(Maturity
One Year
or Greater)
(Dollars in Thousands)
Other interest-bearing liabilities outstanding at year-end:
$
10,000
$
10,872
$
10,000
$
10,799
Weighted average interest rate at year-end:
4.57
%
4.20
%
5.46
%
4.20
%
Maximum amount outstanding at any month end:
$
15,000
$
10,872
$
35,048
$
10,799
Average amount outstanding during the year:
$
2,568
$
10,836
$
15,438
$
10,766
Weighted average interest rate during the year:
4.05
%
4.20
%
5.12
%
4.20
%
Shareholders’ Equity
As of December 31, 2024, shareholders’ equity totaled $98.6 million, or 9.0% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the year ended December 31, 2024 resulted primarily from earnings, net of dividends paid, partially offset by repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during 2024 by reductions in the Company's accumulated other comprehensive loss resulting from changes in market interest rates, as well as the maturity of lower yielding investment securities.
During the year ended December 31, 2024 the Company completed repurchases of 146,500 shares of its common stock at a weighted average price of $11.22 per share, or $1.6 million in aggregate. The repurchased shares were allocated to treasury stock under the Company’s previously announced share repurchase program, which was expanded in 2024 to authorize the purchase of 600,000 additional shares. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company’s discretion. As of December 31, 2024, 912,813 shares remained available for repurchase under the program.
During the year ended December 31, 2024, the Company declared dividends totaling $0.22 per common share, or approximately $1.3 million in aggregate amount, compared to $0.20 per common share, or approximately $1.2 million in aggregate amount, during the year ended December 31, 2023. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.
Liquidity and Capital Resources
The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $279.0 million as of December 31, 2024 and $241.2 million as of December 31, 2023. Investment securities forecasted to mature or reprice in one year or less were estimated to be $29.6 million and $12.9 million of the investment portfolio as of December 31, 2024 and 2023, respectively.
Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 3.6 years and 3.9 years as of December 31, 2024 and 2023, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.
The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts, which represent the Company’s primary sources of funds. In addition, federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of available liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure. The Bank manages the pricing of its deposits to maintain a desired deposit balance.
The Company had $10.0 million in outstanding short-term borrowings under FHLB advances as of both December 31, 2024 and 2023. On October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.9 million and $10.8 million as of December 31, 2024 and 2023, respectively.
The Company had up to $319.9 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral) as of December 31, 2024 and 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both December 31, 2024 and 2023.
The Company also has access to the FRB’s discount window. The discount window allows borrowing on pledged collateral that includes eligible investment securities and loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Including the pledging of these loans, along with selected securities, the Company had $165.1 million and $161.7 million in borrowing capacity as of December 31, 2024 and December 31, 2023, respectively.
The table below provides information on the Company’s on-balance sheet liquidity, as well as readily available off-balance sheet sources of liquidity as of both December 31, 2024 and 2023.
December 31,
December 31,
(Dollars in Thousands)
(Unaudited)
(Unaudited)
Liquidity from cash and federal funds sold:
Cash and cash equivalents
$
47,216
$
50,279
Federal funds sold
5,727
9,475
Liquidity from cash and federal funds sold
52,943
59,754
Liquidity from pledgable investment securities:
Investment securities available-for sale, at fair value
167,888
135,565
Investment securities held-to-maturity, at amortized cost
1,104
Less: securities pledged
(72,110
)
(41,375
)
Less: estimated collateral value discounts
(10,164
)
(11,129
)
Liquidity from pledgable investment securities
86,296
84,165
Liquidity from unused lendable collateral (loans) at FHLB
45,388
21,696
Liquidity from unused lendable collateral (loans and securities) at FRB
165,061
161,729
Unsecured lines of credit with banks
48,000
48,000
Total readily available liquidity
$
397,688
$
375,344
The table above calculates readily available liquidity by combining cash and cash equivalents, federal funds sold, securities purchased under reverse repurchase agreements and unencumbered investment security values on the Company’s consolidated balance sheet with off-balance sheet liquidity that is readily available through unused collateral pledged to the FHLB and FRB, as well as unsecured lines of credit with other banks. Liquidity from pledgable investment securities and total readily available liquidity are
measures that have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) used by management and regulators to analyze the Company's liquidity position. Management believes that these non-GAAP measures are beneficial to the reader as they enhance the overall understanding of the Company’s liquidity position and can be used as a supplement to GAAP-based measures of liquidity, but they should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.
Pledgable investment securities are considered by management as a readily available source of liquidity since the Company has the ability to pledge the securities with the FHLB or FRB to obtain immediate funding. Both available-for-sale and held-for-maturity securities may be pledged at fair value with the FHLB and through the FRB discount window. The amounts shown as liquidity from pledgable investment securities represent total investment securities as recorded on the consolidated balance sheet, less reductions for securities already pledged and discounts expected to be taken by the lender to determine collateral value.
The unused lendable collateral value at the FHLB presented in the table above represents only the amount immediately available to the Company from loans already pledged by the Company to the FHLB as of each consolidated balance sheet date presented. As of December 31, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $319.9 million and $279.4 million, respectively, subject to the pledging of additional collateral which may include eligible investment securities and loans. In addition, the Company has access to additional sources of liquidity that generally could be obtained over a period of time, including access to unsecured brokered deposits through the wholesale funding markets. Management believes the Company’s on-balance sheet and other readily available liquidity provide strong indicators of the Company’s ability to fund obligations in a stressed liquidity environment.
Excluding wholesale brokered deposits, as of December 31, 2024, the Company had approximately 29 thousand deposit accounts with an average balance of approximately $31.0 thousand per account. Estimated uninsured deposits (calculated as deposit amounts per deposit holder in excess of $250 thousand, the maximum amount of federal deposit insurance, and excluding deposits secured by pledged assets) totaled $216.8 million, or 22.2% of total deposits, as of December 31, 2024. As of December 31, 2023, estimated uninsured deposits totaled $200.3 million, or 21.1% of total deposits.
Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.
Regulatory Capital
The Bank is subject to the revised capital requirements as described in the section captioned “Supervision and Regulation - Capital Adequacy” included in Part I, Item I of this report. Under these requirements, the Bank is subject to minimum risk-based capital and leverage capital requirements, which are administered by the federal banking regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Failure to meet minimum capital requirements can result in mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of Bancshares and the Bank, and could impact Bancshares’ ability to pay dividends. As of both December 31, 2024 and 2023, the Bank exceeded all applicable minimum capital standards, and met applicable regulatory guidelines to be considered well-capitalized. No significant conditions or events have occurred since December 31, 2024 that management believes would affect the Bank’s classification as well-capitalized for regulatory purposes.
Refer to the section captioned “Regulatory Capital” included in Note 14, “Shareholders’ Equity,” in the Notes to the consolidated financial statements for an illustration of the Bank’s actual regulatory capital amounts and ratios under regulatory capital standards in effect as of December 31, 2024 and December 31, 2023. Additionally, refer to the section captioned “Dividend Restrictions” included in Note 14 for a discussion regarding restrictions that could materially influence the Bank’s, and therefore Bancshares’, ability to pay dividends.
Asset/Liability Management
Market risk reflects the potential risk of loss arising from adverse changes in interest rates and market prices. The Company has risk management policies and procedures in place to monitor and limit exposure to market risk. The Company’s primary market risk is interest rate risk created by core banking activities. Interest rate risk is the potential variability of the Company’s income that results from changes in various market interest rates. The Bank’s Asset/Liability Committee routinely reassesses the Company’s strategies to manage interest rate risk in accordance with policies established by the Company’s Board of Directors. A key objective of the asset/liability management program is to quantify, monitor and manage interest rate risk and to assist management in maintaining stability in net interest margin under varying interest rate environments.
As part of interest rate risk management, the Company may use derivative financial instruments in accordance with policies established by the Board of Directors. Derivative financial instruments may include the use of interest rate swaps or option products such as caps and floors. As of December 31, 2024, the Company held the following derivative financial instruments:
•Three forward interest rate swap contracts designated as fair value hedges that were intended to mitigate risk associated with rising interest rates by converting a portfolio of fixed rate loans to a variable rate
•Two forward starting interest rate swap contracts designated as cash flow hedges with the objective of protecting the Company against variability in expected future cash flows attributed to changes in the SOFR interest rate on the designated notional amount of interest-bearing liabilities.
•Two interest rate floor contracts not designated as hedging instruments that were intended to mitigate the Company’s risk of loss associated with downward shifts in the SOFR
•Three credit risk participation agreements with lead participant banks with which the Company shares participation loans. For participating in the agreements, the Company received one-time fees which were included in other liabilities. These derivatives are not eligible for hedge accounting treatment.
As of December 31, 2023, the Company held the following derivative financial instruments:
•Three forward interest rate swap contracts designated as fair value hedges that were intended to mitigate risk associated with rising interest rates by converting a portfolio of fixed rate loans to a variable rate.
The value of all derivative financial instruments totaled a net asset position of $0.6 million as of December 31, 2024, while the value of all derivative financial instruments totaled a net liability position of $0.1 million as of December 31, 2023.
In 2022 and 2023, the Company terminated certain interest rate swap contracts that had previously been in place, recording deferred gains totaling $0.3 million and $2.1 million in 2022 and 2023, respectively. The deferred gains are being accreted to net interest income over the remaining life of the original terms of each swap. Remaining deferred gains associated with terminated swaps totaled $0.3 million and $1.2 million as of December 31, 2024 and 2023, respectively
On a net basis, derivative financial instruments (including gains recognized on terminated instruments) increased the Company’s income before income taxes by $1.5 million during both years ended December 31, 2024 and 2023. See Note 16, “Derivative Financial Instruments,” in the consolidated financial statements for additional information related to these derivative instruments.
Contractual Obligations
The Company has contractual obligations to make future payments under debt and lease agreements. Long-term debt and operating lease obligations are reflected on the consolidated balance sheets. The Company has not entered into any unconditional purchase obligations or other long-term obligations, other than as included below. These types of obligations are further discussed in Note 9, “Borrowings,” and Note 15, “Leases,” in the Notes to consolidated financial statements.
Many of the Bank’s lending relationships, including those with commercial and consumer customers, contain both funded and unfunded elements. The unfunded component of these commitments is not recorded in the consolidated balance sheets. These commitments are further discussed in Note 18, “Guarantees, Commitments and Contingencies,” in the consolidated financial statements.
The following table summarizes the Company’s contractual obligations as of December 31, 2024:
Payment Due by Period
Contractual Obligations
Total
Less than
One Year
One to
Three Years
Three to
Five Years
More than
Five Years
(Dollars in Thousands)
Time deposits
$
335,085
$
264,805
$
59,396
$
10,642
$
Commitments to extend credit
120,703
120,703
-
-
-
Subordinated notes (1)
11,770
-
11,000
FHLB advances
10,000
10,000
-
-
-
Operating leases
2,337
Standby letters of credit
-
-
-
Total
$
480,791
$
397,201
$
60,508
$
11,094
$
11,988
(1)Contractual obligations for the subordinated notes include the contractual fixed interest payments during the first five years of the note, as well as the final principal payment at the end of the 10-year term of the note. The note is callable by the Company after the first five years. If not called, the interest rate becomes variable. Since interest payments under a variable rate cannot be forecasted with certainty, contractual interest during the variable period is not included in the table above.
Off-Balance Sheet Obligations
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources other than as described in Note 15 “Leases,” Note 16 “Derivative Financial Instruments” and Note 18 “Guarantees, Commitments and Contingencies” in the consolidated financial statements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market/Interest Rate Risk Management
The primary purpose of managing interest rate risk is to invest capital effectively and preserve the value created by our core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments, subject to liquidity and interest rate risk guidelines. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable timeframe, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.
Financial simulation models are the primary tools used by the Company’s Asset/Liability Committee to measure interest rate exposure. Using a wide range of scenarios, management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. In these simulations, assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of the Company’s balance sheet resulting from both strategic plans and customer behavior. Simulation models also incorporate management’s assumptions regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates paid on deposits and charged on loans.
Assessing Short-Term Interest Rate Risk - Net Interest Margin Simulation
On a quarterly basis, management simulates how changes in short- and long-term interest rates will impact future profitability, as reflected by changes in the Bank’s net interest margin and net interest income. The tables below depict how, as of December 31, 2024, pre-tax net interest margin and net interest income are forecasted to change over timeframes of one year and two years under the six listed interest rate scenarios. The interest rate scenarios contemplate immediate and parallel shifts in short- and long-term interest rates.
Average Change in Net Interest Margin from Level Interest Rate Forecast (basis points, pre-tax):
1 Year
2 Years
+1%
+2%
+3%
-1%
(15
)
(16
)
-2%
(31
)
(36
)
-3%
(49
)
(59
)
Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax):
1 Year
2 Years
+1%
$
1,109
$
2,339
+2%
2,150
4,484
+3%
3,003
6,241
-1%
(1,647
)
(3,529
)
-2%
(3,481
)
(8,069
)
-3%
(5,386
)
(12,969
)

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment and those criteria, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2024.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting is not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us, as a non-accelerated filer, to provide only management’s report on internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of First US Bancshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of First US Bancshares, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans and Leases
As described in Notes 2 and 4 to the financial statements, the Company’s allowance for credit losses on loans and leases (“allowance”) was $10.2 million on loans and leases of $823.0 million as of December 31, 2024. As described in Note 2, the Company adopted ASC Topic 326, Financial Instruments - Credit Losses, effective January 1, 2023. The Company’s method of estimating the allowance includes the use of historic loss rates that are adjusted for reasonable and supportable forecasts, as well as other qualitative adjustments.
The Company measures the allowance on a pool basis when the loans and leases share similar risk characteristics. Loans and leases that do not share risk characteristics are evaluated on an individual basis. Historical loss rates are analyzed for and applied to their respective loan and lease pools over the expected remaining life of the pooled loans and leases. Historical loss rates are adjusted for significant qualitative factors that, in management’s judgment, reflect current conditions on loss recognition. Forecast factors are developed based on information obtained from external sources, as well as consideration of other internal information, and are included in the allowance method for a reasonable and supportable forecast period.
We have determined that the allowance is a critical audit matter. Auditing the allowance involved significant judgment and complex review in evaluating management’s estimates, such as the segmentation of loan and lease pools, the remaining life of loans and leases in a pool, economic conditions, and environmental and forecast factors. The use of different assumptions in developing and applying these estimates could result in a materially different amount for the allowance.
The primary procedures we performed to address this critical audit matter included substantively testing management’s process, which included:
•Obtained an understanding and evaluated the appropriateness of the design and operation of the Company’s process for establishing the allowance, including the implementation of the expected credit loss method and the qualitative factor adjustments of the allowance.
•Evaluated the classifications of loans and leases by pools, the estimated life of each pool, and the accuracy of historical loss data used in the allowance calculation.
•Evaluated the reasonableness of management’s assumptions and judgments related to estimating the qualitative and economic forecast adjustments to the historical loss rates, including assessing the basis for the adjustments.
•Tested the completeness and accuracy of data inputs and verified the mathematical accuracy of the allowance calculation, including the application of the qualitative factor adjustments.
/s/ Carr, Riggs & Ingram, LLC
We have served as the Company’s auditor since 2008.
