First US Bancshares Inc.
11/05/2026 | Press release | Distributed by Public on 11/05/2026 13:01
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 16 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Daphne, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as a loan production office in Mobile, Alabama. 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.
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 152 full-time equivalent employees (as of September 30, 2026), to ensure customer satisfaction and convenience.
The preparation of the Company's consolidated financial statements requires management to make subjective judgments associated with critical accounting 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. A description of the Company's critical accounting estimates, which significantly affect the determination of the Company's consolidated financial position, results of operations and cash flows, is set forth in Part II, Item 7 - Critical Accounting Estimates in the Company's 2025 Form 10-K.
The emphasis of this discussion is a comparison of assets, liabilities and shareholders' equity as of September 30, 2026 to December 31, 2025, while comparing income and expense for the nine months ended September 30, 2026 and 2025. 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.
This information should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this report and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's 2025 Form 10-K. As used in the following discussion, the words "we," "us," "our" and the "Company" refer to Bancshares and its consolidated subsidiaries, unless the context indicates otherwise.
RECENT MARKET CONDITIONS
During the nine months ended September 30, 2026, the banking industry continued to operate in an environment characterized by elevated economic uncertainty, persistent inflationary pressures, rising market interest rates and generally stable unemployment levels. U.S. economic activity continued to expand. According to the U.S. Bureau of Economic Analysis' advance estimate released on October 29, 2026, real gross domestic product ("GDP") increased at an annual rate of 3.4% during the third quarter of 2026, compared with revised growth of 2.2% and 2.5% during the second and first quarters of 2026, respectively. Third quarter growth reflected increases in investments, and consumer and government spending, partially offset by a decrease in exports. This is in comparison to second-quarter growth that reflected increases in consumer spending, investment and exports, partially offset by increased imports. Labor market conditions remained relatively stable, although hiring was subdued, with the unemployment rate at 4.2% in September 2026.
Inflation remained elevated, with heightened energy costs contributing to renewed price pressures. The Consumer Price Index increased 3.7% during the twelve months ended September 30, 2026, compared with 3.4% during the twelve months ended August 31, 2026. Excluding food and energy, consumer prices increased 2.6% over the twelve months ended September 30, 2026. At its September 2026 meeting, the Federal Open Market Committee (the "FOMC") increased the target range for the federal funds rate by 25 basis points from 3.75% to 4.00%. The FOMC cited continued economic expansion and elevated inflation in explaining its decision. The timing, magnitude and direction of future monetary policy actions remain uncertain.
Market interest rates, including U.S. Treasury yields, generally increased during the nine months ended September 30, 2026. The yield on the 10-year U.S. Treasury increased from approximately 4.18% at December 31, 2025 and 4.44% at June 30, 2026 to approximately 5.29% at September 30, 2026. Higher market rates may provide opportunities to improve yields on newly originated loans and investments, but may also
increase funding costs, constrain borrowing demand and adversely affect the fair values of fixed-rate assets. The effects on the Company depend, in part, on the timing and extent of asset and liability repricing and changes in the composition of its balance sheet.
Uncertainty also remained elevated with respect to U.S. fiscal and trade policy, including the effects of elevated national debt, tariffs, and the potential for additional policy changes. Reports from businesses across Federal Reserve Districts continued to identify energy, transportation, insurance and tariff-related costs as sources of pressure on operating margins and customer pricing. Consumer spending remained uneven, with greater resilience among higher-income households and continued price sensitivity among other consumers. Geopolitical developments, including disruptions associated with conflicts in the Middle East and Europe, continued to create uncertainty regarding energy supplies, global commerce and economic activity. These conditions may affect business investment, consumer demand and the ability of borrowers to absorb higher costs.
In the Company's local markets, competitive pressures for both loans and deposits remained elevated during the third quarter of 2026. Commercial lending activity remained measured as business customers assessed borrowing costs and broader economic and policy uncertainty. Expected project payoffs, particularly in multi-family residential and construction lending, contributed to a decline in total loans during the third quarter of 2026. These decreases were partially offset by continued growth in the Company's indirect consumer portfolio.
The Company's indirect lending platform continued to focus on borrowers at the higher end of the credit spectrum, with collateral primarily consisting of boats, recreational vehicles, campers, horse trailers and cargo trailers. Indirect consumer loans increased by $35.8 million, or 9.4%, during the nine months ended September 30, 2026, compared to December 31, 2025. The portfolio carried a weighted-average credit score at the time of funding of 785 as of September 30, 2026. Although this credit profile supports the Company's underwriting strategy, demand for discretionary purchases and borrowers' repayment capacity remain sensitive to employment conditions, household financial pressures and changes in the broader economy.
