FIRST US BANCSHARES INC
For the period ended Sep 30, 2024. Filed Nov 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 8, 2024
FUSB$16.450.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000950170-24-094495
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-08.
0000950170-24-123874
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 105 previous paragraphs and 107 current paragraphs.
55 unchanged; 40 reworded; 11 added; 10 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 13 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (11)
Current report
During the nine months ended September 30, 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, slowed for a sixth consecutive month in September 2024 to 2.4%. While the inflation rate remained elevated above the Federal Reserve Bank’s (“FRB”) longer run target of 2%, the trend downward led the Open Market Committee of the FRB to reduce the federal funds rate by 50 basis points, bringing the target federal funds rate to a range of 4.75% to 5.00% as of September 30, 2024. This signaled at least a partial shift in focus by the FRB to managing employment levels more closely, while continuing to monitor inflation levels. The U.S. unemployment rate trended lower during the third quarter of 2024, easing to 4.1% in September 2024, while the U.S. economy, as measured by gross domestic product, expanded at an annualized pace of 2.8% in the third quarter of 2024. U.S. Treasury rates decreased substantially during the third quarter of 2024, with short term rates generally decreasing in greater magnitude than long term rates causing a flattening of the treasury curve. While benchmark interest rates eased during the third quarter of 2024, competitive pressures in the banking industry remained elevated, particularly with respect to deposit pricing. In addition, geopolitical uncertainty on the world stage, as well as political uncertainty with respect to the U.S. election cycle, persisted through the quarter. 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, higher interest rates, and a fiercely competitive environment could put downward pressure on the Company’s financial position and results of operations.
Current report
Net interest income decreased by $0.8 million, or 3.0%, comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023. In general, net interest margin has declined amid the higher interest rate environment that has persisted since 2022, as interest-bearing liabilities repriced at faster rates than interest-bearing assets. For the nine months ended September 30, 2024, net interest income totaled $27.4 million, compared to $28.2 million during the nine months ended September 30, 2023. Net interest margin totaled 3.65% for the nine months ended September 30, 2024, compared to 3.93% for the nine months ended September 30, 2023.
Current report
For the nine months ended September 30, 2024, the provision for credit losses totaled $0.2 million, compared to $0.8 million for the nine months ended September 30, 2023. The decrease in the provision for credit losses comparing the first nine months of 2024 to the corresponding period of 2023 was due primarily to decreases in loan volume, as well as adjustments in economic forecasts that impact the calculation of the allowance for credit losses ("ACL") on loans and leases. As of September 30, 2024, the Company’s ACL on loans and leases as a percentage of total loans was 1.26%, compared to 1.28% as of December 31, 2023.
Current report
For the nine months ended September 30, 2024, non-interest expense totaled $21.4 million, compared to $21.7 million for the nine months ended September 30, 2023. Salaries and benefits expense decreased during the first nine months of 2024 compared to the corresponding period of 2023, primarily due to lower staff levels resulting from strategic initiatives implemented by the Company in prior years. In addition, other expenses were lower during the nine months ended September 30, 2024 compared to the corresponding period of 2023, due primarily to the recovery of check fraud losses and reduced collection expenses. These reductions in non-interest expense during the first nine months of 2024 were partially offset by increases associated with occupancy and professional services expenses.
Current report
Total loans decreased by $18.5 million, or 2.2%, as of September 30, 2024, compared to December 31, 2023. The decrease was primarily driven by payoffs of construction loans and, to a lesser extent, reductions in the consumer indirect and commercial and industrial ("C&I") loan categories. These reductions were partially offset by growth in commercial real estate (non-farm, non-residential) and multi-family residential loans. While the Company experienced a reduction in loan volume during the first nine months of 2024, average loan balances remained higher than average loan balances during the corresponding period of 2023. For the nine months ended September 30, 2024, average total loans were $821.0 million, compared to $795.0 million during the nine months ended September 30, 2023.