Atlanta, Georgia
March 14, 2025
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
December 31,
December 31,
ASSETS
Cash and due from banks
$
10,633
$
12,987
Interest-bearing deposits in banks
36,583
37,292
Total cash and cash equivalents
47,216
50,279
Federal funds sold and securities purchased under reverse repurchase agreements
5,727
9,475
Investment securities available-for-sale, at fair value (amortized cost $174,597 and
$144,893; net of allowance for credit losses of $- and $-)
167,888
135,565
Investment securities held-to-maturity, at amortized cost, net of allowance for credit
losses of $- and $-, (fair value 2024 - $642, 2023 - $1,041)
1,104
Federal Home Loan Bank stock, at cost
1,256
1,201
Loans and leases held for investment
823,039
821,791
Less allowance for credit losses on loans and leases
10,184
10,507
Net loans and leases held for investment
812,855
811,284
Premises and equipment, net of accumulated depreciation
24,803
24,398
Cash surrender value of bank-owned life insurance
17,056
16,702
Accrued interest receivable
3,588
3,976
Goodwill and core deposit intangible, net
7,484
7,606
Other real estate owned
1,509
Other assets
11,022
10,748
Total assets
$
1,101,086
$
1,072,940
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing
$
155,945
$
153,591
Interest-bearing
816,612
796,600
Total deposits
972,557
950,191
Accrued interest expense
1,751
2,030
Other liabilities
7,282
9,327
Short-term borrowings
10,000
10,000
Long-term borrowings
10,872
10,799
Total liabilities
1,002,462
982,347
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,840,348 and
7,738,201 shares issued, respectively; 5,696,171 and 5,735,075 shares outstanding,
respectively
Additional paid-in capital
15,540
14,972
Accumulated other comprehensive loss, net of tax
(4,344
)
(6,431
)
Retained earnings
116,865
109,959
Less treasury stock: 2,144,177 and 2,003,126 shares at cost, respectively
(29,515
)
(27,982
)
Total shareholders’ equity
98,624
90,593
Total liabilities and shareholders’ equity
$
1,101,086
$
1,072,940
The accompanying notes are an integral part of these consolidated statements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
Year Ended December 31,
Interest income:
Interest and fees on loans
$
51,469
$
47,749
Interest on investment securities
4,400
2,871
Interest on deposits in banks
1,956
1,998
Other
Total interest income
58,260
52,806
Interest expense:
Interest on deposits
21,549
14,350
Interest on borrowings
1,106
Total interest expense
22,111
15,456
Net interest income
36,149
37,350
Provision for credit losses
Net interest income after provision for credit losses
35,527
37,031
Non-interest income:
Service and other charges on deposit accounts
1,232
1,197
Lease income
1,033
Other income, net
1,318
1,235
Total non-interest income
3,583
3,381
Non-interest expense:
Salaries and employee benefits
15,460
16,076
Net occupancy and equipment
3,761
3,479
Computer services
1,687
1,756
Insurance expense and assessments
1,510
1,583
Fees for professional services
1,184
1,105
Other expense
4,754
5,142
Total non-interest expense
28,356
29,141
Income before income taxes
10,754
11,271
Provision for income taxes
2,584
2,786
Net income
$
8,170
$
8,485
Basic net income per share
$
1.40
$
1.42
Diluted net income per share
$
1.33
$
1.33
Dividends per share
$
0.22
$
0.20
The accompanying notes are an integral part of these consolidated statements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Year Ended December 31,
Net income
$
8,170
$
8,485
Other comprehensive income:
Unrealized holding gains on securities available-for-sale arising during the
year, net of tax expense of $656 and $438, respectively
1,963
1,322
Unrealized holding gains (losses) on effective cash flow hedge derivatives arising
during the year, net of tax (expense) benefit of $(151) and $18, respectively
(50
)
Reclassification adjustments on cash flow hedge derivatives realized in net income, net of tax benefit of $112 and $154, respectively
(334
)
(462
)
Other comprehensive income
2,087
Total comprehensive income
$
10,257
$
9,295
The accompanying notes are an integral part of these consolidated statements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Data)
Common
Stock
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock, at
Cost
Total
Shareholders’
Equity
Balance, December 31, 2022
5,812,258
$
$
14,510
$
(7,241
)
$
104,460
$
(26,669
)
$
85,135
Impact of adopting current expected credit loss accounting model, net of tax
-
-
-
-
(1,811
)
-
(1,811
)
Net income
-
-
-
-
8,485
-
8,485
Net change in fair value of
securities available-for-sale,
net of tax
-
-
-
1,322
-
-
1,322
Net change in fair value of
derivative instruments,
net of tax
-
-
-
(512
)
-
-
(512
)
Dividends declared: $.20 per share
-
-
-
-
(1,175
)
-
(1,175
)
Impact of stock-based
compensation plans, net
50,935
-
-
-
(25
)
Reissuance of treasury stock as
compensation
9,382
-
(134
)
-
-
-
Impact of common stock share repurchases
(137,500
)
-
-
-
-
(1,422
)
(1,422
)
Balance, December 31, 2023
5,735,075
$
$
14,972
$
(6,431
)
$
109,959
$
(27,982
)
$
90,593
Net income
-
-
-
-
8,170
-
8,170
Net change in fair value of
securities available-for-sale,
net of tax
-
-
-
1,963
-
-
1,963
Net change in fair value of
derivative instruments,
net of tax
-
-
-
-
-
Dividends declared: $.22 per share
-
-
-
-
(1,264
)
-
(1,264
)
Impact of stock-based
compensation plans, net
96,303
-
-
(48
)
Reissuance of treasury stock as
compensation
11,293
-
(158
)
-
-
-
Impact of common stock share repurchases
(146,500
)
-
-
-
-
(1,643
)
(1,643
)
Balance, December 31, 2024
5,696,171
$
$
15,540
$
(4,344
)
$
116,865
$
(29,515
)
$
98,624
The accompanying notes are an integral part of these consolidated statements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Year Ended December 31,
Cash flows from operating activities:
Net income
$
8,170
$
8,485
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
1,590
1,581
Provision for credit losses
Deferred income tax expense
Proceeds from settlement of derivative contracts
-
2,166
Reclassification of unrealized gains on terminated derivative contracts
(864
)
(1,160
)
Stock-based compensation expense
Net (accretion) amortization of securities
(281
)
Amortization of intangible assets
Net loss on premises and equipment and other real estate
Changes in assets and liabilities:
Increase in cash surrender value of bank owned life insurance
(354
)
(303
)
Decrease (increase) in accrued interest receivable
(965
)
Increase in other assets
(995
)
(905
)
(Decrease) increase in accrued interest expense
(279
)
1,423
(Decrease) increase in other liabilities
(1,709
)
Net cash provided by operating activities
7,761
13,067
Cash flows from investing activities:
Net decrease (increase) in federal funds sold and securities purchased under reverse repurchase agreements
3,748
(7,707
)
Purchases of investment securities, available-for-sale
(57,957
)
(14,891
)
Proceeds from maturities and prepayments of investment securities, available-for-sale
28,535
11,856
Proceeds from maturities and prepayments of investment securities, held-to-maturity
Net (increase) decrease in Federal Home Loan Bank stock
(55
)
Net increase in loans
(3,808
)
(49,650
)
Proceeds from the sale of premises and equipment and other real estate
Purchases of premises and equipment
(2,100
)
(1,464
)
Net cash used in investing activities
(30,347
)
(60,446
)
Cash flows from financing activities:
Net increase in customer deposits
22,366
80,166
Net decrease in short-term borrowings
-
(10,038
)
Net share-based compensation transactions
(25
)
Repurchases of common stock
(1,643
)
(1,422
)
Dividends paid
(1,264
)
(1,175
)
Net cash provided by financing activities
19,523
67,506
Net (decrease) increase in cash and cash equivalents
(3,063
)
20,127
Cash and cash equivalents, beginning of period
50,279
30,152
Cash and cash equivalents, end of period
$
47,216
$
50,279
The accompanying notes are an integral part of these consolidated statements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024 and 2023
1.DESCRIPTION OF BUSINESS
First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two additional wholly owned subsidiaries, Acceptance Loan Company ("ALC") and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.
The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Bancshares and the Bank (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated. The Company consolidates an entity if the Company has a controlling financial interest in the entity.
Use of Estimates
The accounting principles and reporting policies of the Company, and the methods of applying these principles, conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with general practices within the financial services industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets, and revenues and expenses for the period included in the consolidated statements of operations and of cash flows. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant changes in the near term relate to the accounting for the allowance for credit losses, the right-of-use asset and lease liability, the value of other real estate owned (“OREO”) and certain collateral-dependent loans, consideration related to goodwill impairment testing and deferred tax asset valuation. In connection with the determination of the allowance for credit losses and OREO, management generally obtains independent appraisals for significant properties, evaluates the overall portfolio characteristics and delinquencies and monitors economic conditions.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, instruments with an original maturity of less than 90 days from issuance and amounts due from banks.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental disclosures of cash flow information and non-cash transactions related to cash flows for the years ended December 31, 2024 and 2023 are as follows:
(Dollars in Thousands)
Cash paid during the year for:
Interest
$
22,390
$
14,033
Income taxes
2,797
2,375
Non-cash transactions:
Assets acquired in settlement of loans
1,701
1,178
Reissuance of treasury stock as compensation
Revenue Recognition
The Company records revenue when control of the promised products or services is transferred to the customer in an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for those products and services.
Interest Income
The majority of the Company’s revenue is generated through interest earned on financial instruments, including loans and investment securities. This revenue is recognized on an accrual basis and calculated through the use of non-discretionary formulas based on written contracts including loan agreements or securities contracts. Loan origination fees are accreted into interest income over the term of the loan.
Service Charges on Deposit Accounts
Service charges on deposit accounts include non-sufficient fund fees, overdraft fees and other service charges. When a depositor presents an item for payment in excess of available funds, non-sufficient funds fees are earned when an item is returned unpaid, and overdraft fees are earned when the Company provides the necessary funds to complete the transaction. The Company generates other service charges by providing depositors with proper safeguard and remittance of funds, as well as by providing optional services such as check imaging or treasury management. Charges for proper safeguard and remittance of funds are recognized monthly as the deposit customer maintains funds in the account, while revenue for optional services are recognized when the customer completes the transaction.
Gains or Losses on the Sale of Investment Securities
Gains or losses on the sale of investment securities are recognized as the sale transaction occurs with the cost of securities sold based on the specific identification method.
Lease Income
The Bank leases certain office facilities to third parties and classifies the leases as operating leases. Lease income is recognized on a monthly basis based on the contractual terms of the lease agreement.
Bank-owned Life Insurance
Bank-owned life insurance income represents income earned from the appreciation of the cash surrender value of insurance contracts held and the proceeds of insurance benefits. The Company recognizes revenue each period in the amount of the appreciation of the cash surrender value of the contracts. Revenue recognized from the proceeds of insurance benefits is recognized at the time the claim is confirmed.
ATM Fee Income
Fee income is generated by allowing the Bank’s debit cardholders to withdraw funds from the ATM’s of other financial institutions and by allowing non-customers to withdraw funds from the Bank’s ATMs. The Bank satisfies performance
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
obligations for each transaction when the withdrawal is processed. The Bank does not direct the activities of the related processing network’s service and recognizes revenue on a net basis as the agent in each transaction.
Other Miscellaneous Income
Other miscellaneous income includes mortgage fees, credit insurance income, wire transfer fees, safe deposit box fee income, check fees and other miscellaneous sources of income. The Company recognizes revenue associated with these sources of income in accordance with the satisfaction of the performance obligation based on the timing of the occurrence of a transaction or when service is provided.
Investment Securities
The investment portfolio consists of debt securities, including U.S. Treasury securities, obligations of U.S. government agencies, municipal bonds, residential and commercial mortgage-backed securities and corporate notes. Securities may be held in one of three portfolios: trading account securities, securities held-to-maturity or securities available-for-sale. Trading account securities are carried at estimated fair value, with unrealized gains and losses included in operations. The Company held no trading account securities as of December 31, 2024 or 2023. Investment securities held-to-maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. With regard to investment securities held-to-maturity, management has the intent and the Company has the ability to hold such securities until maturity. Investment securities available-for-sale are carried at fair value, with any unrealized gains or losses excluded from operations and reflected, net of tax, as a separate component of shareholders’ equity in accumulated other comprehensive income or loss. Investment securities available-for-sale are so classified because management may decide to sell certain securities prior to maturity for liquidity, tax planning or other valid business purposes.
Interest earned on investment securities available-for-sale is included in interest income. Amortization of premiums and discounts on investment securities is determined by the interest method and included in interest income. Gains and losses on the sale of investment securities available-for-sale, computed principally on the specific identification method, are shown separately in non-interest income.
The Company also holds Federal Home Loan Bank (“FHLB”) stock, which, based on the redemption provision of the FHLB, has no quoted market value and is carried at cost. Dividends earned on FHLB stock are included in interest income.
Loans and Leases Held for Investment
Loans and leases held for investment (“loans”) represent financial instruments that the Company has the intent and the ability to hold for the foreseeable future or until maturity or payoff. Loans are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, and deferred loan fees and costs. Accrued interest receivable on loans and leases is reported separately on the Company’s consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
At the time a loan is 90 days delinquent, it is placed on nonaccrual status unless it is well-secured and in process of collection. Interest income is discontinued on all loans on nonaccrual status. Past-due status is based on the contractual terms of the loan. In all cases, loans are moved to nonaccrual status, or charged off at an earlier date, if collection of principal and interest is considered doubtful.
All interest accrued but not received on loans on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery methods, until qualifying for return to accrual. Under the cash-basis method, interest income is recorded when the payment is received in cash. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses
On January 1, 2023, the Company adopted Accounting Standards Codification "Financial Instruments - Credit Losses" ("ASC 326"). ASC 326 replaced the previous "incurred loss" model for measuring credit losses on loans and leases, which required allowances for current known and inherent losses within the loan portfolio, with a current expected credit loss ("CECL") model. The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost and
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's loan portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale debt securities, including the requirement to present credit losses as an allowance rather than as a direct write-down, in certain circumstances.
The Company adopted ASC 326 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, the Company recognized an increase in the allowance for credit losses (including both loans and unfunded lending commitments) of $2.4 million, which included an after-tax cumulative effect decrease to retained earnings totaling $1.8 million.
Allowance for Credit Losses on Loans and Leases
The allowance for credit losses on loans and leases is a contra-asset valuation account that is deducted from the amortized cost basis of the loans and leases held for investment to present the net amount expected to be collected. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for credit losses.
Management estimates the allowance for credit losses by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective pool evaluations. For individually evaluated loans, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty as of the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.
Expected credit losses are estimated over the contractual term of the loans and leases, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company, or management has a reasonable expectation at the reporting date that a loan modification will be made to a borrower experiencing financial difficulty.
Allowance for Credit Losses on Unfunded Lending Commitments
The Company estimates expected credit losses on unfunded lending commitments over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is adjusted through the provision for credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts. Management estimates the allowance balance by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.
Allowance for Credit Losses on Investment Securities Held-to-Maturity
Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for credit losses.
Allowance for Credit Losses on Investment Securities Available-for-Sale
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
Derivatives and Hedging Activities
The Company uses derivative instruments to minimize unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk management strategy involves modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect net interest margin and cash flow. Derivative instruments utilized by the Company generally include interest rate swaps, caps and floors, and are carried as assets and/or liabilities at fair value on the Company’s consolidated balance sheets. The Company does not use derivatives for trading or speculative purposes and generally enters into transactions that have a qualifying hedge relationship. Depending upon the characteristics of the hedged item, derivatives are classified as either cash flow hedges or fair value hedges. When cash flow or fair value hedging strategies are utilized, the Company specifically identifies the derivative instrument as a hedge and identifies the risk that is being hedged contemporaneously with the execution of the hedge transaction.