The Company's net interest margin improved to 3.66% during the third quarter of 2026, compared with 3.56% during the second quarter, reflecting higher yields on loans and investment securities while average deposit costs remained relatively stable. Nevertheless, deposit competition, changes in market interest rates and differences in the timing of asset and liability repricing continue to present challenges to sustaining margin improvement. Management continues to monitor economic conditions, credit performance, collateral values and funding needs, while emphasizing disciplined pricing, underwriting and liquidity management. Adverse changes in economic conditions, credit quality, loan demand, competitive dynamics, deposit pricing, geopolitical developments, trade or fiscal policy, or interest rates could negatively affect the Company's financial condition and results of operations.
EXECUTIVE OVERVIEW
The Company earned net income of $2.0 million, or $0.36 per diluted share, during the three months ended September 30, 2026, compared to $1.9 million, or $0.32 per diluted share, for the three months ended September 30, 2025. For the nine months ended September 30, 2026, net income totaled $5.7 million, or $1.00 per diluted share, compared to $3.9 million, or $0.64 per diluted share, for the nine months ended September 30, 2025. Net income for the three months ended September 30, 2026 remained relatively stable compared to the corresponding period of 2025, with higher net interest income and non-interest income largely offset by higher non-interest expense. The increase in net income for the nine months ended September 30, 2026 compared to the corresponding period of 2025 resulted primarily from a decrease in the provision for credit losses, along with higher net interest income and non-interest income, partially offset by higher non-interest expense.
Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2026 and 2025.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
(Dollars in Thousands, Except Per Share Data) |
||||||||||||||||
|
Interest income |
$ |
15,107 |
$ |
15,281 |
$ |
44,704 |
$ |
44,153 |
||||||||
|
Interest expense |
5,257 |
5,619 |
16,139 |
16,118 |
||||||||||||
|
Net interest income |
9,850 |
9,662 |
28,565 |
28,035 |
||||||||||||
|
Provision for credit losses |
586 |
566 |
1,779 |
3,811 |
||||||||||||
|
Net interest income after provision for credit losses |
9,264 |
9,096 |
26,786 |
24,224 |
||||||||||||
|
Non-interest income |
967 |
860 |
3,125 |
2,584 |
||||||||||||
|
Non-interest expense |
7,713 |
7,437 |
22,697 |
21,799 |
||||||||||||
|
Income before income taxes |
2,518 |
2,519 |
7,214 |
5,009 |
||||||||||||
|
Provision for income taxes |
558 |
583 |
1,556 |
1,146 |
||||||||||||
|
Net income |
$ |
1,960 |
$ |
1,936 |
$ |
5,658 |
$ |
3,863 |
||||||||
|
Basic net income per share |
$ |
0.36 |
$ |
0.33 |
$ |
1.01 |
$ |
0.66 |
||||||||
|
Diluted net income per share |
$ |
0.36 |
$ |
0.32 |
$ |
1.00 |
$ |
0.64 |
||||||||
|
Dividends per share |
$ |
0.07 |
$ |
0.07 |
$ |
0.21 |
$ |
0.21 |
||||||||
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, 2026, as compared to the nine months ended September 30, 2025.
Net Interest Income and Margin
Net interest income increased by $0.5 million, or 1.9%, comparing the nine months ended September 30, 2026 to the nine months ended September 30, 2025. The increase resulted primarily from growth in average interest-earning assets, which increased by $33.0 million, or 3.1%, comparing the two periods. Earning asset growth was primarily attributable to higher average balances of investment securities and interest-bearing deposits with other financial institutions. The increase in interest income was partially offset by a modest increase in interest expense, as the effect of higher average interest-bearing deposit balances was largely offset by lower average deposit rates and reduced borrowing costs. While earning asset growth supported the increase in net interest income, net interest margin decreased as the average yield on interest-earning assets declined from 5.63% to 5.52%, while the average cost of total funding liabilities declined from 2.15% to 2.09%. Net interest margin was 3.53% for the nine months ended September 30, 2026, compared to 3.57% for the nine months ended September 30, 2025.
