10-Q: First US Bancshares Q3 Net Income Declines Amid Higher Credit Loss Provisions

First US Bancshares reported a decrease in net income for the third quarter and first nine months of 2025, primarily due to increased provisions for credit losses and higher non-interest expenses.

Summary

• Net income for the three months ended September 30, 2025, was $1.9 million ($0.32 diluted EPS), down from $2.2 million ($0.36 diluted EPS) for the same period in 2024.
• Net income for the nine months ended September 30, 2025, totaled $3.9 million ($0.64 diluted EPS), a decrease from $6.5 million ($1.04 diluted EPS) for the nine months ended September 30, 2024.
• Net interest income increased by $0.6 million, or 2.3%, for the nine months ended September 30, 2025, compared to the same period in 2024.
• Provision for credit losses significantly increased to $3.8 million for the nine months ended September 30, 2025, from $0.2 million for the nine months ended September 30, 2024.
• Total assets increased by 4.2% to $1,147.2 million as of September 30, 2025, from $1,101.1 million as of December 31, 2024.
• Total loans grew by $44.5 million, or 5.4%, to $867.5 million, primarily driven by a $75.9 million increase in consumer indirect loans.
• Nonperforming assets decreased to $2.2 million (0.19% of total assets) as of September 30, 2025, from $5.5 million (0.50% of total assets) as of December 31, 2024.
• Total deposits increased by $29.9 million, or 3.1%, to $1,002.5 million.
• Cash dividends declared increased to $0.21 per share for the nine months ended September 30, 2025, from $0.15 per share for the same period in 2024.

Sentiment

Score: 4

Explanation: While there was loan growth and a decrease in non-performing assets, the significant drop in net income and EPS, coupled with a substantial increase in credit loss provisions and a declining net interest margin, indicates a challenging financial period. The economic uncertainty and competitive environment also contribute to a cautious outlook.

Positives

• Net interest income increased by $0.6 million (2.3%) for the nine months ended September 30, 2025, compared to the same period in 2024.
• Total assets increased by 4.2% to $1,147.2 million as of September 30, 2025.
• Total loans increased by $44.5 million (5.4%), primarily driven by a $75.9 million growth in consumer indirect loans.
• Nonperforming assets significantly decreased to $2.2 million (0.19% of total assets) as of September 30, 2025, from $5.5 million (0.50% of total assets) as of December 31, 2024.
• Shareholders' equity increased by $5.6 million (5.7%) to $104.2 million as of September 30, 2025.
• Cash dividends per share increased to $0.21 for the nine months ended September 30, 2025, from $0.15 for the same period in 2024.
• Net unrealized losses in the available-for-sale portfolio decreased to $2.0 million as of September 30, 2025, from $6.7 million as of December 31, 2024.
• The Bank maintained capital ratios above well-capitalized institution requirements, with Common Equity Tier 1 and Tier 1 Risk-Based ratios each at 10.77%, Total Capital ratio at 11.92%, and Tier 1 Leverage ratio at 9.19%.
• The weighted average credit score of new indirect loans financed during the nine months ended September 30, 2025, was 798, indicating high credit quality in this growing portfolio.

Negatives

• Net income decreased to $1.9 million for the three months ended September 30, 2025, from $2.2 million for the same period in 2024.
• Net income decreased to $3.9 million for the nine months ended September 30, 2025, from $6.5 million for the same period in 2024.
• Diluted EPS decreased to $0.32 for the three months ended September 30, 2025, from $0.36 for the same period in 2024.
• Diluted EPS decreased to $0.64 for the nine months ended September 30, 2025, from $1.04 for the same period in 2024.
• Provision for credit losses significantly increased to $3.8 million for the nine months ended September 30, 2025, from $0.2 million for the same period in 2024, primarily due to consumer indirect loans ($2.8 million) and two individually evaluated commercial loans ($1.1 million for C&I, $0.1 million for CRE).
• Net interest margin decreased to 3.57% for the nine months ended September 30, 2025, from 3.65% for the same period in 2024, as the average yield on interest-earning assets declined faster than the average rate on interest-bearing liabilities.
• Non-interest expense increased by $0.4 million (1.8%) for the nine months ended September 30, 2025, driven by increases in collection and other real estate/foreclosure expense, and non-repeated check fraud recoveries from 2024.
• Annualized net charge-offs as a percentage of average loans increased to 0.52% for the nine months ended September 30, 2025, compared to 0.10% for the same period in 2024.
• Core deposits as a percentage of total deposits decreased to 83.6% as of September 30, 2025, from 86.1% as of December 31, 2024.