Cash flow hedge relationships mitigate exposure to variability of future cash flows or other forecasted transactions. The change in fair value of cash flow hedges is recorded, net of tax, in accumulated other comprehensive income (loss) except for amounts excluded from hedge effectiveness. Amounts excluded from hedge effectiveness are recorded in earnings.
Fair value hedge relationships mitigate exposure to the change in fair value of the hedged risk in an asset, liability, or firm commitment. Gains or losses attributable to the derivative instrument, as well as gains or losses attributable to changes in the fair value of the hedged item are recognized in interest income or interest expense in the same income statement line item with the hedged item in the period in which the change in fair value occurs. To the extent the changes in fair value of the derivative instrument do not offset the changes in the fair value of the hedged item, the difference is recognized in earnings. The corresponding adjustment to the hedged asset or liability is included in the basis of the hedged item, while the corresponding change in the fair value of the derivative instrument is recorded as an adjustment to other assets or other liabilities, as applicable. The Company has entered into certain fair value hedges using the portfolio-layer method, which allows the Company to hedge the interest rate risk of prepayable financial assets by designating as the hedged item a stated amount of a closed portfolio that is not expected to be affected by prepayments, defaults, or other factors impacting the timing and amount of cash flows.
If a hedge relationship is de-designated or if hedge accounting is discontinued because the hedged item no longer exists, or does not meet the definition of a firm commitment, or because it is probable that the forecasted transaction will no longer occur, the derivative instrument will continue to be recorded in other assets or liabilities in the consolidated balance sheets at its estimated fair value, with changes in fair value recognized in non-interest expense. Any asset or liability that was recognized pursuant to a firm commitment is removed from the consolidated balance sheets and recognized in non-interest expense. Gains or losses that were unrecognized and aggregated in accumulated other comprehensive gain (loss) pursuant to a cash flow hedging relationship are recognized immediately in non-interest expense.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company may also enter into derivative contracts that are not designated as hedges in order to mitigate economic risks or risks associated with volatility in connection with customer derivative transactions. In addition, from time to time, the Company enters into risk participation agreements associated with loan participation agreements. These represent credit derivatives that are not used by the Company to manage interest rate risk in the Company's assets or liabilities.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Depreciation is generally computed by the straight-line method over the estimated useful lives of the assets or the expected lease terms for leasehold improvements, whichever is shorter. Useful lives for all premises and equipment range from three to forty years.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain directors and former executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is generally determined as the excess of cost over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is determined to have an indefinite useful life and is not amortized but tested for impairment at least annually or more frequently if events or circumstances exist that indicate that a goodwill impairment test should be performed. The Company performs its annual goodwill impairment test as of October 1.
Other intangible assets consist of core deposit intangible assets arising from acquisitions. Core deposit intangibles have definite useful lives and are amortized on an accelerated basis over their estimated useful lives. The Company’s core deposit intangible assets have estimated useful lives of seven years. In addition, these intangible assets are evaluated for impairment whenever events or circumstances exist that indicate that the carrying amount should be reevaluated.
Other Real Estate Owned (OREO)
OREO consists of properties acquired through a foreclosure or in satisfaction of loans, as well as closed branches. These properties are carried at net realizable value, less estimated selling costs. Losses arising from the acquisition of properties are charged against the allowance for credit losses. Gains or losses realized upon the sale of OREO and additional losses related to subsequent valuation adjustments are determined on a specific property basis and are included as a component of non-interest expense along with carrying costs.
Income Taxes
The Company accounts for income taxes on the accrual basis through the use of the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the consolidated financial statement carrying amounts and the basis of existing assets and liabilities. Deferred tax assets are also recorded for any tax attributes, such as tax credit and net operating loss carryforwards. The net balance of deferred tax assets and liabilities is reported in other assets in the consolidated balance sheets. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company evaluates the realization of deferred tax assets based on all positive and negative evidence available at the balance sheet date. Realization of deferred tax assets is based on the Company’s judgments about relevant factors affecting realization, including taxable income within any applicable carryback periods, future projected taxable income, reversal of taxable temporary differences and other tax planning strategies to maximize realization of deferred tax assets. A valuation allowance is recorded for any deferred tax assets that are not “more likely than not” to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit for which there is a greater than 50% likelihood that such amount would be realized upon examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest expense, interest income and penalties related to unrecognized tax benefits within current income tax expense.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
Compensation expense is recognized for stock options and restricted stock awards issued to employees based on the fair value of these awards at the date of grant. The Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.
Compensation expense is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize compensation expense net of forfeitures.
Treasury Stock
Treasury stock purchases and sales are accounted for using the cost method.
Advertising Costs
Advertising costs for promoting the Company are minimal and expensed as incurred.
Reclassification
Certain amounts presented in the prior period consolidated financial statements and related notes have been reclassified to conform to the 2024 presentation. These reclassifications had no effect on the Company’s net income, financial position or net cash flow.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding (basic shares). Included in basic shares are stock equivalent shares that have been accrued as of the balance sheet date as deferred compensation for members of Bancshares’ Board of Directors under the Non-Employee Directors’ Deferred Compensation Plan (as defined below and discussed further in Note 12, "Deferred Compensation Plans"). Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period (dilutive shares). The dilutive shares consist of unexercised nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to the Company’s Incentive Plan (as defined and discussed further in Note 13, "Stock Awards").
The following table reflects weighted average shares used to calculate basic and diluted net income per share for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Weighted average shares outstanding
5,741,056
5,851,702
Weighted average director deferred shares
109,066
112,857
Basic shares
5,850,122
5,964,559
Dilutive shares
268,250
411,900
Diluted shares
6,118,372
6,376,459
Year Ended December 31,
(Dollars in Thousands,
Except Per Share Data)
Net income
$
8,170
$
8,485
Basic net income per share
$
1.40
$
1.42
Diluted net income per share
$
1.33
$
1.33
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comprehensive Income
Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the Company’s available-for-sale securities portfolio and the effective portion of cash flow hedge derivatives. In the calculation of comprehensive income, reclassification adjustments are made for gains or losses realized in the statement of operations associated with the sale of available-for-sale securities, settlement of derivative contracts or changes in the fair value of cash flow derivatives.
Segment Reporting
In previous periods, the Company disclosed two reportable operating segments of Bancshares: the Bank and ALC. The reportable operating segments were determined using the internal management reporting system in place during those periods. Due to the legal dissolution of ALC during 2023, management's internal reporting system no longer includes two reportable operating segments as of December 31, 2023. With the adoption of Accounting Standards Update ("ASU") 2023-07, Segment Reporting, the segment information presented in Note 20 includes information on the single Bank reporting unit.
Accounting Standards Recently Adopted
The following table provides a description of recent accounting standards recently adopted as of December 31, 2024.
Standard
Description
Required Date of Adoption
Effect on Financial Statements or other significant matters
ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures
This ASU expands the disclosure requirements relating to reportable segments. The ASU does not change how an entity identifies reportable segments or the accounting for segments. The Company has only one reporting segment; however, the ASU requires additional disclosures for entities that have one reporting segment, including annual disclosure of the title and position of the chief operating decision maker (CODM), as well as interim and annual disclosures of significant segment expenses, and the measure or measures of the segment’s profit or loss that the CODM uses in assessing segment performance and deciding how to allocate resources.
Annual financial statements as of and
for the year ended December 31, 2024
The adoption of this guidance did not have a material impact.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards Not Yet Adopted
The following table provides a description of recent accounting standards that have not yet been adopted as of December 31, 2024.
Standard
Description
Required Date of Adoption
Effect on Financial Statements or other significant matters
ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative
This ASU incorporates into the Codification 14 of the 27 disclosures referred by the SEC in Release No. 33-10532, Disclosure Update and Simplification. This update clarifies and improves the disclosure and presentation requirements of a variety of topics in the Codification to align with the SEC's regulations.
The date on which the SEC's removal
of that related disclosure from Regulation S-X or Regulation S-K becomes effective.
The adoption of this guidance is not likely to have a material impact. Management will continue to evaluate through date of adoption.
ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures
This ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures.
Annual financial statements as of and
for the year ending December 31, 2025
The adoption of this guidance is not likely to have a material impact. Management will continue to evaluate through date of adoption.
ASU 2024-03, Income Statement Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses
This ASU will change the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses (for example: employee compensation, depreciation, and amortization) in expense captions
Annual financial statements as of and
for the year ending December 31, 2027
The adoption of this guidance is not likely to have a material impact. Management will continue to evaluate through date of adoption.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3.INVESTMENT SECURITIES
Details of investment securities available-for-sale and held-to-maturity as of December 31, 2024 and 2023 were as follows:
Available-for-Sale
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(Dollars in Thousands)
Mortgage-backed securities:
Residential
$
87,703
$
$
(2,768
)
$
85,282
Commercial
12,105
(202
)
11,920
Obligations of U.S. government-sponsored agencies
11,436
(620
)
10,834
Obligations of states and political subdivisions
1,577
-
(28
)
1,549
Corporate notes
17,757
(1,871
)
15,944
U.S. Treasury securities
44,019
-
(1,660
)
42,359
Total
$
174,597
$
$
(7,149
)
$
167,888
Held-to-Maturity
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(Dollars in Thousands)
Mortgage-backed securities:
Commercial
$
$
-
$
(10
)
$
Obligations of U.S. government-sponsored agencies
-
(27
)
Obligations of states and political subdivisions
-
(3
)
Total
$
$
-
$
(40
)
$
Available-for-Sale
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(Dollars in Thousands)
Mortgage-backed securities:
Residential
$
47,221
$
$
(3,073
)
$
44,728
Commercial
9,446
-
(406
)
9,040
Obligations of U.S. government-sponsored agencies
11,849
(727
)
11,280
Obligations of states and political subdivisions
1,621
-
(63
)
1,558
Corporate notes
17,757
-
(2,800
)
14,957
U.S. Treasury securities
56,999
-
(2,997
)
54,002
Total
$
144,893
$
$
(10,066
)
$
135,565
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Held-to-Maturity
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(Dollars in Thousands)
Mortgage-backed securities:
Commercial
$
$
-
$
(22
)
$
Obligations of U.S. government-sponsored agencies
-
(34
)
Obligations of states and political subdivisions
-
(7
)
Total
$
1,104
$
-
$
(63
)
$
1,041
The scheduled maturities of investment securities available-for-sale and held-to-maturity as of December 31, 2024 are presented in the following table:
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
(Dollars in Thousands)
Maturing within one year
$
24,216
$
23,882
$
-
$
-
Maturing after one to five years
27,466
26,039
Maturing after five to ten years
60,051
55,754
Maturing after ten years
62,864
62,213
Total
$
174,597
$
167,888
$
$
For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.
The following table reflects gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2024 and 2023:
Available-for-Sale
December 31, 2024
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Mortgage-backed securities:
Residential
$
41,417
$
(424
)
$
28,520
$
(2,344
)
Commercial
3,374
(13
)
5,331
(189
)
Obligations of U.S. government-sponsored agencies
3,823
(1
)
4,457
(619
)
Obligations of states and political subdivisions
-
-
1,549
(28
)
Corporate notes
-
-
13,886
(1,871
)
U.S. Treasury securities
-
-
42,359
(1,660
)
Total
$
48,614
$
(438
)
$
96,102
$
(6,711
)
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Held-to-Maturity
December 31, 2024
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Mortgage-backed securities:
Commercial
$
-
$
-
$
$
(10
)
Obligations of U.S. government-sponsored agencies
-
-
(27
)
Obligations of states and political subdivisions
-
-
(3
)
Total
$
-
$
-
$
$
(40
)
Available-for-Sale
December 31, 2023
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Mortgage-backed securities:
Residential
$
$
(1
)
$
35,584
$
(3,072
)
Commercial
(5
)
8,408
(401
)
Obligations of U.S. government-sponsored agencies
-
-
4,367
(727
)
Obligations of states and political subdivisions
-
-
1,558
(63
)
Corporate notes
(229
)
14,186
(2,571
)
U.S. Treasury securities
-
-
54,002
(2,997
)
Total
$
1,465
$
(235
)
$
118,105
$
(9,831
)
Held-to-Maturity
December 31, 2023
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Mortgage-backed securities:
Commercial
$
-
$
-
$
$
(22
)
Obligations of U.S. government-sponsored agencies
-
-
(34
)
Obligations of states and political subdivisions
-
-
(7
)
Total
$
-
$
-
$
1,041
$
(63
)
Available-for-Sale Considerations
For any securities classified as available-for-sale that are in an unrealized loss position as of the balance sheet date, the Company assesses whether or not it intends to sell the security, or more-likely-than-not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2024, 97 available-for-sale debt securities had been in a loss position for more than 12 months, and 16 available-for-sale debt securities had been in a loss position for less than 12 months. As of December 31, 2023, 108 available-for-sale debt securities had been in a loss position for more than 12 months, and three available-for-sale debt securities had been in a loss position for less than 12 months. As of December 31, 2024, the Company had the current intent and ability to retain its investments for a period of time that management believes to be sufficient to allow for any anticipated recovery of fair value. As of December 31, 2024 and 2023, the losses for all available-for-sale securities were considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and were not related to the creditworthiness of the issuers. Accordingly, no allowance for credit losses was considered necessary related to available-for-sale securities as of December 31, 2024 or 2023. Accrued interest receivable is excluded from the estimate of credit losses for available-for-sale securities. As of December 31, 2024 and 2023, accrued interest receivable totaled $0.7 million and $0.6 million, respectively, with no related ACL and was reported in the accrued interest line on the accompanying consolidated balance sheet.
Held-to-Maturity Considerations
Effective January 1, 2023, the Company adopted the CECL accounting model to evaluate credit losses in the held-to-maturity investment portfolio. Each quarter, management evaluates the portfolio on a collective basis by major security type to determine whether an allowance for credit losses is needed. Qualitative factors are used in the Company’s credit loss assessments, including current and forecasted economic conditions, the characteristics of the debt issuer, and the historic ability of the issuer to make contractual principal and interest payments. Specifically, with regard to mortgage-backed securities or obligations of U.S. government sponsored agencies thereof, it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities as such securities are either backed by the full faith and credit of the U.S. government or the agency. With regard to obligations of states and political subdivisions, management considers issuer bond ratings, historical loss rates for given bond ratings, and whether the issuers continue to make timely principal and interest payments under contractual terms of the securities. Based on these evaluations, no allowance for credit losses was recorded by the Company for the held-to-maturity investment portfolio as of December 31, 2024 or 2023. Accrued interest receivable is excluded from the estimate of credit losses for held-to-maturity securities. As of December 31, 2024 and 2023, accrued interest receivable totaled $2.0 thousand and $3.0 thousand, respectively, with no related ACL and was reported in the accrued interest line on the accompanying consolidated balance sheet.
Pledged Securities
Investment securities with a carrying value of $72.1 million and $41.4 million as of December 31, 2024 and 2023, respectively, were pledged to secure public deposits and for other purposes.
4.LOANS AND LEASES
Portfolio Segments
The Company has divided the loan portfolio into the following portfolio segments based on risk characteristics:
Construction, land development and other land loans - Commercial construction, land and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, loans for the purchase and improvement of raw land and loans primarily for agricultural production that are secured by farmland. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.
Secured by 1-4 family residential properties - These loans include conventional mortgage loans on one-to-four family residential properties. The properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home.
Secured by multi-family residential properties - This portfolio segment includes mortgage loans secured by apartment buildings.
Secured by non-farm, non-residential properties - This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Commercial and industrial loans and leases - This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits may be loans, lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.
Direct consumer - This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.
Branch retail - This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom the Company previously had an established relationship to provide financing for the retail products sold if applicable underwriting standards were met. The collateral securing these loans generally includes personal property items such as furniture, ATVs and home appliances. Loans in this category are no longer being funded, and therefore, the portfolio balance will continue to decrease.