Provision for Credit Losses
For the nine months ended September 30, 2026, the Company recorded a provision for credit losses of $1.8 million, compared to $3.8 million for the nine months ended September 30, 2025. The year-over-year decrease resulted primarily from provisioning for specifically identified commercial loans in 2025. The credit issues associated with the additional provisioning on these loans were resolved by the end of 2025 and, accordingly, the same level of provisioning was not repeated during the nine months ended September 30, 2026. The Company's ACL on loans and leases totaled $11.0 million, or 1.30% of total loans, as of September 30, 2026, compared to $10.7 million, or 1.25%, as of December 31, 2025. The increase in the ACL as a percentage of total loans during the nine-months ended September 30, 2026 reflected changes in loan portfolio composition, including more prominent growth in indirect consumer loans, which require higher credit allowances than other loan categories, as well as updated economic forecast data released during the third quarter of 2026. While management believes that the ACL is adequate to absorb credit losses within the Company's loan portfolio, inherent uncertainty exists regarding the ultimate impact of geopolitical and economic matters, including prospective inflation, unemployment levels, tariffs and consumer affordability.
Non-interest Income
Non-interest income totaled $3.1 million for the nine months ended September 30, 2026, compared to $2.6 million for the nine months ended September 30, 2025. The increase resulted primarily from $0.5 million in gains on sale of investment securities during the nine months ended September 30, 2026 that did not occur during the corresponding period of 2025.
Non-interest Expense
Non-interest expense totaled $22.7 million for the nine months ended September 30, 2026, compared to $21.8 million for the corresponding period of 2025, reflecting an increase of $0.9 million, or 4.1%. The increase resulted primarily from cost-of-living increases associated with
salaries and employee benefits, increases in occupancy expense associated with expansion of the Company's banking center footprint, as well as inflationary increases in various other expense categories.
Total Assets
As of September 30, 2026, the Company's assets totaled $1,164.8 million, compared to $1,154.8 million as of December 31, 2025, an increase of 0.9%.
Loans
Total loans decreased by $8.0 million, or 0.9%, as of September 30, 2026, compared to December 31, 2025. The decrease reflected substantial payoffs of real estate loans, including construction, multi-family and commercial real estate, partially offset by growth in indirect consumer loans. The commercial lending team remains strategically focused on building and maintaining commercial lending relationships that are expected to support future loan growth. Average total loans for the nine months ended September 30, 2026 were $854.3 million, an increase of $2.7 million, or 0.3%, compared to the corresponding period of 2025.
The Company's indirect lending platform focuses on borrowers at the higher end of the credit spectrum, as reflected in the portfolio's weighted average credit score at the time of funding of 785 as of September 30, 2026. Indirect consumer loans increased by $35.8 million, or 9.4%, during the nine months ended September 30, 2026, compared to December 31, 2025. Collateral primarily consists of boats, recreational vehicles, campers, horse trailers and cargo trailers.
The average yield on total loans was 5.94% for the nine months ended September 30, 2026, compared to 6.07% for the corresponding period of 2025.
Asset Quality
Nonperforming assets, including loans in non-accrual status, other real estate owned, and repossessed assets, totaled $1.7 million as of September 30, 2026, compared to $1.6 million as of December 31, 2025. As a percentage of total assets, nonperforming assets represented 0.14% of total assets as of both September 30, 2026 and December 31, 2025. For the nine months ended September 30, 2026, annualized net charge-offs as a percentage of average loans were 0.25%, compared to 0.52% for the corresponding period of 2025. The year-over-year improvement reflected, in part, the absence of a $2.2 million charge-off recorded for an individually evaluated commercial loan in 2025.
Deposits
Total deposits were $1.015 billion as of September 30, 2026, reflecting a decrease of $12.9 million, or 1.3%, compared to December 31, 2025. The decrease reflected a $21.9 million reduction in wholesale brokered deposits, partially offset by an increase of $9.0 million, or 1.0%, in all other deposits. The reduction in wholesale brokered deposits supported management's efforts to reduce overall deposit costs while maintaining an appropriate level of core funding. Non-interest-bearing deposits increased by $8.5 million to $162.3 million, or 16.0% of total deposits, as of September 30, 2026, compared to $153.8 million, or 15.0% of total deposits, as of December 31, 2025. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $844.6 million, or 83.2% of total deposits, as of September 30, 2026, compared to $838.3 million, or 81.6% of total deposits, as of December 31, 2025. The average rate on total deposits decreased to 2.05% for the nine months ended September 30, 2026, compared to 2.10% for the corresponding period of 2025.