Current report
The rising interest rate environment has caused compression of the Company’s net interest margin in recent periods, as the cost of interest-bearing liabilities has generally increased at a faster pace than interest-earning assets. The Company’s net interest margin during the nine months ended September 30, 2024 totaled 3.65%, compared to 3.93% during the nine months ended September 30, 2023. During the third quarter of 2024, the higher interest rate environment began to ease with notable reductions in yields on U.S. treasury instruments, as well as a 50-basis point reduction in the federal funds rate. Should interest rate reductions continue to occur, both the Company’s interest-earning assets and interest-bearing liabilities will be impacted. However, the speed with which interest revenues and expenses reprice can vary significantly based on a number of factors, including, but not limited to, existing contractual terms and the competitive environment, as well as loan and deposit customer behavior and preferences. Management continues to focus efforts to both maximize earning asset growth and reduce interest expense; however, the results of these efforts cannot be fully predicted. In addition, should market interest rates increase or decrease at significant levels, especially in a short period of time, the Company’s net interest income could be negatively impacted.
Current report
Non-interest expense totaled $21.4 million and $21.7 million during the nine months ended September 30, 2024 and 2023, respectively. Salaries and benefits expense decreased during the first nine months of 2024 compared to the corresponding period of 2023, primarily due to lower staff levels resulting from strategic initiatives implemented by the Company in prior years. In addition, other expenses were lower during the nine months ended September 30, 2024 compared to the corresponding period of 2023, due primarily to the recovery of check fraud losses and reduced collection expenses. These reductions in non-interest expense during the first nine months of 2024 were partially offset by increases associated with occupancy and professional services expenses.
Current report
During the nine months ended September 30, 2024, the Company purchased $27.5 million in taxable U.S. agency-sponsored securities that are included in the available-for-sale portfolio. The purchased securities offset $23.6 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 nine months ended September 30, 2024, the yield on taxable investment securities totaled 2.95%, compared to 2.15% for the nine months ended September 30, 2023.
Current report
As of September 30, 2024 and December 31, 2023, the composition of the non-farm, non-residential loan portfolio was as follows:
Current report
As of September 30, 2024 and December 31, 2023, the composition of the construction, land development, and other land loans loan portfolio was as follows:
Current report
The increase in nonperforming assets comparing September 30, 2024 to previous quarter-end dates in the table above resulted from two loans (from the C&I and 1-4 family residential categories) that moved into non-accrual status during the third quarter of 2024.
Removed paragraphs (10)
Previous report
During the six months ended June 30, 2024, the banking industry continued to be impacted by economic volatility and the higher interest rate environment that has persisted since 2022. Following a reduction in January 2024, the U.S. inflation rate increased in the latter two months of the first quarter, but decreased during the second quarter. As of June 30, 2024, inflation remained elevated above the Federal Reserve Bank’s (“FRB”) longer run target of 2%; however, it had eased considerably since the highs reached in late 2022. Throughout the first six months of 2024, the FRB maintained the target federal funds rate in a range from 5.25% to 5.50% where it has remained since July 2023. Recent economic indicators suggested that economic activity in the U.S. continued to expand in the second quarter of 2024. In addition, the unemployment rate increased slightly during the second quarter of 2024; however, it remained at a relatively low level (approximately 4.0%) as the quarter came to a close. In assessing monetary policy, FRB officials continued to indicate a commitment to maintaining the federal funds target range until greater confidence is gained that inflation is moving sustainably toward 2%.
Previous report
U.S. Treasury rates increased modestly during the second quarter of 2024 compared to the first quarter of 2024 due to changing sentiment in interest rate expectations, and as of June 30, 2024, the U.S. Treasury curve remained inverted. Competitive pressures in the banking industry remained elevated due to the higher interest rate environment, particularly with respect to deposit pricing. The elevated interest rate environment, combined with higher inflation levels sustained for a longer period of time, could put additional strain on borrowers, as well as the Company’s own costs of goods and services, including the cost of salaries and benefits. These uncertainties, combined with ongoing geopolitical uncertainty, provide a difficult operating environment throughout the banking industry. 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, higher interest rates, and a fiercely competitive environment could put downward pressure on the Company’s positioning and results of operations.