Indirect consumer - This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom the Company has an established relationship to provide financing for the retail products sold if applicable underwriting standards are met. The collateral securing these loans generally includes recreational vehicles, campers, boats, horse trailers and cargo trailers.
As of December 31, 2024 and 2023, the composition of the loan portfolio by portfolio segment was as follows:
December 31, 2024
December 31, 2023
(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans
$
65,537
$
88,140
Secured by 1-4 family residential properties
69,999
76,200
Secured by multi-family residential properties
101,057
62,397
Secured by non-farm, non-residential properties
227,751
213,586
Commercial and industrial loans (1)
44,238
60,515
Consumer loans:
Direct
4,774
5,938
Branch retail
5,558
8,670
Indirect
304,125
306,345
Total loans
823,039
821,791
Allowance for credit losses on loans and leases
10,184
10,507
Net loans (2)
$
812,855
$
811,284
(1)Includes equipment financing leases, totaling $14.2 million and $12.6 million as of December 31, 2024 and 2023, respectively.
(2)Loans are presented net of unearned income and unamortized deferred fees and costs of $0.8 million as of both December 31, 2024 and 2023. In addition, loans are also presented net of unamortized premiums associated with Indirect loans of $10.6 million and $10.2 million as of December 31, 2024 and 2023, respectively.
Accrued interest receivable is not included in the amortized cost basis of the Company's loans held for investment ("LHFI"). As of December 31, 2024 and 2023, accrued interest receivable for LHFI totaled $2.8 million and $3.3 million, respectively, with no related ACL and was reported in the accrued interest line on the accompanying consolidated balance sheet.
The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 56.4% and 53.6% of the portfolio was concentrated in loans secured by real estate as of December 31, 2024 and 2023, respectively.
Loans with a carrying value of $92.6 million and $98.6 million were pledged as collateral to secure Federal Home Loan Bank ("FHLB") borrowings as of December 31, 2024 and 2023, respectively. In addition, loans with a carrying value of $285.2 million and $294.4 million were pledged to secure borrowings with the Federal Reserve Bank ("FRB") as of December 31, 2024 and 2023, respectively.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Related Party Loans
In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with unrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments as of December 31, 2024 and 2023 were $11.4 million and $1.4 million, respectively. The year over year increase resulted primarily from new board membership. During the year ended December 31, 2024, a line of credit agreement with a related party with an available balance of $0.1 million expired and was not renewed at the direction of the borrower. During the year ended December 31, 2024, there were new loans of $1.4 million to these parties, and repayments made of $1.4 million by active related parties. During the year ended December 31, 2023, there were no new loans to these parties, and no repayments made by active related parties.
Allowance for Credit Losses
Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases held for investment, as well as off-balance sheet credit exposures including unfunded lending commitments. In accordance with the CECL accounting guidance, the Company recorded a cumulative-effect adjustment totaling $2.4 million, of which $1.8 million (net of tax) was recorded through retained earnings upon adoption of the model. This amount included estimates for credit losses associated with both loan and lease receivables, as well as unfunded lending commitments. Prospectively, following the date of adoption, all adjustments for credit losses are required to be recorded as a provision for credit losses in the Company’s consolidated statement of operations.
Allowance for Credit Losses on Loans and Leases
The Company records the allowance for credit losses on loans and leases as a contra-asset valuation account that is deducted from the amortized cost basis of loans and leases held for investment. Loans are charged off against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Recoveries of previously charged off loans are also recorded to the allowance when collected. As of each quarter-end date, the Company evaluates the appropriateness of the allowance for credit losses on loans and leases and adjusts the allowance through the provision for credit losses.
Determining the appropriateness of the allowance for credit losses on loans and leases is complex and requires judgment by management about the effects of matters that are inherently uncertain. The level of the allowance is influenced by loan and lease volumes and mix, historical credit loss experience, estimated remaining life of portfolio segments, asset quality characteristics, delinquency status, and other conditions including reasonable and supportable forecasts of economic conditions and qualitative adjustment factors based on management’s understanding of various attributes that could impact life-of-loan losses as of the balance sheet date. The methodology to estimate losses includes two basic components: (1) an asset-specific component for individual loans that do not share similar risk characteristics with other loans, and (2) a pooled component for estimated expected credit losses for loans that share similar risk characteristics.
Loans that do not share risk characteristics with other loans are evaluated on an individual basis. The process for determining whether a loan should be evaluated on an individual basis begins with a determination of credit rating. All loans graded by management as substandard or worse with a total commitment of $0.5 million or more are evaluated on an individual basis. At management's discretion, other loans may be evaluated, including loans less than $0.5 million, if management determines that the loans exhibit unique risk characteristics. For loans individually evaluated, the allowance is based primarily on the fair value of the underlying collateral, less any estimated costs to sell, as applicable, utilizing independent third-party appraisals, and assessment of borrower guarantees. The fair value is compared to the amortized cost basis of the loan to determine if an allowance for credit losses should be recognized.
For estimating the component of the allowance for credit losses that share similar risk characteristics, loans are segregated into pooled loan categories that share risk characteristics. Loans are designated into pooled categories based on product types, business lines, collateral, and other risk characteristics. For all pooled loan categories, the Company uses a loss-rate methodology to calculate estimated life-of-loan and lease credit losses. This methodology focuses on historical credit loss rates applied over the estimated weighted average remaining life of each loan pool, adjusted by qualitative factors, to estimate life-of-loan losses for each pool. The qualitative factors utilized include, among others, reasonable and supportable forecasts of economic data, including inflation and unemployment levels, as well as interest rates.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Allowance for Credit Losses on Unfunded Lending Commitments
Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection.
As of each quarter-end date, the Company estimates expected credit losses on unfunded lending commitments over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded lending commitments is recorded in other liabilities, and adjustments to the allowance are recorded through the provision for credit losses.
Summary of Allowances for Credit Losses
The following tables present changes in the allowance for credit losses on loans and leases, as well as unfunded lending commitments, by portfolio segment, during the years ended December 31, 2024 and 2023:
As of and for the Year Ended December 31, 2024
Construction,
Land
Development,
and Other
Real Estate
1-4
Family
Real
Estate
Multi-
Family
Non-
Farm Non-
Residential
Commercial and
Industrial
Direct
Consumer
Branch Retail
Indirect
Consumer
Total
(Dollars in Thousands)
Allowance for credit losses on loans and leases:
Beginning balance
$
$
$
$
1,425
$
$
$
$
6,498
$
10,507
Charge-offs
-
(2
)
-
(248
)
(121
)
(62
)
(63
)
(1,318
)
(1,814
)
Recoveries
-
-
Provision for (recovery of) credit losses
(233
)
(239
)
1,137
(253
)
(451
)
Allowance for credit losses on loans and leases
$
$
$
$
1,428
$
1,531
$
$
$
5,802
$
10,184
Allowance for credit losses on unfunded lending commitments:
Beginning balance
$
$
$
$
$
$
$
-
$
-
$
Provision for (recovery of) credit losses on unfunded lending commitments
(170
)
-
(68
)
(3
)
-
-
(193
)
Allowance for credit losses on unfunded lending commitments
$
$
$
$
$
$
$
-
$
-
$
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of and for the Year Ended December 31, 2023
Construction,
Land
Development,
and Other
Real Estate
1-4
Family
Real
Estate
Multi-
Family
Non-
Farm Non-
Residential
Commercial and
Industrial
Direct
Consumer
Branch Retail
Indirect
Consumer
Total
(Dollars in Thousands)
Allowance for credit losses on loans and leases:
Beginning balance
$
$
$
$
1,970
$
$
$
$
3,154
$
9,422
Impact of adopting CECL accounting guidance
(94
)
(39
)
(85
)
(147
)
(20
)
1,833
2,123
Charge-offs
-
(97
)
-
-
-
(571
)
(445
)
(932
)
(2,045
)
Recoveries
-
-
-
-
Provision for (recovery of) credit losses
(159
)
(146
)
(398
)
(386
)
(897
)
(508
)
2,394
Allowance for credit losses on loans and leases
$
$
$
$
1,425
$
$
$
$
6,498
$
10,507
Allowance for credit losses on unfunded lending commitments:
Beginning balance
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Impact of adopting CECL accounting guidance
-
-
Provision for (recovery of) credit losses on unfunded lending commitments
(38
)
-
(63
)
(8
)
-
Allowance for credit losses on unfunded lending commitments
$
$
$
$
$
$
$
-
$
-
$
Credit Quality Indicators
The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, construction, land, multi-family real estate, other commercial real estate, and commercial and industrial loans are graded based on pre-determined risk metrics and categorized into one of nine risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.
•Pass (Risk Grades 1-5): Loans in this category include obligations in which the probability of default is considered low.
•Special Mention (Risk Grade 6): Loans in this category exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than pass-rated categories, its default is not imminent.
•Substandard (Risk Grade 7): Loans in this category have defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.
•Doubtful (Risk Grade 8): Loans classified as doubtful have all of the weaknesses found in substandard loans, with the added characteristic that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable or improbable. Serious problems exist such that partial loss of principal is likely; however, because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Such pending factors may include proposed merger, acquisition or liquidation procedures, capital injection, perfection of liens on additional collateral and refinancing plans. Loans classified as doubtful may include loans to borrowers that have demonstrated a history of failing to live up to agreements.
•Loss (Risk Grade 9): Loans are classified in this category when borrowers are deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectable and of such little value that continuance as active assets of the Company is not warranted. This classification does not mean that the loan has absolutely no recovery or
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
salvage value, but rather that it is not prudent to defer writing off these assets, even though partial recovery may be realized in the future. The Company did not have any loans classified as Loss (Risk Grade 9) as of December 31, 2024 or 2023.
Because residential real estate and consumer loans are more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tables below illustrate the carrying amount of loans by credit quality indicator and year of origination as of December 31, 2024:
December 31, 2024
Loans at Amortized Cost Basis by Origination Year
Prior
Total
(Dollars in Thousands)
Commercial:
Construction, land development and other land loans
Pass
$
$
4,626
$
45,087
$
11,931
$
$
$
62,987
Special Mention
-
-
-
-
-
Substandard
-
2,489
-
-
-
-
2,489
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
$
7,115
$
45,087
$
11,992
$
$
$
65,537
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by multi-family residential properties
Pass
$
7,941
$
8,218
$
42,077
$
17,557
$
5,592
$
19,672
$
101,057
Special Mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
7,941
$
8,218
$
42,077
$
17,557
$
5,592
$
19,672
$
101,057
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by non-farm, non-residential properties
Pass
$
25,251
$
24,906
$
34,930
$
36,793
$
54,527
$
49,681
$
226,088
Special Mention
-
-
-
-
Substandard
-
-
-
1,013
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
25,251
$
24,906
$
35,246
$
37,276
$
55,008
$
50,064
$
227,751
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
$
Commercial and industrial loans and leases
Pass
$
13,458
$
5,562
$
3,499
$
5,189
$
2,888
$
9,963
$
40,559
Special Mention
-
-
-
-
Substandard
-
-
-
-
Doubtful
-
3,284
-
-
-
-
3,284
Loss
-
-
-
-
-
-
-
Subtotal
$
13,458
$
8,846
$
3,529
$
5,251
$
2,888
$
10,266
$
44,238
Current period gross charge-offs
$
-
$
-
$
$
-
$
$
$
Total commercial
Pass
$
47,502
$
43,312
$
125,593
$
71,470
$
63,048
$
79,766
$
430,691
Special Mention
-
-
-
Substandard
-
2,489
-
3,807
Doubtful
-
3,284
-
-
-
-
3,284
Loss
-
-
-
-
-
-
-
$
47,502
$
49,085
$
125,939
$
72,076
$
63,529
$
80,452
$
438,583
Current period gross charge-offs
$
-
$
-
$
$
-
$
$
$
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2024
Loans at Amortized Cost Basis by Origination Year
Prior
Total
(Dollars in Thousands)
Consumer:
Secured by 1-4 family residential properties
Performing
$
4,559
$
3,525
$
18,060
$
14,746
$
5,884
$
21,612
$
68,386
Non-performing
-
-
-
-
-
1,613
1,613
Subtotal
$
4,559
$
3,525
$
18,060
$
14,746
$
5,884
$
23,225
$
69,999
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
$
Direct
Performing
$
2,397
$
1,077
$
$
$
$
$
4,774
Non-performing
-
-
-
-
-
-
-
Subtotal
$
2,397
$
1,077
$
$
$
$
$
4,774
Current period gross charge-offs
$
-
$
-
$
$
$
$
$
Branch retail
Performing
$
-
$
-
$
-
$
1,232
$
1,818
$
2,508
$
5,558
Non-performing
-
-
-
-
-
-
-
Subtotal
$
-
$
-
$
-
$
1,232
$
1,818
$
2,508
$
5,558
Current period gross charge-offs
$
-
$
-
$
-
$
$
$
$
Indirect
Performing
$
54,546
$
72,461
$
74,514
$
54,672
$
40,090
$
7,842
$
304,125
Non-performing
-
-
-
-
-
-
-
Subtotal
$
54,546
$
72,461
$
74,514
$
54,672
$
40,090
$
7,842
$
304,125
Current period gross charge-offs
$
$
$
$
$
$
$
1,318
Total consumer
Performing
$
61,502
$
77,063
$
93,004
$
71,137
$
48,075
$
32,062
$
382,843
Non-performing
-
-
-
-
-
1,613
1,613
$
61,502
$
77,063
$
93,004
$
71,137
$
48,075
$
33,675
$
384,456
Current period gross charge-offs
$
$
$
$
$
$
$
1,445
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tables below illustrate the carrying amount of loans by credit quality indicator and year of origination as of December 31, 2023:
December 31, 2023
Loans at Amortized Cost Basis by Origination Year
Prior
Total
(Dollars in Thousands)
Commercial:
Construction, land development and other land loans
Pass
$
7,913
$
37,068
$
41,800
$
$
-
$
$
88,140
Special Mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
7,913
$
37,068
$
41,800
$
$
-
$
$
88,140
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by multi-family residential properties
Pass
$
$
29,683
$
5,950
$
5,676
$
7,063
$
13,618
$
62,397
Special Mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
$
29,683
$
5,950
$
5,676
$
7,063
$
13,618
$
62,397
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by non-farm, non-residential properties
Pass
$
26,521
$
36,141
$
23,551
$
56,404
$
18,127
$
46,261
$
207,005
Special Mention
-
1,776
-
1,448
4,100
Substandard
-
-
-
-
2,329
2,481
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
26,521
$
36,673
$
25,327
$
56,900
$
18,127
$
50,038
$
213,586
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and industrial loans
Pass
$
10,948
$
6,187
$
14,586
$
2,593
$
1,565
$
22,614
$
58,493
Special Mention
-
-
1,153
Substandard
-
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
Subtotal
$
10,948
$
6,462
$
15,559
$
2,826
$
1,863
$
22,857
$
60,515
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total commercial
Pass
$
45,789
$
109,079
$
85,887
$
65,477
$
26,755
$
83,048
$
416,035
Special Mention
-
2,558
1,448
5,253
Substandard
-
2,572
3,350
Doubtful
-
-
-
-
-
-
-
Loss
-
-
-
-
-
-
-
$
45,789
$
109,886
$
88,636
$
66,206
$
27,053
$
87,068
$
424,638
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2023
Loans at Amortized Cost Basis by Origination Year
Prior
Total
(Dollars in Thousands)
Consumer:
Secured by 1-4 family residential properties
Performing
$
4,230
$
20,172
$
14,986
$
6,675
$
8,950
$
20,334
$
75,347
Non-performing
-
-
-
-
-
Subtotal
$
4,230
$
20,172
$
14,986
$
6,675
$
8,950
$
21,187
$
76,200
Current period gross charge-offs
$
-
$
-
$
-
$
-
$
-
$
$
Direct consumer
Performing
$
2,383
$
1,157
$
1,485
$
$
$
$
5,938
Non-performing
-
-
-
-
-
-
-
Subtotal
$
2,383
$
1,157
$
1,485
$
$
$
$
5,938
Current period gross charge-offs
$
$
$
$
$
$
$
Branch retail
Performing
$
-
$
-
$
2,160
$
2,696
$
1,572
$
2,242
$
8,670
Non-performing
-
-
-
-
-
-
-
Subtotal
$
-
$
-
$
2,160
$
2,696
$
1,572
$
2,242
$
8,670
Current period gross charge-offs
$
-
$
-
$
$
$
$
$
Indirect consumer
Performing
$
88,688
$
89,376
$
66,147
$
50,883
$
5,485
$
5,712
$
306,291
Non-performing
-
-
-
-
-
Subtotal
$
88,688
$
89,376
$
66,201
$
50,883
$
5,485
$
5,712
$
306,345
Current period gross charge-offs
$
$
$
$
$
$
$
Total consumer:
Performing
$
95,301
$
110,705
$
84,778
$
60,829
$
16,232
$
28,401
$
396,246
Non-performing
-
-
-
-
$
95,301
$
110,705
$
84,832
$
60,829
$
16,232
$
29,254
$
397,153
Current period gross charge-offs
$
$
$
$
$
$
$
2,045
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides an aging analysis of past due loans by portfolio segment as of December 31, 2024:
As of December 31, 2024
30-59
Days
Past
Due
60-89
Days
Past
Due
Days
Or
Greater
Total
Past
Due
Current
Total
Loans
Recorded
Investment >
90 Days
And
Accruing
(Dollars in Thousands)
Loans secured by real estate:
Construction, land development
and other land loans
$
-
$
-
$
-
$
-
$
65,537
$
65,537
$
-
Secured by 1-4 family residential
properties
-
-
69,484
69,999
-
Secured by multi-family residential
properties
-
-
-
-
101,057
101,057
-
Secured by non-farm, non-residential
properties
-
-
-
-
227,751
227,751
-
Commercial and industrial loans
3,317
-
-
3,317
40,921
44,238
-
Consumer loans:
Direct
-
-
4,759
4,774
-
Branch retail
-
-
5,554
5,558
Indirect
-
303,593
304,125
-
Total
$
4,336
$
$
-
$
4,383
$
818,656
$
823,039
$
-
As a percentage of total loans
0.52
%
0.01
%
0.00
%
0.53
%
99.47
%
100.00
%
The following table provides an aging analysis of past due loans by portfolio segment as of December 31, 2023:
As of December 31, 2023
30-59
Days
Past
Due
60-89
Days
Past
Due
Days
Or
Greater
Total
Past
Due
Current
Total
Loans
Recorded
Investment >
90 Days
And
Accruing
(Dollars in Thousands)
Loans secured by real estate:
Construction, land development
and other land loans
$
-
$
-
$
-
$
-
$
88,140
$
88,140
$
-
Secured by 1-4 family residential
properties
1,020
75,180
76,200
-
Secured by multi-family residential
properties
-
-
-
-
62,397
62,397
-
Secured by non-farm, non-residential
properties
-
-
1,302
1,302
212,284
213,586
-
Commercial and industrial loans
60,245
60,515
-
Consumer loans:
Direct
-
-
5,896
5,938
-
Branch retail
-
8,630
8,670
Indirect
305,942
306,345
-
Total
$
1,306
$
$
1,526
$
3,077
$
818,714
$
821,791
$
-
As a percentage of total loans
0.15
%
0.03
%
0.19
%
0.37
%
99.63
%
100.00
%
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tables below present the amortized cost of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of December 31, 2024 and 2023.