In the current environment, significant competitive pressure remains to acquire and maintain deposit balances. The Company remains focused on efforts to grow deposits while maintaining pricing discipline. Part of this strategy includes growth in deposit gathering banking centers. Consistent with these efforts, in May 2026, the Company opened a new banking center office in Daphne, Alabama to the public. This location represents the Bank's initial deposit gathering facility in the Daphne/Mobile area. In addition, in April 2026, the Company purchased an office in Orange Beach, Alabama, which is expected to serve as a banking center following the completion of renovations. The location is expected to open to the public in 2027.
Cash and Investment Securities
As of September 30, 2026, the Company held cash, federal funds sold and securities purchased under reverse repurchase agreements totaling $66.4 million, or 5.7% of total assets, compared to $78.4 million, or 6.8% of total assets, as of December 31, 2025. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $194.7 million as of September 30, 2026, compared to $168.5 million as of December 31, 2025. During the nine months ended September 30, 2026, the Company purchased $71.4 million in investment securities. These purchases, combined with the maturity and paydown of investment securities at lower rates, have led to continued improvement in yield on the portfolio. For the nine months ended September 30, 2026, the average yield on investment securities was 4.00%, compared to 3.52% for the corresponding period of 2025. As of September 30, 2026, the expected average life of securities in the investment portfolio was 4.0 years, compared to 3.7 years as of December 31, 2025.
Shareholders' Equity
As of September 30, 2026, shareholders' equity totaled $96.6 million, or 8.29% of total assets, compared to $105.6 million, or 9.15% of total assets, as of December 31, 2025. While earnings, net of dividends paid, increased shareholders' equity during the nine months ended September 30, 2026, the increase was fully offset by share repurchases during the period, combined with an increase in the Company's accumulated other comprehensive loss resulting from increases in market interest rates comparing September 30, 2026 to December 31, 2025.
Cash Dividends
During both the nine months ended September 30, 2026 and 2025, the Company declared cash dividends totaling $0.21 per share on its common stock.
Share Repurchases
During the nine months ended September 30, 2026, the Company completed the repurchase of 627,500 shares of its common stock at a weighted average price of $16.02 per share. The repurchases were completed under the Company's previously announced share repurchase program, which was most recently expanded during the fourth quarter of 2025. As of September 30, 2026, 1,157,313 shares remained available for repurchase under the program.
Regulatory Capital
During the nine months ended September 30, 2026, 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, 2026, the Bank's common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.00%. Its total capital ratio was 12.20%, and its Tier 1 leverage ratio was 9.16%.
Liquidity
As of September 30, 2026, the Company continued to maintain 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 with other banking institutions, FHLB advances, the FRB's discount window, 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, investment securities, 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.
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, 2026 and 2025. 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.
|
Three Months Ended |
Three Months Ended |
|||||||||||||||||||||||
|
September 30, 2026 |
September 30, 2025 |
|||||||||||||||||||||||
|
Average |
Interest |
Annualized |
Average |
Interest |
Annualized |
|||||||||||||||||||
|
ASSETS |
||||||||||||||||||||||||
|
Interest-earning assets: |
||||||||||||||||||||||||
|
Loans (1) |
$ |
857,791 |
$ |
12,936 |
5.98 |
% |
$ |
871,926 |
$ |
13,413 |
6.10 |
% |
||||||||||||
|
Investment securities |
171,365 |
1,801 |
4.17 |
% |
151,303 |
1,391 |
3.65 |
% |
||||||||||||||||
|
Federal Home Loan Bank stock |
1,639 |
25 |
6.05 |
% |
1,328 |
21 |
6.27 |
% |
||||||||||||||||
|
Federal funds sold and securities purchased under reverse repurchase agreements |
4,850 |
46 |
3.76 |
% |
4,850 |
54 |
4.42 |
% |
||||||||||||||||
|
Interest-bearing deposits in banks |
32,905 |
299 |
3.61 |
% |
36,087 |
402 |
4.42 |
% |
||||||||||||||||
|