Previous report
Net interest income decreased by $0.5 million, or 2.9%, comparing the six months ended June 30, 2024 to the six months ended June 30, 2023.The reduction in net interest income resulted from net interest margin compression that totaled 33 basis points as interest-bearing liabilities repriced at a faster pace than interest-bearing assets comparing the two periods. In the wake of the rising interest rate environment that began in 2022, the Company’s net interest margin compressed for five consecutive quarters through the first quarter of 2024, before expanding by 4 basis points in the second quarter of 2024. The expansion of margin in the second quarter of 2024 compared to the first quarter of 2024 was attributable to increases in both average investment securities and yields on investment securities that enabled interest-earning assets to reprice at a faster pace than interest-bearing liabilities during the quarter. Net interest margin was 3.69% in the second quarter of 2024, compared to 3.65% in the first quarter of 2024, and 3.88% in the second quarter of 2023. For the six months ended June 30, 2024, net interest margin was 3.67%, compared to 4.00% for the six months ended June 30, 2023.
Previous report
No provision for credit losses was recorded during the six months ended June 30, 2024, compared to $0.6 million during the six months ended June 30, 2023. The Company’s determination that no provisioning was required during the first six months of 2024 was due to loan portfolio balance reductions (in particular, consumer balances which generally contain higher loss ratios) combined with a decrease in unfunded lending commitments. As of June 30, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.25%, compared to 1.28% as of December 31, 2023.
Previous report
Non-interest expense totaled $14.4 million for both the six months ended June 30, 2024 and 2023. While non-interest expense remained consistent comparing the two six month periods, in 2024 the Company experienced increased expenses associated with occupancy and equipment and professional services that were offset by decreased salaries and employee benefits and other expense. The increases associated with occupancy and equipment and professional services during the first six months of 2024 compared to the first six months of 2023 resulted from a variety of activities, including increased costs associated with growth in banking centers, as well as increased legal, accounting and auditing fees. The reduction in salaries and benefits during the first six months of 2024 compared to the prior year period resulted from the ongoing effects of reductions in staff levels attained through strategic initiatives implemented by the Company in prior years.
Previous report
Total loans decreased by $2.7 million, or 0.3%, as of June 30, 2024, compared to December 31, 2023. All loan categories decreased since December 31, 2023, with the exception of the multi-family residential and non-farm, non-residential categories. The total loan volume decrease is consistent with an overall economic slowing that has manifested during the first six months of 2024.
Previous report
Interest Rate Risk Management
Previous report
During the first quarter of 2024, the Company purchased a notional amount of $50 million in interest rate floors to assist in mitigating a portion of the Company’s risk in down rate scenarios. The Company did not purchase any additional derivative contracts during the second quarter of 2024.
Previous report
The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through July 2023, the FRB raised the federal funds rate by a total of 525 basis points. Since July 2023, the FRB has maintained the federal funds rate in a range of 5.25% to 5.50%. Statements by FRB officials have indicated that the FRB remains committed to maintaining the federal funds rate at this level until greater confidence is gained that inflation is moving sustainably toward the FRB’s long-run goal of 2%. Due to the pace of interest rate increases that occurred in the period from March 2022 to July 2023, the Company’s net interest margin declined in 2023 as the cost of interest-bearing liabilities increased at a faster pace than interest-earning assets. In the wake of the rising interest rate environment that began in 2022, the Company’s net interest margin compressed for five consecutive quarters through the first quarter of 2024, before expanding by 4 basis points in the second quarter of 2024. The expansion of margin in the second quarter of 2024 compared to the first quarter of 2024 was attributable to increases in both average investment securities and yields on investment securities that enabled interest-earning assets to reprice at a faster pace than interest-bearing liabilities during the quarter. Net interest margin was 3.69% in the second quarter of 2024, compared to 3.65% in the first quarter of 2024. While this increase in net interest margin is notable, the sustained higher interest rate environment has continued to intensify competition for deposits within the Company’s service territories during the first six months of 2024. This increased competition, coupled with continued economic volatility, adds uncertainty into the market. Should market interest rates continue to increase or decrease at significant levels, the Company’s net interest income could be negatively impacted.