Loans on Non-Accrual Status
December 31, 2024
(Dollars in Thousands)
Total nonaccrual
loans
Nonaccrual loans with no allowance for credit losses
Loans past due 90 days or more and still accruing
Loans secured by real estate:
Construction, land development and other land loans
$
-
$
-
$
-
Secured by 1-4 family residential properties
-
Secured by multi-family residential properties
-
-
-
Secured by non-farm, non-residential properties
-
-
-
Commercial and industrial loans
3,284
-
-
Consumer loans:
Direct
-
-
-
Branch retail
-
-
-
Indirect
-
-
-
Total loans
$
3,949
$
$
-
Loans on Non-Accrual Status
December 31, 2023
(Dollars in Thousands)
Total nonaccrual
loans
Nonaccrual loans with no allowance for credit losses
Loans past due 90 days or more and still accruing
Loans secured by real estate:
Construction, land development and other land loans
$
-
$
-
$
-
Secured by 1-4 family residential properties
-
Secured by multi-family residential properties
-
-
-
Secured by non-farm, non-residential properties
1,302
1,314
-
Commercial and industrial loans
-
Consumer loans:
Direct
-
-
-
Branch retail
-
-
-
Indirect
-
-
Total loans
$
2,400
$
1,853
$
-
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables present the amortized cost basis of collateral dependent loans as of December 31, 2024 and 2023, which loans are individually evaluated to determine credit losses:
December 31, 2024
Real Estate
Other
Total
(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans
$
-
$
2,489
$
2,489
Secured by 1-4 family residential properties
1,402
-
1,402
Secured by multi-family residential properties
-
-
-
Secured by non-farm, non-residential properties
-
Commercial and industrial
-
3,327
3,327
Direct consumer
-
-
-
Total loans individually evaluated
$
1,785
$
5,816
$
7,601
December 31, 2023
Real Estate
Other
Total
(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans
$
-
$
-
$
-
Secured by 1-4 family residential properties
-
Secured by multi-family residential properties
-
-
-
Secured by non-farm, non-residential properties
2,333
-
2,333
Commercial and industrial
-
Direct consumer
-
-
-
Total loans individually evaluated
$
2,818
$
$
2,930
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
From time to time, the Company may modify the terms of loan agreements with borrowers that are experiencing financial difficulties. Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modifications in 2024 or 2023 resulted in the permanent reduction of the recorded investment in the loan.
During the years ended December 31, 2024 and 2023, the Company did not modify any loans to borrowers experiencing financial difficulty, and there were no payment defaults on loans that were modified in the previous twelve months.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5.OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS
Other Real Estate Owned
Other real estate and certain other assets acquired in foreclosure are reported at the net realizable value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity during the years ended December 31, 2024 and 2023:
December 31,
December 31,
(Dollars in Thousands)
Beginning balance
$
$
Additions(1)
1,027
-
Sales proceeds
-
(15
)
Gross gains
-
Gross losses
-
(6
)
Net gains
-
(5
)
Impairment
(120
)
(64
)
Ending balance
$
1,509
$
(1)Additions to other real estate owned (“OREO”) may include transfers from loans, transfers from closed branches, and capitalized improvements to existing OREO properties.
Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are the result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. Net realizable value less estimated costs to sell of foreclosed residential real estate held by the Company was zero as of both December 31, 2024 and 2023. In addition, the Company did not hold any consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of both December 31, 2024 and 2023.
Repossessed Assets
The Company also acquires assets through the repossession of the underlying collateral of loans in default. Total repossessed assets as of December 31, 2024 and 2023 were $0.2 million and $0.3 million, respectively. Repossessed assets are included in other assets in the Company’s consolidated balance sheets.
6.GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is tested for impairment annually, or more often if circumstances warrant. If, as a result of impairment testing, it is determined that the fair value of goodwill is lower than its carrying amount, goodwill must be written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. Goodwill totaled $7.4 million as of both December 31, 2024 and 2023. Goodwill impairment was neither indicated nor recorded during the years ended December 31, 2024 and 2023.
Core deposit premiums are amortized over a seven-year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value. No write-downs of core deposit premiums were recorded by the Company during the years ended December 31, 2024 and 2023.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company’s goodwill and other intangible assets (carrying basis and accumulated amortization) as of December 31, 2024 and 2023 were as follows:
December
31, 2024
December
31, 2023
(Dollars in
Thousands)
(Dollars in
Thousands)
Goodwill
$
7,435
$
7,435
Core deposit intangible assets:
Gross carrying amount
2,048
2,048
Accumulated amortization
(1,999
)
(1,877
)
Core deposit intangible, net
Total
$
7,484
$
7,606
The Company’s estimated remaining amortization expense on intangible assets as of December 31, 2024 was as follows:
Amortization
Expense
(Dollars in
Thousands)
$
Total
$
The net carrying amount of the Company’s core deposit assets is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use and eventual disposition. That assessment is based on the carrying amount of the intangible assets subject to amortization at the date on which it is tested for recoverability. Intangible assets subject to amortization are tested by the Company for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
7.PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
(Dollars in Thousands)
Land
$
5,390
$
5,390
Premises
24,798
24,798
Furniture, fixtures and equipment
16,972
16,065
Construction in progress
Total cost of premises and equipment
48,051
46,412
Less accumulated depreciation
(23,248
)
(22,014
)
Total premises and equipment, net
$
24,803
$
24,398
Depreciation expense of $1.6 was recorded in both 2024 and 2023.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8.DEPOSITS
As of December 31, 2024, the scheduled maturities of the Company’s time deposits were as follows:
(Dollars in
Thousands)
$
264,805
32,714
26,682
8,689
2029 and after
2,195
Total
$
335,085
Time deposits greater than $250 thousand totaled $62.5 million and $48.0 million as of December 31, 2024 and 2023, respectively. Included in deposits, the Company held brokered certificates of deposit totaling $72.4 million and $82.7 million as of December 31, 2024 and 2023, respectively. Deposits from related parties held by the Company totaled $12.0 million and $4.9 million as of December 31, 2024 and 2023, respectively.
9.BORROWINGS
Short-Term Borrowings
Short-term borrowings may consist of federal funds purchased, securities sold under repurchase agreements, and short-term FHLB advances with original maturities of one year or less.
•Federal funds purchased, which represent unsecured lines of credit that generally mature within one to 90 days, are available to the Bank through arrangements with correspondent banks and the FRB. As of both December 31, 2024 and 2023, there were no federal funds purchased outstanding.
•Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. The Bank monitors the fair value of the underlying securities on a daily basis. There were no securities sold under repurchase agreements as of December 31, 2024 and 2023.
•Short-term FHLB advances are secured borrowings available to the Bank as an alternative funding source. As of both December 31, 2024 and 2023, the Bank had $10.0 million in outstanding FHLB advances with original maturities of less than one year.
Long-Term Borrowings
FHLB Advances
The Company may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. As of both December 31, 2024 and 2023, the Company did not have any long-term FHLB advances outstanding.
Subordinated Debt
On October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031 (the “Notes”). The Notes bear interest at a rate of 3.50% per annum for the first five years; then the interest rate will be reset quarterly to a benchmark interest rate per annum which, subject to certain conditions provided in the Notes, will be equal to the then current three-month term Secured Overnight
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financing Rate (“SOFR”) plus 275 basis points. The Company has used and expects to continue to use, the net proceeds for general corporate purposes, which may include the repurchase of the Company’s common stock, and to support organic growth plans, including the maintenance of capital ratios. Following receipt of the net proceeds of the Notes, the Company invested $5.0 million into capital surplus of the Bank. Net of unamortized debt issuance costs, the Notes were recorded as long-term borrowings totaling $10.9 million and $10.8 million, as of December 31, 2024 and 2023, respectively.
(Dollars in Thousands)
Balance at year-end
$
10,872
$
10,799
Average balance during the year
$
10,836
$
10,766
Maximum month-end balance during the year
$
10,872
$
10,799
Average rate paid during the year, including amortization of debt issuance costs
4.20
%
4.20
%
Weighted average remaining maturity (in years)
6.75
7.75
Available Credit
As an additional funding source, the Company has available unused lines of credit with correspondent banks, the FRB and the FHLB. Certain of these funding sources are subject to underlying collateral availability. As of December 31, 2024 and 2023, the Company’s available unused lines of credit consisted of the following:
Available Unused Lines of Credit
Collateral Requirements
December 31, 2024
December 31, 2023
Correspondent banks
None
$48.0 million
$48.0 million
FHLB advances (1)
Subject to collateral
$319.9 million
$279.4 million
FRB (2)
Subject to collateral
$165.1 million
$161.7 million
(1)These amounts represent the total remaining credit the Company has from the FHLB, but this credit can only be utilized to the extent that underlying collateral exists. The total lendable collateral value of assets pledged (including loans and investment securities) associated with FHLB advances and letters of credit totaled $55.4 million and $61.7 million as of December 31, 2024 and 2023, respectively. The Company’s collateral exposure with the FHLB in the form of advances and letters of credit was $10.0 million and $40.0 million as of December 31, 2024 and 2023, respectively, leaving an excess of collateral of $45.4 million and $21.7 million available to utilize for additional credit as of the respective dates. The Company also has the ability to pledge additional assets to increase the availability of borrowings.
(2)The Company has access to the FRB's discount window, which allows borrowing on pledged collateral that includes eligible investment securities and loans under 90-day terms. The amounts shown in the table represent the Company's unused borrowing capacity as of the applicable date based on collateral pledged to the FRB's discount window.
10.INCOME TAXES
The consolidated provisions for income taxes for the years ended December 31, 2024 and 2023 were as follows:
(Dollars in Thousands)
Federal
Current
$
1,458
$
2,121
Deferred
Total federal
1,996
2,191
State
Current
Deferred
Total state
Total
$
2,584
$
2,786
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The consolidated tax expense differed from the amount computed by applying the Company’s federal statutory income tax rate of 21.0% in 2024 and 2023 as described in the following table:
(Dollars in Thousands)
Income tax expense at federal statutory rate
$
2,258
$
2,368
Increase (decrease) resulting from:
Tax-exempt interest
(52
)
(55
)
Bank-owned life insurance
(74
)
(64
)
State income tax expense, net of federal income taxes
Apportionment and state rate changes
Other
(81
)
Total
$
2,584
$
2,786
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2024 and 2023 are presented below:
(Dollars in Thousands)
Deferred tax assets:
Allowance for credit losses
$
2,657
$
2,719
Deferred compensation
Deferred commissions and fees
Unrealized loss on securities available-for-sale
1,676
2,332
Other
1,000
Total gross deferred tax assets
6,004
7,240
Deferred tax liabilities:
Premises and equipment
1,329
1,284
Core deposit intangible
Limited partnerships
Unrealized gain on cash flow hedges
Other
Total gross deferred tax liabilities
1,940
1,898
Net deferred tax asset, included in other assets
$
4,064
$
5,342
The Company did not have any federal or state net operating loss carryforwards as of December 31, 2024 or December 31, 2023. The Company files income tax returns with the federal government and several states. The majority of its income is attributable to the states of Alabama and Tennessee. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the states in which it filed for the years ended December 31, 2021 through 2024.
As of December 31, 2024, the Company had no unrecognized tax benefits related to federal or state income tax matters and does not anticipate any material increase or decrease in unrecognized tax benefits relative to any tax positions taken prior to December 31, 2024. As of December 31, 2024, the Company had accrued no interest and no penalties related to uncertain tax positions.