Total interest-earning assets |
1,068,550 |
15,107 |
5.61 |
% |
1,065,494 |
15,281 |
5.69 |
% |
||||||||||||||||
|
Noninterest-earning assets |
66,032 |
64,765 |
||||||||||||||||||||||
|
Total assets |
$ |
1,134,582 |
$ |
1,130,259 |
||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Demand deposits |
$ |
200,758 |
$ |
339 |
0.67 |
% |
$ |
195,955 |
$ |
386 |
0.78 |
% |
||||||||||||
|
Money market/savings deposits |
319,224 |
1,940 |
2.41 |
% |
300,736 |
2,068 |
2.73 |
% |
||||||||||||||||
|
Time deposits |
320,871 |
2,690 |
3.33 |
% |
345,916 |
2,914 |
3.34 |
% |
||||||||||||||||
|
Total interest-bearing deposits |
840,853 |
4,969 |
2.34 |
% |
842,607 |
5,368 |
2.53 |
% |
||||||||||||||||
|
Noninterest-bearing demand deposits |
152,062 |
- |
- |
152,474 |
- |
- |
||||||||||||||||||
|
Total deposits |
992,915 |
4,969 |
1.99 |
% |
995,081 |
5,368 |
2.14 |
% |
||||||||||||||||
|
Borrowings |
28,665 |
288 |
3.99 |
% |
22,472 |
251 |
4.43 |
% |
||||||||||||||||
|
Total funding liabilities |
1,021,580 |
5,257 |
2.04 |
% |
1,017,553 |
5,619 |
2.19 |
% |
||||||||||||||||
|
Other noninterest-bearing liabilities |
10,624 |
9,969 |
||||||||||||||||||||||
|
Shareholders' equity |
102,378 |
102,737 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,134,582 |
$ |
1,130,259 |
||||||||||||||||||||
|
Net interest income (2) |
$ |
9,850 |
$ |
9,662 |
||||||||||||||||||||
|
Net interest margin |
3.66 |
% |
3.60 |
% |
||||||||||||||||||||
|
(1) |
For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. These loans averaged $1.3 million and $1.6 million for the three months ended September 30, 2026 and 2025, respectively. |
|
(2) |
Loan fees are included in interest amounts presented. Loan fees totaled $0.1 million for both the three months ended September 30, 2026 and 2025. |
|
Nine Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
|
September 30, 2026 |
September 30, 2025 |
|||||||||||||||||||||||
|
Average |
Interest |
Annualized |
Average |
Interest |
Annualized |
|||||||||||||||||||
|
ASSETS |
||||||||||||||||||||||||
|
Interest-earning assets: |
||||||||||||||||||||||||
|
Loans (1) |
$ |
854,295 |
$ |
37,981 |
5.94 |
% |
$ |
851,561 |
$ |
38,643 |
6.07 |
% |
||||||||||||
|
Investment securities |
173,877 |
5,207 |
4.00 |
% |
157,319 |
4,138 |
3.52 |
% |
||||||||||||||||
|
Federal Home Loan Bank stock |
1,291 |
59 |
6.11 |
% |
1,330 |
71 |
7.14 |
% |
||||||||||||||||
|
Federal funds sold and securities purchased under reverse repurchase agreements |
8,978 |
260 |
3.87 |
% |
4,850 |
160 |
4.41 |
% |
||||||||||||||||
|
Interest-bearing deposits in banks |
43,976 |
1,197 |
3.64 |
% |
34,375 |
1,141 |
4.44 |
% |
||||||||||||||||
|
Total interest-earning assets |
1,082,417 |
44,704 |
5.52 |
% |
1,049,435 |
44,153 |
5.63 |
% |
||||||||||||||||
|
Noninterest-earning assets |
64,917 |
64,034 |
||||||||||||||||||||||
|
Total assets |
$ |
1,147,334 |
$ |
1,113,469 |
||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Demand deposits |
$ |
206,156 |
1,088 |
0.71 |
% |
$ |
203,880 |
$ |
1,317 |
0.86 |
% |
|||||||||||||
|
Money market/savings deposits |
325,630 |
6,063 |
2.49 |
% |
277,149 |
5,355 |
2.58 |
% |
||||||||||||||||
|
Time deposits |
328,436 |
8,344 |
3.40 |
% |
344,310 |
8,690 |
3.37 |
% |
||||||||||||||||
|
Total interest-bearing deposits |
860,222 |
15,495 |
2.41 |
% |
825,339 |
15,362 |
2.49 |
% |
||||||||||||||||
|
Noninterest-bearing demand deposits |
151,052 |
- |
- |
154,390 |
- |
- |
||||||||||||||||||
|
Total deposits |
1,011,274 |
15,495 |
2.05 |
% |
979,729 |
15,362 |
2.10 |
% |
||||||||||||||||
|
Borrowings |
21,365 |
644 |
4.03 |
% |
22,944 |
756 |
4.41 |
% |
||||||||||||||||
|
Total funding liabilities |
1,032,639 |
16,139 |
2.09 |
% |
1,002,673 |
16,118 |
2.15 |
% |
||||||||||||||||
|
Other noninterest-bearing liabilities |
10,471 |
9,521 |
||||||||||||||||||||||
|
Shareholders' equity |
104,224 |
101,275 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,147,334 |
$ |
1,113,469 |
||||||||||||||||||||
|
Net interest income (2) |
$ |
28,565 |
$ |
28,035 |
||||||||||||||||||||
|
Net interest margin |
3.53 |
% |
3.57 |
% |
||||||||||||||||||||
|
(1) |
For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. These loans averaged $1.4 million and $2.9 million for the nine months ended September 30, 2026 and 2025, respectively. |
|
(2) |
Loan fees are included in interest amounts presented. Loan fees totaled $0.5 million for both the nine months ended September 30, 2026 and 2025. |
The following tables summarize the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.