Previous report
Non-interest expense totaled $14.4 million during both the six months ended June 30, 2024 and 2023. While non-interest expense remained consistent comparing the two six month periods, in 2024 the Company experienced increased expenses associated with occupancy and equipment and professional services that were offset by decreased salaries and employee benefits and other expense. The increases associated with occupancy and equipment and professional services during the first six months of 2024 compared to the first six months of 2023 resulted from a variety of activities, including increased costs associated with growth in banking centers, as well as increased legal, accounting and auditing fees. The reduction in salaries and benefits during the first six months of 2024 compared to the first six months of 2023 resulted from the ongoing effects of reductions in staff levels attained through strategic initiatives implemented by the Company in prior years.
Reworded paragraphs (40)
Previous wording
Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 155 full-time equivalent employees (as of June 30, 2024), to ensure customer satisfaction and convenience.
Current wording
Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 154 full-time equivalent employees (as of September 30, 2024), to ensure customer satisfaction and convenience.
Previous wording
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of June 30, 2024 to December 31, 2023, while comparing income and expense for the six months ended June 30, 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.
Current wording
The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of September 30, 2024 to December 31, 2023, while comparing income and expense for the nine months ended September 30, 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.
Previous wording
The Company earned net income of $2.1 million, or $0.34 per diluted common share, during the three months ended June 30, 2024, compared to $2.0 million, or $0.31 per diluted common share, for the three months ended June 30, 2023. For the six months ended June 30, 2024, net income totaled $4.2 million, or $0.68 per diluted common share, compared to $4.1 million, or $0.64 per diluted common share, for the six months ended June 30, 2023.
Current wording
The Company earned net income of $2.2 million, or $0.36 per diluted common share, during the three months ended September 30, 2024, compared to $2.1 million, or $0.33 per diluted common share, for the three months ended September 30, 2023. For the nine months ended September 30, 2024, net income totaled $6.5 million, or $1.04 per diluted common share, compared to $6.2 million, or $0.97 per diluted common share, for the nine months ended September 30, 2023.
Previous wording
Summarized condensed consolidated statements of operations are included below for the three and six months ended June 30, 2024 and 2023.
Current wording
Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2024 and 2023.
Previous wording
The discussion that follows summarizes the most significant activity that drove changes in the Company’s operating results during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.
Current wording
The discussion that follows summarizes the most significant activity that drove changes in the Company’s operating results during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Previous wording
Non-interest income remained relatively consistent, totaling $1.7 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively.
Current wording
Non-interest income remained relatively consistent, totaling $2.6 million and $2.5 million for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
As of June 30, 2024, the Company’s assets totaled $1,083.3 million, compared to $1,072.9 million as of December 31, 2023, an increase of 1.0%.
Current wording
As of September 30, 2024, the Company’s assets totaled $1,100.2 million, compared to $1,072.9 million as of December 31, 2023, an increase of 2.5%.
Previous wording
Nonperforming assets, including loans in non-accrual status and OREO, totaled $2.9 million as of June 30, 2024, compared to $3.0 million as of December 31, 2023. As a percentage of total assets, nonperforming assets totaled 0.27% as of June 30, 2024, compared to 0.28% as of December 31, 2023. Annualized net charge-offs as a percentage of average loans during the six months ended June 30, 2024 totaled 0.10%, compared to 0.14% during the corresponding period of 2023.