11.EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan (the “401(k) Plan”). The 401(k) Plan allows participants to defer a portion of their compensation on a pre-tax basis, subject to the statutory annual contribution limit. For 2024 and 2023, the Company made “safe harbor” contributions on behalf of participants in the form of a match that was equal to 100% of each participant’s elective deferrals, up to a maximum of 4% of the participant’s eligible compensation. The 401(k) Plan also allows the Company to make discretionary matching contributions on behalf of participants equal to 2% of each participant’s elective deferrals. No discretionary match was made in 2024 or 2023. The Company’s matching contributions to the 401(k) Plan totaled $0.4 million in both 2024 and 2023.
Participants can elect to invest up to 20% of incoming contributions (measured at the time of investment) in the 401(k) Plan in the form of Company stock. The 401(k) Plan held 119,915 and 170,910 shares of Company stock as of December 31, 2024 and
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2023, respectively. These shares are allocated to participants in the 401(k) Plan and, accordingly, are included in the earnings per share calculations.
12.DEFERRED COMPENSATION PLANS
Supplemental Retirement Benefits
The Company has entered into separate supplemental retirement compensation benefits agreements with certain non-employee directors and former executive officers. These agreements are structured as nonqualified retirement plans for federal income tax purposes. The Company’s obligation under these agreements is accrued as deferred compensation in accordance with the terms of the individual contracts over the required service period to the date the employee is eligible to receive benefits. The Company’s deferred compensation obligation under these agreements totaled $2.7 million and $2.9 million as of December 31, 2024 and 2023, respectively.
Non-Employee Directors' Deferred Compensation Plan
Non-employee directors may elect to defer payment of all or any portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of December 31, 2024 and 2023, a total of 108,190 shares and 113,042 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors’ fees allocated to be paid in shares as additional paid-in capital. The Company may use issued shares or shares of treasury stock to satisfy these obligations when due.
13.STOCK AWARDS
In 2013, Bancshares’ shareholders authorized the Company to provide share-based compensation awards to eligible employees, directors and consultants of the Company and its affiliates pursuant to the 2013 Incentive Plan. Available award types included stock options, stock appreciation rights, restricted stock and restricted stock units, and performance share awards. The 2013 Incentive Plan, as amended in 2019, expired in March 2023. In April 2023, Bancshares’ shareholders approved the 2023 Incentive Plan, which authorizes the Compensation Committee of the Board of Directors to grant substantially the same types of share-based awards to eligible employees, directors and consultants. Collectively, the 2013 Incentive Plan and the 2023 Incentive Plan are herein referred to as the Company’s “Incentive Plan.” In accordance with the Incentive Plan, shares of common stock available for issuance pursuant to the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Since the origination of the Incentive Plan, through December 31, 2024, only stock options and restricted stock have been granted. Stock-based compensation expense related to stock awards totaled $0.6 million and $0.5 million for the years ended December 31, 2024 and 2023, respectively.
Stock Options
Stock option awards have been granted with an exercise price equal to the market price of the Company’s common stock on the date of the grant and have vesting periods ranging from one to three years, with 10-year contractual terms. The Company recognizes the cost of services received in exchange for stock option awards based on the grant date fair value of the award, with compensation expense recognized on a straight-line basis over the award’s vesting period. The fair value of outstanding awards was determined using the Black-Scholes option pricing model at the date of grant. The Company did not grant any stock option awards during the years ended December 31, 2024 and 2023.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Company’s stock option activity for the periods presented.
Year Ended
December 31, 2024
December 31, 2023
Number of
Shares
Weighted-Average
Exercise
Price
Number of
Shares
Weighted-Average
Exercise
Price
Options:
Outstanding, beginning of year
411,900
$
9.77
419,650
$
9.79
Granted
-
-
-
-
Exercised
136,050
8.19
8.00
Forfeited
7,600
8.09
7,250
10.82
Options outstanding, end of year
268,250
$
10.62
411,900
$
9.77
Options exercisable, end of year
268,250
$
10.62
411,900
$
9.77
The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was $0.6 million and $0.5 million as of December 31, 2024 and 2023, respectively.
Restricted Stock
During the years ended December 31, 2024 and 2023, 55,300 shares and 57,300 shares, respectively, of restricted stock were granted. Awards granted to employees had a three-year vesting period, while awards granted to non-employee directors had a one-year vesting period. The Company recognizes the cost of services received in exchange for restricted stock awards based on the grant date closing price of the stock, with compensation expense recognized on a straight-line basis over the award’s vesting period.
The following table summarizes the Company's restricted stock award activity for the periods presented.
Year Ended
December 31, 2024
December 31, 2023
Number of
Shares
Weighted-Average Grant-Date
Fair Value
Number of
Shares
Weighted-Average Grant-Date
Fair Value
Restricted stock awards:
Nonvested shares, beginning of year
86,443
$
10.03
71,348
$
10.51
Granted
55,300
10.41
57,300
9.85
Released from restriction
47,644
9.96
38,320
10.64
Forfeited
1,500
10.41
3,885
10.11
Nonvested shares, end of year
92,599
$
10.29
86,443
$
10.03
14.SHAREHOLDERS’ EQUITY
As of December 31, 2024, shareholders’ equity totaled $98.6 million, or 9.0% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023.
During the year ended December 31, 2024 the Company completed repurchases of 146,500 shares of its common stock at a weighted average price of $11.22 per share, or $1.6 million in aggregate. The repurchased shares were allocated to treasury stock under the Company’s previously announced share repurchase program, which was expanded in 2024 to authorize the purchase of 600,000 additional shares. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company’s discretion. As of December 31, 2024, 912,813 shares remained available for repurchase under the program.
During the year ended December 31, 2024, the Company declared dividends totaling $0.22 per common share, or approximately $1.3 million in aggregate amount, compared to $0.20 per common share, or approximately $1.2 million in aggregate amount, during the year ended December 31, 2023. Dividends are paid at the discretion of the Company’s Board of Directors, based on the Company’s operating performance and financial position, including earnings, capital and liquidity. Dividends from the Bank are the Company’s primary source of funds for the payment of dividends to shareholders. In addition, federal and state regulatory agencies have the authority to prevent the Company from paying a dividend to shareholders.
Regulatory Capital
The Bank is subject to the revised capital requirements as described in the section captioned “Supervision and Regulation - Capital Adequacy” included in Part I, Item I of this report. Under these requirements, the Bank is subject to minimum risk-based capital and leverage capital requirements, which are administered by the federal bank regulatory agencies. These capital requirements, as defined by federal regulations, involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Bank and Bancshares, and could impact Bancshares’ ability to pay dividends. The Bank’s minimum risk-based capital requirements include the fully implemented capital conservation buffer of 2.50%. As of both December 31, 2024 and 2023, the Bank exceeded all applicable minimum capital standards. In addition, the Bank met applicable regulatory guidelines to be considered well-capitalized as of both December 31, 2024 and 2023. To be categorized in this manner, the Bank maintained common equity Tier 1 risk-based capital, Tier 1 risk-based capital, total risk-based capital and Tier 1 leverage ratios as set forth in the tables below. In addition, the Bank was not subject to any written agreement, order, capital directive or prompt corrective action directive issued by its primary federal regulator to meet and maintain a specific level for any capital measures.
The following tables provide the Bank’s actual regulatory capital amounts and ratios under regulatory capital standards in effect (Basel III) at December 31, 2024 and 2023:
Actual Regulatory Capital
Minimum
To Be Well
Amount
Ratio
Requirement
Capitalized
(Dollars in Thousands)
Common equity Tier 1 capital (to risk-weighted assets)
$
103,027
11.31
%
7.00
%
6.50
%
Tier 1 capital (to risk-weighted assets)
103,027
11.31
%
8.50
%
8.00
%
Total capital (to risk-weighted assets)
113,587
12.47
%
10.50
%
10.00
%
Tier 1 leverage (to average assets)
103,027
9.50
%
4.00
%
5.00
%
Actual Regulatory Capital
Minimum
To Be Well
Amount
Ratio
Requirement
Capitalized
(Dollars in Thousands)
Common equity Tier 1 capital (to risk-weighted assets)
$
98,220
10.88
%
7.00
%
6.50
%
Tier 1 capital (to risk-weighted assets)
98,220
10.88
%
8.50
%
8.00
%
Total capital (to risk-weighted assets)
109,296
12.11
%
10.50
%
10.00
%
Tier 1 leverage (to average assets)
98,220
9.36
%
4.00
%
5.00
%
No significant conditions or events have occurred since December 31, 2024 that management believes have affected the Bank’s classification as “well-capitalized.” Because of the size of the Company’s balance sheet, there is currently no requirement for separate reporting of capital amounts and ratios for Bancshares. Accordingly, such amounts and ratios are not included.
Under the FDIC’s final rule establishing the methodology for calculating deposit insurance assessments for banks with less than $10 billion in assets, the rate is determined based on a number of factors, including the bank’s CAMELS ratings, leverage ratio, net income, non-performing loan ratios, OREO ratios, core deposit ratios, one-year organic asset growth and a loan mix index. The CAMELS rating system is a supervisory rating system developed to classify a bank’s overall condition by taking into account capital adequacy, assets, management capability, earnings, liquidity and sensitivity to market and interest rate risk. The
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
loan mix index component of the assessment model requires banks to calculate each of their loan categories as a percentage of assets and then multiply each category by a standardized historical charge-off rate percentage provided by the FDIC, with a higher index leading to a higher assessment rate. The rule implements maximum assessment rates for institutions with a composite CAMELS rating of 1 or 2 and minimum rates for institutions with a rating of 3, 4 or 5.
Dividend Restrictions
Under Delaware law, dividends may be paid only out of “surplus,” defined as an amount equal to the present fair value of the total assets of the corporation, minus the present fair value of the total liabilities of the corporation, minus the capital of the corporation. In the event that there is no surplus, dividends may be paid out of the net profits of the corporation for the fiscal year in which the dividend is declared and/or the immediately preceding fiscal year. Dividends may not be paid, however, out of net profits of the corporation if the capital represented by the issued and outstanding stock of all classes having a preference on the distribution of assets is impaired. Further, the Federal Reserve permits bank holding companies to pay dividends only out of current earnings and only if future retained earnings would be consistent with the company’s capital, asset quality and financial condition.
Since it has no significant independent sources of income, Bancshares’ ability to pay dividends depends on its ability to receive dividends from the Bank. Under Alabama law, a state-chartered bank must annually transfer to surplus at least 10% of its “net earnings” (defined as the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, less all current operating expenses, actual losses, accrued dividends on preferred stock and all federal, state and local taxes) until the bank’s surplus is at least 20% of its capital. Until the bank’s surplus reaches this level, a bank may not declare a dividend in excess of 90% of its net earnings. Once a bank’s surplus equals or exceeds 20% of its capital, if the total of all dividends declared by the bank in a calendar year will exceed the sum of its net earnings for that year and its retained net earnings for the preceding two years (less any required transfers to surplus), then the bank must obtain prior written approval from the Superintendent of the Alabama State Banking Department. The bank may not pay any dividends or make any withdrawals or transfers from surplus without the prior written approval of the Superintendent. The FDIC prohibits the payment of cash dividends if (1) as a result of such payment, the bank would be undercapitalized or (2) the bank is in default with respect to any assessment due to the FDIC, including a deposit insurance assessment. These restrictions could materially influence the Bank’s, and therefore Bancshares’, ability to pay dividends.
15.LEASES
The Company is involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from two years to nine years, some of which include options to extend the leases for up to five years, and some of which include an option to terminate the lease within one year. The Bank also leases certain office facilities to third parties and classifies these leases as operating leases.
The following table provides a summary of the components of lease income and expense, as well as the reporting location in the consolidated statements of operations for the years ended December 31, 2024 and 2023:
Year Ended
Location
December 31,
December 31,
(Dollars in Thousands)
Operating lease income (1)
Lease income
$
1,033
$
Operating lease expense (2)
Net occupancy and equipment
$
$
(1)Operating lease income includes rental income from owned properties.
(2)Includes short-term lease costs. For the years ended December 31, 2024 and 2023, short-term lease costs were nominal in amount.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides supplemental lease information for operating leases on the consolidated balance sheets as of December 31, 2024 and 2023:
Location
December 31,
December 31,
(Dollars in
Thousands)
(Dollars in
Thousands)
Operating lease right-of-use assets
Other assets
$
1,921
$
2,019
Operating lease liabilities
Other liabilities
$
1,972
$
2,055
Weighted-average remaining lease term (in years)
5.14
6.37
Weighted-average discount rate
4.08
%
4.10
%
The following table provides supplemental lease information for the consolidated statements of cash flows for the years ended December 31, 2024 and 2023:
Year Ended
December 31,
December 31,
(Dollars in Thousands)
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
$
The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of December 31, 2024:
Minimum
Rental Payments
(Dollars in
Thousands)
$
2030 and thereafter
Total future minimum lease payments
$
2,337
Less: Imputed interest
Total
$
1,972
16.DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amounts, sources, and duration of assets and liabilities. The Company uses interest rate derivative instruments to minimize unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk management strategy generally involves modifying the repricing characteristics of certain assets and liabilities to mitigate negative impacts on net interest margin and/or cash flow. Interest rate derivative instruments utilized by the Company generally include interest rate swap contracts or option contracts, such as caps and floors. The Company’s existing credit derivatives are associated with loan participation arrangements, and are not used by the Company to manage interest rate risk in the Company’s assets or liabilities. The fair values of derivative instruments are carried in the Company’s consolidated balance sheets as assets and/or liabilities. The Company does not use derivatives for speculative purposes and generally enters into transactions that have a qualifying hedge relationship. When hedge accounting is used, derivatives are classified as either cash flow hedges or fair value hedges. The Company may also enter into derivative contracts that are not designated as hedges in order to mitigate economic risks or risks associated with volatility in connection with customer derivative transactions.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash Flow Hedges
In August 2024, the Company entered into two forward starting interest rate swap contracts with the objective of protecting the Company against variability in expected future cash flows attributed to changes in the SOFR interest rate on the designated notional of interest-bearing liabilities. Each of the contracts has a $20 million notional amount, or $40 million in aggregate. The interest rate swaps were designated as derivative instruments in cash flow hedges. In accordance with the related contracts, the Company pays a fixed interest rate and receives a variable interest rate based on the SOFR, on the notional amounts, with quarterly net settlements. The interest rate swap contracts are scheduled to terminate on September 6, 2027 and March 15, 2028. As of December 31, 2024, the hedge relationships for both swaps were designated effective, and accordingly, changes in the fair value of the contracts were included as an adjustment to accumulated other comprehensive income.
Fair Value Hedges
In June 2023, the Company entered into three forward interest rate swap contracts on a pool of fixed rate indirect consumer loans. Each of the three contracts has a $10.0 million notional amount, or $30.0 million in aggregate. The interest rate swaps were designated as derivative instruments in fair value hedges with the objective of effectively converting a pool of fixed rate indirect consumer loans to a variable rate throughout the hedge durations in accordance with the portfolio layer method. In accordance with the related contracts, for each swap, the Company pays a fixed interest rate and receives a variable interest rate based on the SOFR, on the notional amounts, with monthly net settlements. The three swap contracts are scheduled to terminate at different maturity dates, including December 1, 2025, December 1, 2026, and June 1, 2027. As of both December 31, 2024 and December 31, 2023, the hedge relationships for all three swaps were designated effective, and accordingly, changes in the fair value of the contracts were included as adjustment to the underlying fixed rate consumer loans.
Interest Rate Floors
In March 2024, the Company entered into two interest rate floor contracts, each with a notional amount of $25.0 million, or $50.0 million in aggregate. The interest rate floor contracts were not designated as hedging instruments, and accordingly, changes in the fair value of the contracts are being recorded as non-interest income or expense over the term of each contract. Both of the derivative contracts are intended to mitigate the Company’s risk of loss associated with downward shifts in the SOFR. One of the contracts will provide cash flow to the Company in the event the SOFR decreases below 4.0% before the contract’s designated termination date of March 27, 2025, while the other contract will provide cash flow to the Company in the event the SOFR decreases below 3.0% prior to the contract’s designated termination date of March 27, 2026.