|
Three Months Ended September 30, 2026 |
Nine Months Ended September 30, 2026 |
|||||||||||
|
Compared to |
Compared to |
|||||||||||
|
Three Months Ended September 30, 2025 |
Nine Months Ended September 30, 2025 |
|||||||||||
|
Increase (Decrease) |
Increase (Decrease) |
|||||||||||
|
Due to Change In: |
Due to Change In: |
|||||||||||
|
Volume |
Average |
Net |
Volume |
Average |
Net |
|||||||
|
(Dollars in Thousands) |
||||||||||||
|
Interest earned on: |
||||||||||||
|
Total loans |
$(218) |
$(259) |
$(477) |
$124 |
$(786) |
$(662) |
||||||
|
Investment securities |
184 |
226 |
410 |
436 |
633 |
1,069 |
||||||
|
Federal Home Loan Bank stock |
5 |
(1) |
4 |
(2) |
(10) |
(12) |
||||||
|
Federal funds sold and securities purchased under reverse repurchase agreements |
- |
(8) |
(8) |
136 |
(36) |
100 |
||||||
|
Interest-bearing deposits in banks |
(35) |
(68) |
(103) |
319 |
(263) |
56 |
||||||
|
Total interest-earning assets |
(64) |
(110) |
(174) |
1,012 |
(461) |
551 |
||||||
|
Interest expense on: |
||||||||||||
|
Demand deposits |
9 |
(56) |
(47) |
15 |
(244) |
(229) |
||||||
|
Money market/savings deposits |
127 |
(255) |
(128) |
937 |
(229) |
708 |
||||||
|
Time deposits |
(211) |
(13) |
(224) |
(401) |
55 |
(346) |
||||||
|
Borrowings |
69 |
(32) |
37 |
(52) |
(60) |
(112) |
||||||
|
Total interest-bearing liabilities |
(5) |
(357) |
(362) |
499 |
(478) |
21 |
||||||
|
Increase (decrease) in net interest income |
$(59) |
$247 |
$188 |
$514 |
$16 |
$530 |
||||||
Interest income increased by $551 thousand during the nine months ended September 30, 2026 compared to the corresponding period of 2025. The increase resulted from a $1.0 million increase attributable to growth in average interest-earning assets, partially offset by a $461 thousand decrease attributable to changes in average yields. With the exception of investment securities, average yields declined in each earning asset category compared to the corresponding period of 2025.
Interest expense increased by $21 thousand during the nine months ended September 30, 2026 compared to the corresponding period of 2025. Changes in average balances increased interest expense by $499 thousand, primarily reflecting higher average balances of money market and savings deposits, partially offset by lower average balances of time deposits and borrowings. Changes in average rates reduced interest expense by $478 thousand, reflecting lower rates on demand deposits, money market and savings deposits, and borrowings, partially offset by higher rates on time deposits.
The Company's net interest income increased by $530 thousand during the nine months ended September 30, 2026 compared to the corresponding period of 2025, with $514 thousand attributable to changes in average balances and $16 thousand attributable to changes in average yields and rates. Net interest margin decreased to 3.53% during the nine months ended September 30, 2026, compared to 3.57% during the corresponding period of 2025, reflecting lower loan yields that were partially offset by higher investment securities yields and lower deposit costs. Management continues to pursue opportunities to improve net interest margin; however, significant changes in market interest rates, particularly over a short period of time, could adversely affect the Company's net interest income and net interest margin.