Risks

• Adverse developments in the financial services industry.
• Effects of any government shutdown.
• Loan losses may be greater than anticipated.
• Ability to ensure sufficient cash flow and liquid assets are available to satisfy current and future financial obligations.
• Increased lending risks associated with commercial real estate lending.
• Potential weakness in the residential real estate market.
• Liquidity risks.
• Impact of national and local market conditions on the Company’s business and operations.
• Effects of significant changes to the structure and operations of the federal government.
• Strong competition in the banking industry.
• Impact of changes in interest rates and monetary policy on the Company’s performance and financial condition.
• Effects of fiscal challenges facing the U.S. government or any potential government shutdown.
• Impact of technological changes in the banking and financial service industries and potential information system failures.
• Cybersecurity and data privacy threats.
• Risks and challenges presented by the development and use of artificial intelligence (AI).
• Costs of complying with extensive governmental regulation.
• Risk that internal controls and procedures might fail or be circumvented.
• Impact of changing accounting standards and tax laws on the Company’s financial results.
• Potential impact of climate change and related legislative and regulatory initiatives.
• Possibility that acquisitions may not produce anticipated results and result in unforeseen integration difficulties.
• Volatility of stock price and dependence on the soundness of other financial institutions.
• Economic uncertainty from trade tariffs and other economic policies could negatively impact certain customers, causing increased difficulty in repaying loans or other obligations, potentially leading to higher credit losses.
• Competition for deposits has remained at elevated levels in local markets, causing difficulty in lowering funding costs amid a declining interest rate environment.
• Uncertainty has continued with respect to commercial lending as business firms assess the potential impact of trade tariffs and the interest rate environment on their activities.
• Should market interest rates or the federal funds rate increase or decrease at significant levels, particularly over a short period of time, the Company’s net interest margin and net interest income could be negatively impacted.
• Factors beyond the Company's control, such as changes in economic forecasts related to the national economy, changes in consumer behavior, or economic deterioration in service areas, may negatively and materially affect asset quality and the adequacy of the Allowance for Credit Losses (ACL), as well as the resulting provision for credit losses.

Future Outlook

Management continues efforts to maximize earning asset growth and reduce interest expense, though the results of these efforts cannot be fully predicted. The Company anticipates that core deposits will remain its primary funding source, but various economic and competitive factors could affect this in the future. Significant variation in non-interest income is not expected in the near term. The renovated banking center office in Daphne, Alabama, is expected to open during the first half of 2026. The adoption of new accounting standards (ASU 2023-09 and ASU 2024-03) is not expected to have a material impact on the financial statements.

Management Comments

• 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.
• Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.
• While we believe that the methodologies and calculations that have been used in the determination of the ACL are adequate, the determination of the appropriateness of the ACL is complex and requires judgment by management about the effects of matters that are inherently uncertain.

Industry Context

Economic volatility persisted during the first nine months of 2025, characterized by continued U.S. GDP growth, rising inflation (3.0% in September 2025), and increasing unemployment levels (4.3% in August 2025). This environment, coupled with ongoing geopolitical unrest, trade tariffs, and a Congressional government shutdown, created significant economic uncertainty. The Federal Reserve reduced the federal funds rate by 25 basis points in both September and October 2025, and lower Treasury rates suggest market sentiment for further rate reductions. Locally, competition for deposits remains elevated, making it challenging to lower funding costs. Commercial lending faces uncertainty as businesses assess the impact of trade policies and interest rates, while consumer spending has generally slowed, though the Company experienced significant growth in higher-end consumer indirect lending.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The Company is party to certain ordinary course litigation and intends to vigorously defend itself in all such litigation.
• Management believes that 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.

Related Party Transactions

• The Bank makes loans to certain officers and directors of the Company, including companies with which they are associated, on the same terms as those prevailing for comparable transactions with unrelated parties.
• Aggregate balances of such related party loans and commitments were $22.9 million as of September 30, 2025, compared to $11.4 million as of December 31, 2024.
• During the nine months ended September 30, 2025, new loans of $11.5 million were made to related parties, with no repayments made by related parties.

Stakeholder Impact

• Shareholders: Experienced decreased net income and diluted EPS, but received increased dividends per share ($0.21 vs $0.15) and benefit from an ongoing share repurchase program (872,813 shares remaining available).
• Employees: Salaries and employee benefits decreased slightly for the nine months ended September 30, 2025, but the company continues to invest in technology and training for its 151 full-time equivalent employees.
• Customers: The Company maintains a focus on customer satisfaction and responsiveness, with continued loan growth, particularly in consumer indirect lending.
• Creditors: Increased short-term borrowings and existing subordinated debt indicate reliance on external funding, but the Company's strong capital ratios and diverse liquidity sources provide a stable financial position.

Next Steps

• Continue efforts to maximize earning asset growth and reduce interest expense.
• Monitor deposit levels closely to ensure adequate funding for the Company's activities.
• Evaluate opportunities to add non-interest revenue streams and grow existing streams.
• Open the renovated banking center office in Daphne, Alabama, during the first half of 2026.
• Continue to evaluate the impact of new accounting standards, ASU 2023-09 and ASU 2024-03, through their adoption dates.

Key Dates

Recommendation

The company presents a mixed financial picture. While positive aspects include robust loan growth, particularly in the high-credit-quality consumer indirect portfolio, and a significant reduction in non-performing assets, these are overshadowed by a substantial decline in net income and diluted EPS for both the quarter and year-to-date periods. The sharp increase in the provision for credit losses and a compressed net interest margin indicate profitability challenges. The economic environment, characterized by interest rate volatility and competitive pressures, adds to uncertainty. Despite increased dividends and an active share repurchase program, the weaker core financial performance warrants a cautious 'hold' recommendation as the company works to improve its profitability metrics in a challenging market.

Keywords

Bank Holding Company, Regional Bank, Financial Services, SEC Filing, 10-Q, Quarterly Report, Net Income, Earnings Per Share, Loan Growth, Credit Losses, Nonperforming Assets, Deposits, Net Interest Margin, Share Repurchase, Dividends, Regulatory Capital, Liquidity, Interest Rate Risk, Commercial Real Estate, Consumer Lending, Indirect Lending, Alabama Banking, Tennessee Banking, Virginia Banking