Credit Derivatives
During 2024, the Company entered into three credit risk participation agreements with lead participant banks with which the Company shares participation loans. The Company is the guarantor under these agreements to provide reimbursement of losses resulting from a third-party default on the underlying swap. For participating in the agreements, the Company received one-time fees which were included in other liabilities. The derivatives are not eligible for hedge accounting treatment. Accordingly, valuation changes are recorded directly to non-interest income or expense.
Previously Terminated Hedges
In February 2023, the Company voluntarily terminated four interest rate swap contracts, each with notional amounts of $10.0 million, or an aggregate amount of $40.0 million. Two of the swaps were previously designated as cash flow hedges, while two were previously designated as fair value hedges. The termination of the cash flow hedges resulted in a net unrealized gain totaling $1.1 million. The unrealized gain was initially recorded in accumulated other comprehensive income, net of tax, and is being reclassified to reduce interest expense over the original terms of the swap contracts. Remaining unrealized gains associated with these terminated cash flow hedges totaled $0.3 million and $0.7 million as of December 31, 2024 and 2023, respectively. The termination of the fair value hedges resulted in an unrealized gain totaling $1.0 million which is being reclassified to increase interest income over the original terms of the swap contracts. Remaining unrealized gains associated with the fair value hedges totaled zero and $0.4 million as of December 31, 2024 and 2023, respectively.
In May 2022, the Company voluntarily terminated one interest rate swap contract with a notional amount of $10.0 million. The swap was previously designated as a cash flow hedge. The termination resulted in a net unrealized gain of $0.3 million. The unrealized gain was initially recorded in accumulated other comprehensive income, net of tax, and was reclassified to reduce interest expense over the original term of the swap contract. Remaining unrealized gains associated with this terminated cash flow hedge totaled zero and $84 thousand as of December 31, 2024 and 2023, respectively.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presentation
The following table reflects the notional amount and fair value of derivative instruments included on the Company’s consolidated balance sheets on a net basis as of December 31, 2024 and 2023.
As of December 31, 2024
As of December 31, 2023
Estimated
Estimated
Fair Value
Fair Value
Notional Amount
Gain (Loss) (1)
Notional Amount
Gain (Loss) (1)
(Dollars in Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to fixed rate indirect consumer loans
$
30,000
$
$
30,000
$
(119
)
Total fair value hedges
(119
)
Cash flow hedges:
Interest rate swaps related to interest-bearing liabilities
$
40,000
$
$
-
$
-
Total cash flow hedges
-
Total derivatives designated as hedging instruments, net
(119
)
Derivatives not designated as hedging instruments:
Interest rate floors
$
50,000
$
-
-
Credit risk participation agreements
$
15,198
(54
)
$
-
-
Total derivatives not designated as hedging instruments, net
$
(36
)
$
-
(1) Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities in the consolidated balance sheets.
The following table presents the net effects of derivative hedging instruments on the Company’s consolidated statements of operations for the years ended December 31, 2024 and 2023. The effects, which include the reclassification of unrealized gains on terminated swap contracts, are presented as either an increase or decrease to income before income taxes in the relevant caption of the Company’s consolidated statements of operations.
Location in the
Year Ended December 31,
Consolidated Statements
of Operations
(Dollars in Thousands)
Interest income
Interest and fees on loans
$
$
Interest expense
Interest on deposits
Interest expense
Interest on short-term borrowings
Non-interest income
Other non-interest income
-
Non-interest expense
Other non-interest expense
-
Net increase to income before income taxes
$
1,535
$
1,509
17.OTHER OPERATING INCOME AND EXPENSE
Other operating income for the years ended December 31, 2024 and 2023 consisted of the following:
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31,
(Dollars in Thousands)
Bank-owned life insurance
$
$
ATM fee income
Gain on sales of premises and equipment and other assets
-
Other income
Total
$
1,318
$
1,235
Other operating expense for the years ended December 31, 2024 and 2023 consisted of the following:
Year Ended December 31,
(Dollars in Thousands)
Postage, stationery and supplies
$
$
Telephone/data communication
Collection and recoveries
Directors fees
Software amortization
Other real estate/foreclosure expense, net
Other expense
2,280
2,557
Total
$
4,754
$
5,142
18.GUARANTEES, COMMITMENTS AND CONTINGENCIES
Credit
The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments.
In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below:
December 31,
(Dollars in Thousands)
Standby letters of credit
$
-
$
-
Standby performance letters of credit
Commitments to extend credit
120,703
141,121
Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third party. The Bank has recourse against the customer for any amount that it is required to pay to a third party under a standby letter of credit or standby performance letter of credit. Revenues are recognized over the lives of the standby letters of credit and standby performance letters of credit. As of December 31, 2024 and 2023, the potential amounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in these categories, are included in the table above.
A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At each quarter end date, the Company calculates an allowance for unfunded lending commitments, including those described in the table above. The Company's allowance for unfunded lending commitments totaled $0.4 million and $0.6 million as of December 31, 2024 and December 31, 2023, respectively. Additional discussion related to the calculation of the allowance for unfunded lending commitments is included in Note 4, "Loans and Leases".
Self-Insurance
The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates a liability for the ultimate costs to settle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance companies' incurred loss estimates and management’s judgment, including assumptions and evaluation of factors related to the frequency and severity of claims, the Company’s claims development history and the Company’s claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. Self-insurance accruals totaled $0.2 million as of both December 31, 2024 and 2023. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts accrued in the Company’s consolidated financial statements.
Litigation
The Company is party to certain ordinary course litigation from time to time, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.
19.FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows a uniform framework for estimating and classifying the fair value of financial instruments. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. The following disclosures should not be considered a representation of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.
Fair Value Hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
●	Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange or Nasdaq. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
●	Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
●	Level 3 - Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
they occurred at the beginning of a reporting period. There were no such transfers during the years ended December 31, 2024 or 2023.
Fair Value Measurements on a Recurring Basis
Securities Available-for-Sale
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. Level 2 securities include government sponsored agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Derivative Agreements
Derivative agreements include those used by the Company to mitigate risk associated with changes in interest rates, as well as credit derivatives associated with risk participation agreements in certain loans. The fair value of these agreements is based on information obtained from third-party financial institutions. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party valuations. The Company classifies these derivative assets within Level 2 of the valuation hierarchy.
The following table presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023.
Fair Value Measurements as of December 31, 2024 Using
Totals At
December 31,
Quoted Prices
in Active
Markets For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential
$
85,282
$
-
$
85,282
$
-
Commercial
11,920
-
11,920
-
Obligations of U.S. government-sponsored agencies
10,834
-
10,834
-
Obligations of states and political subdivisions
1,549
-
1,549
-
Corporate notes
15,944
15,944
-
U.S. Treasury securities
42,359
42,359
-
-
Derivative contracts:
Other assets - interest rate swaps
-
-
Other assets - interest rate floors
-
-
Other liabilities - credit risk participation agreements
-
-
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value Measurements as of December 31, 2023 Using
Totals At
December 31,
Quoted Prices
in Active
Markets For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential
$
44,728
$
-
$
44,728
$
-
Commercial
9,040
-
9,040
-
Obligations of U.S. government-sponsored agencies
11,280
-
11,280
-
Obligations of states and political subdivisions
1,558
-
1,558
-
Corporate notes
14,957
14,957
-
U.S. Treasury securities
54,002
54,002
-
-
Derivative contracts:
Other liabilities - interest rate swaps
-
-
Fair Value Measurements on a Non-recurring Basis
Collateral dependent Loans
Loans are considered collateral dependent when, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. These loans are evaluated separately in accordance with the Company’s policies for calculating the allowance for credit losses on loans and leases. The fair value of collateral dependent loans with specific allocations of the allowance for credit losses on loans and leases is typically based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Appraised values are discounted by management for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge of the borrower’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis and adjusted accordingly.
OREO and Other Assets Held-for-Sale
OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at net realizable value, less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fair value.
As of both December 31, 2024 and 2023, included within OREO were certain assets that were formerly included as premises and equipment but have been removed from service, and as of the balance sheet date, were designated as assets to be disposed of by sale. These include assets associated with branches of the Bank that have been closed. When an asset is designated as held-for-sale, the Company ceases depreciation of the asset, and the asset is recorded at the lower of its carrying amount or fair value less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the balances of collateral dependent loans, OREO and other assets held-for-sale measured at fair value on a non-recurring basis as of December 31, 2024 and 2023:
Fair Value Measurements as of December 31, 2024 Using
Totals At
December 31,
Quoted Prices
in Active
Markets For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in Thousands)
Collateral dependent loans
$
2,026
$
-
$
-
$
2,026
OREO and other assets held-for-sale
1,509
-
-
1,509
Fair Value Measurements as of December 31, 2023 Using
Totals At
December 31,
Quoted Prices
in Active
Markets For
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in Thousands)
Collateral dependent loans
$
$
-
$
-
$
OREO and other assets held-for-sale
-
-
Non-recurring Fair Value Measurements Using Significant Unobservable Inputs
The following tables present information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2024 and 2023. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input and the weighted average within the range utilized as of December 31, 2024 and 2023 are both included. Following the tables is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.
Level 3 Significant Unobservable Input Assumptions
Fair Value
December 31,
Valuation Technique
Unobservable Input
Quantitative Range
of Unobservable
Inputs
(Weighted Average)
(Dollars in Thousands)
Non-recurring fair value measurements:
Collateral dependent loans
$2,026
Multiple data points, including discount to appraised value of collateral based on recent market activity
Appraisal comparability adjustment (discount)
9%-10%
9.5%
OREO and other assets held-for-sale
$1,509
Discount to appraised value of property based on recent market activity for sales of similar properties
Appraisal comparability adjustment (discount)
9%-10%
9.5%
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Level 3 Significant Unobservable Input Assumptions
Fair Value
December 31,
Valuation Technique
Unobservable Input
Quantitative Range
of Unobservable
Inputs
(Weighted Average)
(Dollars in Thousands)
Non-recurring fair value measurements:
Collateral dependent loans
$51
Multiple data points, including discount to appraised value of collateral based on recent market activity
Appraisal comparability adjustment (discount)
9%-10%
9.5%
OREO and other assets held-for-sale
$602
Discount to appraised value of property based on recent market activity for sales of similar properties
Appraisal comparability adjustment (discount)
9%-10%
9.5%
Collateral dependent loans
Collateral dependent loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.
OREO
OREO under a binding contract for sale is valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.
Other Assets Held-for-Sale
Assets designated as held-for-sale that are under a binding contract are valued based on the contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet. There were no other assets held for sale as of December 31, 2024 and 2023.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.
Federal funds sold and securities purchased under reverse repurchase agreements: Federal funds sold and securities purchased under reverse repurchase agreements all contain maturities of 30 days or less, and therefore, their carrying amount approximates fair value.
Federal Home Loan Bank stock: Based on the redemption provision of the FHLB, the stock has no quoted market value and is carried at cost.
Investment securities: Fair values of investment securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.
Derivative instruments: The fair value of derivative instruments is based on information obtained from a third-party financial institution. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party information.
Accrued interest receivable and payable: The carrying amount of accrued interest approximates fair value.
Loans, net: The fair value of loans is estimated on an exit price basis incorporating contractual cash flow, prepayment discount spreads, credit loss and liquidity premiums.
Demand and savings deposits: The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.
Time deposits: The fair values of relatively short-term time deposits are equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently offered by the Company on comparable deposits as to amount and term.
Short-term borrowings: These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase and the floating rate borrowings from the FHLB account. Due to the short-term nature of these borrowings, fair values approximate carrying values.
Long-term borrowings: The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of the determination date.
Off-balance sheet instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair value and related carrying or notional amounts, as well as the level within the fair value hierarchy, of the Company’s financial instruments as of December 31, 2024 and 2023 were as follows:
December 31, 2024
Carrying
Amount
Estimated
Fair
Value
Level 1
Level 2
Level 3
(Dollars in Thousands)
Assets:
Cash and cash equivalents
$
47,216
$
47,216
$
47,216
$
-
$
-
Investment securities available-for-sale
167,888
167,888
42,359
125,529
-
Investment securities held-to-maturity
-
-
Federal funds sold and securities purchased under reverse repurchase agreements
5,727
5,727
-
5,727
-
Federal Home Loan Bank stock
1,256
1,256
-
-
1,256
Loans, net of allowance for credit losses
812,855
759,870
-
-
759,870
Other assets - interest rate swaps
-
-
Other assets - interest rate floors
-
-
Liabilities:
Deposits
972,557
893,814
-
893,814
-
Short-term borrowings
10,000
10,000
-
10,000
-
Long-term borrowings
10,872
9,590
9,590
Other liabilities - credit risk participation agreements
-
-
December 31, 2023
Carrying
Amount
Estimated
Fair
Value
Level 1
Level 2
Level 3
(Dollars in Thousands)
Assets:
Cash and cash equivalents
$
50,279
$
50,279
$
50,279
$
-
$
-
Investment securities available-for-sale
135,565
135,565
54,002
81,563
-
Investment securities held-to-maturity
1,104
1,041
-
1,041
-
Federal funds sold
9,475
9,475
-
9,475
-
Federal Home Loan Bank stock
1,201
1,201
-
-
1,201
Loans, net of allowance for loan losses
811,284
773,800
-
-
773,800
Liabilities:
Deposits
950,191
882,746
-
882,746
-
Short-term borrowings
10,000
10,000
-
10,000
-
Long-term borrowings
10,799
9,814
9,814
20.SEGMENT REPORTING
Bancshares is a bank holding company. Bancshares operates one banking subsidiary, the Bank. The Bank reporting unit is the only reportable segment of the Company. The Bank conducts a general commercial banking business and offers banking services such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services and remote deposit capture. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 17 states. Other than this indirect lending program, the Bank derives its revenue primarily in the southeast United States. The Bank does not have any customers that produce revenues of 10% or more.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's chief operating decision makers (the "CODM") consist of a group of senior executive officers of Bancshares and the Bank that includes the chief executive officer, the chief financial officer, the chief information and consumer banking officer, the chief risk officer, the chief commercial lending officer, and the chief consumer lending officer.
The CODM uses net income to evaluate income generated from segment assets in deciding whether to reinvest profits into the Bank segment or into other parts of the entity, such as for acquisitions or to pay dividends. Net income is used to monitor budget versus actual results. The CODM also uses net income in competitive analysis by benchmarking to the Company’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.
The accounting policies of the Bank segment are the same as those described in the summary of significant accounting policies. The CODM assesses performance for the Bank segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets.
The table below provides information related to the Company's Bank operating segment for the years ended December 31, 2024 and 2023:
Bank Segment
Year Ended December 31,
(Dollars in Thousands)
Income:
Interest income
$
58,260
$
52,806
Non-interest income
3,583
3,381
Total income
61,843
56,187
Less:
Interest expense
22,111
15,456
Provision for credit losses
Salaries and employee benefits
15,460
16,076
Net occupancy and equipment
3,761
3,479
Computer services
1,687
1,756
Insurance expense and assessments
1,510
1,583
Fees for professional services
1,184
1,105
Postage, stationery and supplies
Telephone/data communication
Collection and recoveries
Directors fees
Software amortization
Other real estate/foreclosure expense, net
Other expense (1)
2,280
2,557
Provision for income taxes
2,584
2,786
Consolidated net income
$
8,170
$
8,485
(1) Other expense includes advertising, travel and business development, and life insurance expense.