Provision for Credit Losses
For the nine months ended September 30, 2026, the provision for credit losses totaled $1.8 million, compared to $3.8 million for the corresponding period of 2025. The decreased provision comparing the first nine months of 2026 to the corresponding period of 2025 resulted primarily from provisioning for specifically identified commercial loans in 2025. The credit issues associated with the additional provisioning on these loans were resolved later in 2025 and, accordingly, the same level of provisioning was not repeated during the nine months ended September 30, 2026. Net charge-offs totaled $1.6 million and $3.3 million for the nine months ended September 30, 2026 and 2025, respectively.
As of September 30, 2026, the Company's ACL as a percentage of total loans and leases was 1.30%, compared to 1.25% as of December 31, 2025. Comparing September 30, 2026 to December 31, 2025, the increase in the ACL reflected changes in loan portfolio composition, including more prominent growth in indirect consumer loans, which require higher credit allowances than other loan categories, as well as changes in economic forecasting associated with the Company's credit forecasting model, including the expected impact of higher inflation and a higher Federal funds rate. 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. Factors beyond our control, such as changes in economic forecasts related to the national economy, changes in consumer behavior, or economic deterioration in service areas in which the Company operates, may negatively and materially affect asset quality and the adequacy of the ACL, as well as the resulting provision for credit losses.
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:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
|
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
|||||||||||||||||||||||||
|
(Dollars in Thousands) |
(Dollars in Thousands) |
|||||||||||||||||||||||||||||||
|
Service charges and other fees on deposit accounts |
$ |
321 |
$ |
289 |
$ |
32 |
11.1 |
% |
$ |
881 |
$ |
855 |
$ |
26 |
3.0 |
% |
||||||||||||||||
|
Bank-owned life insurance |
144 |
141 |
3 |
2.1 |
% |
427 |
416 |
11 |
2.6 |
% |
||||||||||||||||||||||
|
Net gain on sales and prepayments of investment securities |
5 |
11 |
(6 |
) |
NM |
463 |
13 |
450 |
NM |
|||||||||||||||||||||||
|
Lease income |
271 |
262 |
9 |
3.4 |
% |
812 |
815 |
(3 |
) |
(0.4 |
)% |
|||||||||||||||||||||
|
ATM fee income |
79 |
89 |
(10 |
) |
(11.2 |
)% |
229 |
271 |
(42 |
) |
(15.5 |
)% |
||||||||||||||||||||
|
Other income |
147 |
68 |
79 |
116.2 |
% |
313 |
214 |
99 |
46.3 |
% |
||||||||||||||||||||||
|
Total non-interest income |
$ |
967 |
$ |
860 |
$ |
107 |
12.4 |
% |
$ |
3,125 |
$ |
2,584 |
$ |
541 |
20.9 |
% |
||||||||||||||||
NM: Not meaningful
Non-interest income increased to $3.1 million for the nine months ended September 30, 2026, compared to $2.6 million for the nine months ended September 30, 2025, primarily due to gains on the sale of investment securities totaling $0.5 million during the 2026 period. Management continues to evaluate opportunities to add non-interest revenue streams and grow existing streams; however, with the exception of sales of investment securities which cannot be predicted with certainty, significant variation in non-interest income is not expected 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:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
|
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
|||||||||||||||||||||||||
|
(Dollars in Thousands) |
(Dollars in Thousands) |
|||||||||||||||||||||||||||||||
|
Salaries and employee benefits |
$ |
4,065 |
$ |
3,759 |
$ |
306 |
8.1 |
% |
$ |
11,777 |
$ |
11,440 |
$ |
337 |
2.9 |
% |
||||||||||||||||
|
Net occupancy and equipment |
949 |
987 |
(38 |
) |
(3.9 |
)% |
2,936 |
2,799 |
137 |
4.9 |
% |
|||||||||||||||||||||
|
Computer services |
467 |
431 |
36 |
8.4 |
% |
1,261 |
1,264 |
(3 |
) |
(0.2 |
)% |
|||||||||||||||||||||
|
Insurance expense and assessments |
350 |
348 |
2 |
0.6 |
% |
1,173 |
1,098 |
75 |
6.8 |
% |
||||||||||||||||||||||
|
Fees for professional services |
311 |
363 |
(52 |
) |
(14.3 |
)% |
949 |
1,048 |
(99 |
) |
(9.4 |
)% |
||||||||||||||||||||
|
Postage, stationery and supplies |
163 |
132 |
31 |
23.5 |
% |
439 |
421 |
18 |
4.3 |
% |
||||||||||||||||||||||
|
Telephone/data communications |
245 |
191 |
54 |
28.3 |
% |
706 |
576 |
130 |
22.6 |
% |
||||||||||||||||||||||
|
Collection and recoveries |
86 |
69 |
17 |
24.6 |
% |
264 |
235 |
29 |
12.3 |
% |
||||||||||||||||||||||
|