Current wording
Nonperforming assets, including loans in non-accrual status and OREO, totaled $6.6 million as of September 30, 2024, compared to $3.0 million as of December 31, 2023. The increase in nonperforming assets resulted from two loans (from the C&I and 1-4 family residential categories) that moved into non-accrual status during the third quarter of 2024. As a percentage of total assets, nonperforming assets totaled 0.60% as of September 30, 2024, compared to 0.28% as of December 31, 2023. Annualized net charge-offs as a percentage of average loans during the nine months ended September 30, 2024 totaled 0.10%, compared to 0.12% during the corresponding period of 2023.
Previous wording
Deposits totaled $954.5 million as of June 30, 2024, compared to $950.2 million as of December 31, 2023. The increase since December 31, 2023 was due primarily to increased interest-bearing time deposits, partially offset by decreased non-interest bearing and interest-bearing direct deposit accounts. The shift to interest-bearing time deposits is consistent with deposit holders seeking to maximize interest earnings, a condition that has persisted in the current interest rate environment. The increase in interest-bearing time deposits was partially offset by a reduction in wholesale brokered time deposits of $10.3 million during the six months ended June 30, 2024. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $813.4 million, or 85.2% of total deposits, as of June 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Current wording
Deposits totaled $981.1 million as of September 30, 2024, compared to $950.2 million as of December 31, 2023. The increase since December 31, 2023 was due primarily to increased interest-bearing time deposits and interest-bearing demand deposits, partially offset by decreased money market and savings accounts. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $833.5 million, or 85.0% of total deposits, as of September 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Previous wording
As of June 30, 2024, the Company held cash and federal funds sold balances totaling $63.7 million, or 5.9% 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 $144.9 million as of June 30, 2024, compared to $136.7 million as of December 31, 2023. During the six months ended June 30, 2024, $27.5 million was invested in taxable U.S. agency-sponsored bonds, resulting in improved yields in the investment portfolio. As of June 30, 2024, the expected average life of securities in the investment portfolio was 4.3 years, compared to 3.9 years as of December 31, 2023. In the current higher interest rate environment, management continues to seek opportunities to reconfigure the investment portfolio with higher yielding assets as cash flows become available.
Current wording
As of September 30, 2024, the Company held cash, federal funds sold and securities purchased under reverse repurchase agreements totaling $97.8 million, or 8.9% 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 $145.0 million as of September 30, 2024, compared to $136.7 million as of December 31, 2023. During the nine months ended September 30, 2024, $27.5 million was invested in taxable U.S. agency-sponsored bonds, resulting in improved yields in the investment portfolio. As of September 30, 2024, the expected average life of securities in the investment portfolio was 4.1 years, compared to 3.9 years as of December 31, 2023.
Previous wording
Shareholders’ equity increased by $3.2 million, or 3.6%, as of June 30, 2024, compared to December 31, 2023. The increase in shareholders’ equity during the six months ended June 30, 2024 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock.
Current wording
Shareholders’ equity increased by $7.9 million, or 8.7%, as of September 30, 2024, compared to December 31, 2023. The increase in shareholders’ equity during the nine months ended September 30, 2024 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during the nine months ended September 30, 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.
Previous wording
The Company declared cash dividends totaling $0.10 per share on its common stock during both the six months ended June 30, 2024 and 2023.
Current wording
The Company declared cash dividends totaling $0.15 per share on its common stock during both the nine months ended September 30, 2024 and 2023.
Previous wording
During the six months ended June 30, 2024, the Company repurchased 77,000 shares of its common stock at a weighted average price of $10.60 per share. The repurchases were completed under the Company’s previously announced share repurchase program. As of June 30, 2024, 382,313 shares remained available for repurchase under the program.
Current wording
During the nine months ended September 30, 2024, the Company repurchased 106,500 shares of its common stock at a weighted average price of $10.67 per share. The repurchases were completed under the Company’s previously announced share repurchase program. As of September 30, 2024, 352,813 shares remained available for repurchase under the program.
Previous wording
During the six months ended June 30, 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 June 30, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.28%. Its total capital ratio was 12.47%, and its Tier 1 leverage ratio was 9.46%.