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21.FIRST US BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
Year Ended December 31,
(Dollars in Thousands)
Assets:
Cash on deposit
$
2,716
$
1,856
Investment in subsidiaries
106,167
99,395
Other assets
Total assets
$
109,601
$
101,594
Liabilities:
Other liabilities
$
$
Long-term borrowings
10,872
10,799
Shareholders’ equity
98,624
90,594
Total liabilities and shareholders’ equity
$
109,601
$
101,594
Statements of Operations
Year Ended December 31,
(Dollars in Thousands)
Income:
Dividend income, First US Bank
$
5,541
$
3,460
Total income
5,541
3,460
Expense
1,450
1,362
Gain before equity in undistributed income of subsidiaries
4,091
2,098
Equity in undistributed income of subsidiaries
4,079
6,387
Net income
$
8,170
$
8,485
Statements of Cash Flows
Year Ended December 31,
(Dollars in Thousands)
Cash flows from operating activities:
Net income
$
8,170
$
8,485
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions in excess of undistributed income
of subsidiaries
(4,079
)
(6,387
)
Change in other assets and liabilities
(388
)
(475
)
Net cash provided by operating activities
3,703
1,623
Cash flows from financing activities:
Net share-based compensation transactions
(25
)
Dividends paid
(1,264
)
(1,175
)
Treasury stock repurchases
(1,643
)
(1,422
)
Net cash used in financing activities
(2,843
)
(2,622
)
Net increase (decrease) in cash
(999
)
Cash at beginning of year
1,856
2,855
Cash at end of year
$
2,716
$
1,856
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22.QUARTERLY DATA (UNAUDITED)
Year Ended December 31,
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(Dollars in Thousands, Except Per Share Data)
Interest income
$
14,420
$
15,017
$
14,546
$
14,277
$
13,945
$
13,902
$
12,999
$
11,960
Interest expense
5,672
5,832
5,370
5,237
4,835
4,419
3,676
2,526
Net interest income
8,748
9,185
9,176
9,040
9,110
9,483
9,323
9,434
Provision for credit losses
-
-
(434
)
Net interest income after provision
for credit losses
8,278
9,033
9,176
9,040
9,544
9,299
9,023
9,165
Non-interest:
Income
Expense
6,947
6,990
7,272
7,147
7,401
7,319
7,151
7,270
Income before income taxes
2,313
2,944
2,739
2,758
3,059
2,817
2,671
2,724
Provision for income taxes
Net income after taxes
$
1,714
$
2,222
$
2,127
$
2,107
$
2,277
$
2,113
$
2,023
$
2,072
Earnings per common share:
Basic earnings
$
0.30
$
0.38
$
0.36
$
0.36
$
0.38
$
0.35
$
0.34
$
0.35
Diluted earnings
$
0.29
$
0.36
$
0.34
$
0.34
$
0.36
$
0.33
$
0.31
$
0.33
Dividends per share
$
0.07
$
0.05
$
0.05
$
0.05
$
0.05
$
0.05
$
0.05
$
0.05

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
Bancshares maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Bancshares’ Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to Bancshares’ management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Bancshares’ management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Bancshares’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2024, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, Bancshares’ management concluded, as of December 31, 2024, that Bancshares’ disclosure controls and procedures are effective at the reasonable assurance level to ensure that the information required to be disclosed in Bancshares’ periodic filings with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified.
There were no changes in Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, Bancshares’ internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
This report is included in Item 8 beginning on page 54 and is incorporated herein by reference.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
a)None.
b)Rule 10b5-1 Trading Arrangements
From time to time, members of the Company's Board of Directors and officers of the Company may enter into Rule 10b5-1 trading plans, which allow for the purchase or sale of common stock under pre-established terms at times when directors and officers might otherwise be prevented from trading under insider trading laws or because of self-imposed blackout periods. Such trading plans are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act and comply with the Company's insider trading policy. During the three months ended December 31, 2024, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Bancshares has adopted a Code of Business Conduct and Ethics for directors, officers (including its Chief Executive Officer and Chief Financial Officer) and employees. This Code of Business Conduct and Ethics can be found on our website at http://www.fusb.com under the tabs “Investors - Governance - FUSB Policies.” Bancshares will provide any interested person a copy of the Code of Business Conduct and Ethics free of charge, upon written request to First US Bancshares, Inc., Attention: Beverly J. Dozier, Corporate Secretary, 131 West Front Street, Post Office Box 249, Thomasville, Alabama 36784.
Insider Trading Policy
The Company has a Policy on Insider Trading (the “Policy) governing the purchase, sale and other dispositions of the Company’s securities that applies to all Company personnel, including directors, officers, employees, and other covered persons. The Company believes that this Policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of the Policy is filed as Exhibit 19.1 to this Form 10-K.
Other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Bancshares’ definitive proxy statement for the 2025 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Bancshares’ definitive proxy statement for the 2025 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes, as of December 31, 2024, the securities that were authorized for issuance under the First US Bancshares, Inc. 2023 Incentive Plan (the “2023 Incentive Plan”) and Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”).
The 2023 Incentive Plan was approved by Bancshares' shareholders in 2023 to succeed the 2013 Incentive Plan. It provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards and performance compensation awards to our employees, consultants and directors through its termination date in 2033. The 2023 Incentive Plan allows for 605,000 stock-based awards, plus the number of shares underlying any award granted under the 2013 Incentive Plan that expires, terminates, or is cancelled or forfeited.
The Deferral Plan permits non-employee directors to defer their directors’ fees and receive the adjusted value of the deferred amounts in cash and/or in Bancshares’ common stock and was approved by Bancshares’ shareholders in 2004 and amended and restated by the Board of Directors effective July 1, 2023.
Plan Category
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights (1)
Weighted-
average
exercise price
of outstanding
options,
warrants
and rights
Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding
securities
reflected in
column(a)) (2)
(a)
(b)
(c)
Equity compensation plans approved by
shareholders
376,440
$
9.80
(3)
519,686
Equity compensation plans not approved by
shareholders
-
-
-
Total
376,440
$
9.80
(3)
519,686
(1)Includes 268,250 shares subject to outstanding stock options originally awarded under the 2013 Incentive Plan and 108,190 shares to be issued under the Deferral Plan. Does not include 92,599 unvested time-based restricted stock awards outstanding under the 2013 Plan and the 2023 Plan as of December 31, 2024.
(2)Includes 497,400 shares available for issuance pursuant to future awards under the 2023 Incentive Plan, plus the number of eligible shares underlying awards granted under the 2013 Incentive Plan that were forfeited during the year ended December 31, 2024. Does not include shares reserved for future issuance under the Deferral Plan.
(3)Does not include amounts deferred pursuant to the Deferral Plan, as there is no exercise price associated with these deferred amounts.
The other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Bancshares’ definitive proxy statement for the 2025 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Bancshares’ definitive proxy statement for the 2025 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Bancshares’ definitive proxy statement for the 2025 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules.
(a)Documents filed as part of this report
(1)Financial Statements.
The consolidated financial statements of Bancshares and its subsidiaries, included herein in Item 8, are as follows:
•Management’s Annual Report on Internal Control over Financial Reporting;
•Report of Independent Registered Public Accounting Firm - Carr, Riggs & Ingram, LLC (PCAOB ID 213);
•Consolidated Balance Sheets - December 31, 2024 and 2023;
•Consolidated Statements of Operations - Years Ended December 31, 2024 and 2023;
•Consolidated Statements of Comprehensive Income - Years Ended December 31, 2024 and 2023;
•Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2024 and 2023;
•Consolidated Statements of Cash Flows - Years Ended December 31, 2024 and 2023; and
•Notes to Consolidated Financial Statements - Years Ended December 31, 2024 and 2023.
(2)Financial Statement Schedules.
The financial statement schedules required to be included pursuant to this Item are not included herein because they are not applicable, or the required information is shown in the financial statements or notes thereto, which are incorporated by reference at subsection (a)(1) of this Item, above.
(3)Exhibits.
The exhibits to this report are listed in the exhibit index below.
(b)Description of Exhibits
The following exhibits are filed with this report or incorporated by reference.
Exhibit
No.
Description
2.1#
Stock Purchase and Affiliate Merger Agreement, dated April 16, 2018, by and among First US Bancshares, Inc., First US Bank, The Peoples Bank, Tracy E. Thompson and Tyler S. Thompson, and Tracy E. Thompson as shareholder representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 000-14549), filed on April 17, 2018)
3.1
Certificate of Incorporation of United Security Bancshares, Inc. (incorporated by reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 12, 1999)
3.1A
Certificate of Amendment to the Certificate of Incorporation of United Security Bancshares, Inc., effective as of October 11, 2016 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-14549), filed on October 11, 2016)
3.2
Amended and Restated Bylaws of First US Bancshares, Inc., effective as of January 29, 2025 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-14549), filed on January 30, 2025)
4.1
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 18, 2020)
10.1
Amended and Restated Executive Employment Agreement, dated December 19, 2013 (effective as of January 1, 2014), by and among United Security Bancshares, Inc., First United Security Bank and James F. House (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on December 19, 2013)*
10.2
Amended and Restated Change in Control Agreement dated March 1, 2022, by and among First US Bancshares, Inc., First US Bank and Thomas S. Elley (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on March 4, 2022)*
10.3
Second Amended and Restated Change in Control Agreement dated March 1, 2022, by and among First US Bancshares, Inc., First US Bank, and William C. Mitchell (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 000-14549), filed on March 4, 2022)*
10.4
Change in Control Agreement dated May 20, 2014, by and among United Security Bancshares, Inc., First United Security Bank and Beverly J. Dozier (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 11, 2016)*
10.5
Amended and Restated Change in Control Agreement dated March 3, 2023, by and among First US Bancshares, Inc., First US Bank and Eric H. Mabowitz (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 10, 2023)*
10.6
Form of Director Indemnification Agreement between United Security Bancshares, Inc. and its directors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on October 30, 2009)*
10.7
First US Bancshares, Inc. 2013 Incentive Plan, as amended on May 2, 2019 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on May 10, 2019)*
10.8
Form of Nonqualified Stock Option Agreement (Employees - Three-Year Vesting - 2016 Grants) (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 11, 2016)*
10.9
Form of Nonqualified Stock Option Agreement (Employees - Three-Year Vesting - 2017, 2018 and 2019 Grants) (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 15, 2018)*
10.10
Form of Nonqualified Stock Option Agreement (Employees - Three-Year Vesting) (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 18, 2020)*
10.11
Form of Restricted Stock Award Agreement (Employees - Three-Year Vesting) (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 18, 2020)*
10.12
Form of Restricted Stock Award Agreement (Non-Employee Directors - One-Year Vesting) (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 18, 2020)*
10.13
First United Security Bank Director Retirement Agreement dated October 17, 2002, with John C. Gordon (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 14, 2002)*
10.13A
First Amendment to the First United Security Bank Director Retirement Agreement for John C. Gordon, dated November 20, 2008 (incorporated by reference to Exhibit 10.13A to the Annual Report on Form 10-K (File No. 000-14549), filed on March 16, 2009)*
10.13B
Second Amendment to the First United Security Bank Director Retirement Agreement for John C. Gordon, dated January 25, 2017 (incorporated by reference to Exhibit 10.15B to the Annual Report on Form 10-K (File No. 000-14549), filed on March 15, 2017)*
10.14
First United Security Bank Director Retirement Agreement dated October 16, 2002, with William G. Harrison (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 21, 2003)*
10.14A
First Amendment to the First United Security Bank Director Retirement Agreement for William G. Harrison, dated November 20, 2008 (incorporated by reference to Exhibit 10.14A to the Annual Report on Form 10-K (File No. 000-14549), filed on March 16, 2009)*
10.14B
Second Amendment to the First United Security Bank Director Retirement Agreement for William G. Harrison, dated January 25, 2017 (incorporated by reference to Exhibit 10.16B to the Annual Report on Form 10-K (File No. 000-14549), filed on March 15, 2017)*
10.15
First United Security Bank Director Retirement Agreement dated October 17, 2002, with Jack Meigs (incorporated by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 14, 2002)*
10.15A
First Amendment to the First United Security Bank Director Retirement Agreement for Jack Meigs, dated November 20, 2008 (incorporated by reference to Exhibit 10.16A to the Annual Report on Form 10-K (File No. 000-14549), filed on March 16, 2009)*
10.15B
Second Amendment to the First United Security Bank Director Retirement Agreement for Jack Meigs, dated January 25, 2017 (incorporated by reference to Exhibit 10.17B to the Annual Report on Form 10-K (File No. 000-14549), filed on March 15, 2017)*
10.16
First United Security Bank Director Retirement Agreement dated October 17, 2002, with Bruce N. Wilson (incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 14, 2002)*
10.16A
First Amendment to the First United Security Bank Director Retirement Agreement for Bruce N. Wilson, dated November 20, 2008 (incorporated by reference to Exhibit 10.21A to the Annual Report on Form 10-K (File No. 000-14549), filed on March 16, 2009)*
10.16B
Second Amendment to the First United Security Bank Director Retirement Agreement for Bruce N. Wilson, dated January 25, 2017 (incorporated by reference to Exhibit 10.19B to the Annual Report on Form 10-K (File No. 000-14549), filed on March 15, 2017)*
10.17
First United Security Bank Director Retirement Agreement, dated November 17, 2011, with Andrew C. Bearden, Jr. (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 30, 2012)*
10.18
First United Security Bank Director Retirement Agreement, dated November 30, 2011, with J. Lee McPhearson (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 30, 2012)*
10.19
First US Bancshares, Inc. Non-Employee Director Fee Schedule (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on August 11, 2021)*
10.20A
Real Estate Sales Agreement, dated April 20, 2015 (incorporated by reference to Exhibit 10.1A to the Current Report on Form 8-K (File No. 000-14549), filed on March 11, 2016)
10.20B
First Amendment to Real Estate Sales Agreement, dated May 26, 2015 (incorporated by reference to Exhibit 10.1B to the Current Report on Form 8-K (File No. 000-14549), filed on March 11, 2016)
10.20C
Second Amendment to Real Estate Sales Agreement, dated August 25, 2015 (incorporated by reference to Exhibit 10.1C to the Current Report on Form 8-K (File No. 000-14549), filed on March 11, 2016)
10.20D
Third Amendment to Real Estate Sales Agreement, dated September 17, 2015 (incorporated by reference to Exhibit 10.1D to the Current Report on Form 8-K (File No. 000-14549), filed on March 11, 2016)
10.20E
Fourth Amendment to Real Estate Sales Agreement, dated October 17, 2015 (incorporated by reference to Exhibit 10.1E to the Current Report on Form 8-K (File No. 000-14549), filed on March 11, 2016)
10.21
Form of Subordinated Note Purchase Agreement, dated October 1, 2021, by and among First US Bancshares, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on October 4, 2021)
10.22
First US Bancshares, Inc. Non-Employee Directors' Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 8, 2023)*
10.23
2024 Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on February 12, 2024)*
10.24
2025 Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), file on February 12, 2025)*
19.1
First US Bancshares, Inc. Insider Trading Policy
Subsidiaries of First US Bancshares, Inc.
Consent of Carr, Riggs & Ingram, LLC
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as amended
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Policy for the Recovery of Erroneously Awarded Compensation (incorporated by reference to Exhibit 97 to the Annual Report on Form 10-K (File No. 000-14549), filed on March 14, 2024)
101.INS
Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
Cover page formatted as Inline XBRL and contained in Exhibit 101
# Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. First US Bancshares, Inc. agrees to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.
* Indicates a management contract or compensatory plan or arrangement.