Current wording
During the nine months ended September 30, 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 September 30, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.45%. Its total capital ratio was 12.63%, and its Tier 1 leverage ratio was 9.49%.
Previous wording
As part of the Company’s overall growth strategy, during the second quarter of 2024, the Company opened a new banking center in the Bearden area of Knoxville, Tennessee that replaced the Bank’s previously existing Knoxville-Bearden location. It is anticipated that the new location will provide more favorable exposure to potential customers, while at the same time improving access to most of the Bank’s existing customers in the area. In addition, during the second quarter of 2024, the Company commenced renovation of a banking center office in Daphne, Alabama that was purchased from another financial institution during the first quarter of 2024. This location is expected to serve as the Bank’s initial deposit gathering facility in the Daphne/Mobile area, and it is anticipated that the location will open to the public in early 2025.
Current wording
As part of the Company’s overall growth strategy, during the nine months ended September 30, 2024, the Company opened a new banking center in the Bearden area of Knoxville, Tennessee that replaced the Bank’s previously existing Knoxville-Bearden location. In addition, the Company commenced renovation of a banking center office in Daphne, Alabama that was purchased from another financial institution. This location is expected to serve as the Bank’s initial deposit gathering facility in the Daphne/Mobile area, and it is anticipated that the location will open to the public in 2025.
Previous wording
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 short- and long-term borrowings.
Current wording
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, securities purchased under reverse repurchase agreements and interest-bearing deposits in banks. Interest-bearing liabilities consist of interest-bearing demand deposits and savings and time deposits, as well as short- and long-term borrowings.
Previous wording
The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three and six months ended June 30, 2024 and 2023. Additionally, the tables provide 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.
Current wording
The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three and nine months ended September 30, 2024 and 2023. Additionally, the tables provide 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.
Previous wording
Interest income increased by $3.9 million, comparing the six months ended June 30, 2024 to the six months ended June 30, 2023. Of the increase, $2.5 million was attributable to higher average yields on interest-earning assets, while $1.3 million was attributable to growth in interest-earning assets comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022, continued in 2023 and held relatively consistent in 2024.
Current wording
Interest income increased by $5.0 million, comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023. Of the increase, $3.5 million was attributable to higher average yields on interest-earning assets, while $1.5 million was attributable to growth in interest-earning assets comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022, continued in 2023 and generally persisted through the nine months ended September 30, 2024.
Previous wording
The increase in interest income was offset by an increase in interest expense of $4.4 million, comparing the six months ended June 30, 2024 to the six months ended June 30, 2023. Of the increase, $3.8 million was attributable to the rise in market interest rates, while $0.6 million was attributable to growth in interest-bearing liabilities, primarily savings and time deposits.
Current wording
The increase in interest income was offset by an increase in interest expense of $5.8 million, comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023. Of the increase, $4.9 million was attributable to the rise in market interest rates, while $0.9 million was attributable to growth in interest-bearing liabilities, primarily savings and time deposits.
Previous wording
No provision for credit losses was recorded during the six months ended June 30, 2024, compared to a provision of $0.6 million during the six months ended June 30, 2023. The Company’s determination that no provisioning was required during the first six months of 2024 was due to loan portfolio balance reductions (in particular, consumer balances which generally contain higher loss ratios) combined with a decrease in unfunded lending commitments. As of June 30, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.25%, compared to 1.28% as of December 31, 2023.
Current wording
The Company recorded a provision for credit losses of $0.2 million during the nine months ended September 30, 2024, compared to a provision of $0.8 million during the nine months ended September 30, 2023. The decrease in the provision for credit losses comparing the first nine months of 2024 to the corresponding period of 2023 was due primarily to decreases in loan volume, as well as adjustments in economic forecasts that impact the calculation of the ACL on loans and leases. As of September 30, 2024, the Company’s ACL on loans and leases as a percentage of total loans was 1.26%, compared to 1.28% as of December 31, 2023.
Previous wording
Net charge-offs were relatively consistent, totaling $0.4 million for the six months ended June 30, 2024, compared to $0.5 million for the six months ended June 30, 2023. However, the ongoing timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.
Current wording
Net charge-offs totaled $0.6 million for both the nine months ended September 30, 2024 and 2023. However, the ongoing timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with sustained elevated market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.
Previous wording
The Company’s non-interest income increased by $72 thousand comparing the six months ended June 30, 2024 to the six months ended June 30, 2023.
Current wording
The Company’s non-interest income increased by $0.1 million comparing the nine months ended September 30, 2024 to the nine months ended September 30, 2023.
Previous wording
The provision for income taxes was $1.3 million for both the six months ended June 30, 2024 and 2023, and the Company’s effective tax rate was 23.0% and 24.1%, respectively, for the same periods.
Current wording
The provision for income taxes was $2.0 million for both the nine months ended September 30, 2024 and 2023, and the Company’s effective tax rate was 23.5% and 24.4%, respectively, for the same periods.
Previous wording
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 4.3 years and 3.9 years as of June 30, 2024 and December 31, 2023, respectively.
Current wording
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 4.1 years and 3.9 years as of September 30, 2024 and December 31, 2023, respectively.
Previous wording
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 June 30, 2024, available-for-sale securities totaled $144.0 million, or 99.4% 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 bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Current wording
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 September 30, 2024, available-for-sale securities totaled $144.3 million, or 99.5% 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 bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Previous wording
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 June 30, 2024, held-to-maturity securities totaled $0.9 million, or 0.6% 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 state and political subdivisions.
Current wording
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 September 30, 2024, held-to-maturity securities totaled $0.8 million, or 0.5% 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 state and political subdivisions.
Previous wording
Despite the elevated interest rate environment, during the six months ended June 30, 2024, gross unrealized losses decreased by $0.6 million primarily due to the decreasing duration of the Company's U.S. Treasury portfolio as of June 30, 2024, compared to the duration as of December 31, 2023. Gross unrealized losses in the available-for-sale portfolio totaled $9.5 million as of June 30, 2024, compared to $10.1 million as of December 31, 2023. Unrealized losses, net, within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.
Current wording
Net unrealized losses in the available-for-sale portfolio totaled $4.7 million as of September 30, 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.
Previous wording
The Company’s total loan portfolio decreased by $2.7 million, or 0.3%, as of June 30, 2024, compared to December 31, 2023. The tables below summarize loan balances by portfolio category, as well as the allowance for credit losses, as of the end of each of the most recent five quarters as of June 30, 2024:
Current wording
The Company’s total loan portfolio decreased by $18.5 million, or 2.2%, as of September 30, 2024, compared to December 31, 2023. The tables below summarize loan balances by portfolio category, as well as the allowance for credit losses, as of the end of each of the most recent five quarters as of September 30, 2024:
Previous wording
Total deposits increased to $954.5 million as of June 30, 2024, from $950.2 million as of December 31, 2023, an increase of 0.4%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $813.4 million, or 85.2% of total deposits, as of June 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Current wording
Total deposits increased to $981.1 million as of September 30, 2024, from $950.2 million as of December 31, 2023, an increase of 3.3%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $833.5 million, or 85.0% of total deposits, as of September 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.
Previous wording
Other interest-bearing liabilities that are used by the Company as an alternative source of funds consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and subordinated debt. As of June 30, 2024, other interest-bearing liabilities totaled 3.1% of total interest-bearing liabilities, compared to 2.5% as of December 31, 2023.
Current wording
Other interest-bearing liabilities that are used by the Company as an alternative source of funds consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and subordinated debt. As of September 30, 2024, other interest-bearing liabilities totaled 1.3% of total interest-bearing liabilities, compared to 2.5% as of December 31, 2023.
Previous wording
As of June 30, 2024, shareholders’ equity totaled $93.8 million, or 8.7% 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 six months ended June 30, 2024 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock.
Current wording
As of September 30, 2024, shareholders’ equity totaled $98.5 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 nine months ended September 30, 2024 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock. In addition, shareholders' equity was positively impacted during the nine months ended September 30, 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.
Previous wording
During the both the six months ended June 30, 2024 and 2023, the Company declared dividends totaling $0.10 per common share, or approximately $0.6 million in aggregate amount. 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.
Current wording
During both the nine months ended September 30, 2024 and 2023, the Company declared dividends totaling $0.15 per common share, or approximately $0.9 million in aggregate amount. 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.
Previous wording
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 $248.8 million as of June 30, 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 $18.7 million and $12.9 million of the investment portfolio as of June 30, 2024 and December 31, 2023, respectively.
Current wording
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 and securities purchased under reverse repurchase agreements, (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 $246.9 million as of September 30, 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 $29.5 million and $12.9 million of the investment portfolio as of September 30, 2024 and December 31, 2023, respectively.
Previous wording
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 4.3 years and 3.9 years as of June 30, 2024 and December 31, 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.
Current wording
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 4.1 years and 3.9 years as of September 30, 2024 and December 31, 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.
Previous wording
The Company had $15.0 million and $10.0 million of outstanding borrowings under FHLB advances as of June 30, 2024 and December 31, 2023, respectively. In addition, 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 $10.8 million as of both June 30, 2024 and December 31, 2023.
Current wording
The Company had zero and $10.0 million of outstanding borrowings under FHLB advances as of September 30, 2024 and December 31, 2023, respectively. The Company's use of FHLB advances varies depending on fluctuations in deposits and other funding sources, as well as their use in interest rate hedging strategies. In addition, 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 September 30, 2024 and December 31, 2023, respectively.
Previous wording
The Company had up to $276.1 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of June 30, 2024 and December 31, 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both June 30, 2024 and December 31, 2023.
Current wording
The Company had up to $294.8 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of September 30, 2024 and December 31, 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both September 30, 2024 and December 31, 2023.
Previous wording
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 $158.3 and $161.7 million in borrowing capacity with the FRB’s discount window as of June 30, 2024 and December 31, 2023, respectively.
Current wording
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 $165.2 and $161.7 million in borrowing capacity with the FRB’s discount window as of September 30, 2024 and December 31, 2023, respectively.
Previous wording
The table above calculates readily available liquidity by combining cash and cash equivalents, federal funds sold 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 non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Management uses these measures to evaluate the Company's liquidity position.
Current wording
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 non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Management uses these measures to evaluate the Company's liquidity position.
Previous wording
The unused lendable collateral value at the FHLB presented in the table 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 June 30, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $276.1 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. For example, the Company has 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.
Current wording
The unused lendable collateral value at the FHLB presented in the table 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 September 30, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $294.8 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. For example, the Company has 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.
Previous wording
Excluding wholesale brokered deposits, as of June 30, 2024, the Company had approximately 30 thousand deposit accounts with an average balance of approximately $30.0 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 $206.7 million, or 21.6% of total deposits, as of June 30, 2024. As of December 31, 2023, estimated uninsured deposits totaled $200.3 million, or 21.1% of total deposits.
Current wording
Excluding wholesale brokered deposits, as of September 30, 2024, the Company had approximately 30 thousand deposit accounts with an average balance of approximately $30.4 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 $233.4 million, or 23.8% of total deposits, as of September 30, 2024. As of December 31, 2023, estimated uninsured deposits totaled $200.3 million, or 21.1% of total deposits.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
In addition, during the nine months ended September 30, 2024, the Company completed the repurchase of 106,500 shares of its common stock at a weighted average price of $10.67 per share. The repurchases were completed under the Company’s previously announced share repurchase program. As of September 30, 2024, 352,813 shares remained available for repurchase under the program. No shares were repurchased by the Company during the nine months ended September 30, 2023.