Directors fees |
126 |
103 |
23 |
22.3 |
% |
372 |
297 |
75 |
25.3 |
% |
||||||||||||||||||||||
|
Software amortization |
122 |
115 |
7 |
6.1 |
% |
424 |
330 |
94 |
28.5 |
% |
||||||||||||||||||||||
|
Other real estate/foreclosure expense, net |
41 |
153 |
(112 |
) |
(73.2 |
)% |
136 |
197 |
(61 |
) |
(31.0 |
)% |
||||||||||||||||||||
|
Other expense |
788 |
786 |
2 |
0.3 |
% |
2,260 |
2,094 |
166 |
7.9 |
% |
||||||||||||||||||||||
|
Total non-interest expense |
$ |
7,713 |
$ |
7,437 |
$ |
276 |
3.7 |
% |
$ |
22,697 |
$ |
21,799 |
$ |
898 |
4.1 |
% |
||||||||||||||||
Non-interest expense totaled $22.7 million for the nine months ended September 30, 2026, compared to $21.8 million for the corresponding period of 2025, reflecting an increase of $0.9 million, or 4.1%. The increase resulted primarily from cost-of-living increases associated with salaries and employee benefits, increases in occupancy expense associated with expansion of the Company's banking center footprint, as well as inflationary increases in various other expense categories. While management is focused on efforts to streamline business processes and improve the Company's efficiency levels, the current inflationary environment is expected to put continued upward pressure on non-interest expense.
Provision for Income Taxes
The provision for income taxes was $1.6 million and $1.1 million for the nine months ended September 30, 2026 and 2025, respectively. The Company's effective tax rate was 21.6% and 22.9%, 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 4.0 years and 3.7 years as of September 30, 2026 and December 31, 2025, 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 September 30, 2026, available-for-sale securities totaled $194.4 million, or 99.8% of the total investment portfolio, compared to $168.1 million, or 99.7% of the total investment portfolio, as of December 31, 2025. 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.
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, 2026, held-to-maturity securities totaled $0.4 million, or 0.2% of the total investment portfolio, compared to $0.5 million, or 0.3% of the total investment portfolio, as of December 31, 2025. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.
Net unrealized losses in the available-for-sale portfolio totaled $8.0 million, or 3.94% of the portfolio's amortized cost, as of September 30, 2026, compared to $1.0 million, or 0.57% of amortized cost, as of December 31, 2025. The increase in net unrealized losses reflected changes in the interest rate environment, particularly increases in market rates in the mid- to long-term portion of the Treasury yield curve.
The Company purchased $46.4 million of securities classified as available-for-sale during the third quarter of 2026. These purchases increased the amount of securities exposed to subsequent changes in market interest rates. The newly acquired securities had net unrealized losses as of September 30, 2026, contributing to the increase in the portfolio's overall net unrealized losses. Accordingly, the increase in dollar losses should also be considered in the context of a larger portfolio: available-for-sale securities at amortized cost increased by $33.3 million, or 19.7%, to $202.3 million as of September 30, 2026, compared to $169.0 million as of December 31, 2025. Net unrealized losses within the available-for-sale portfolio were reported, net of tax, in accumulated other comprehensive loss.
As of September 30, 2026, 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.
Loans and Leases
The Company's total loan portfolio decreased by $8.0 million, or 0.9%, as of September 30, 2026, compared to December 31, 2025. The decrease reflected substantial payoffs of real estate loans, including construction, multi-family and commercial real estate, partially offset by growth in indirect consumer loans. The commercial lending team remains strategically focused on building and maintaining commercial lending relationships that are expected to support future loan growth. Average total loans for the nine months ended September 30, 2026 were $854.3 million, an increase of $2.7 million, or 0.3%, compared to the corresponding period of 2025.
The Company's indirect lending platform focuses on borrowers at the higher end of the credit spectrum, as reflected in the portfolio's weighted average credit score at the time of funding of 785 as of September 30, 2026. Indirect consumer loans increased by $35.8 million, or 9.4%, during the nine months ended September 30, 2026, compared to December 31, 2025. Collateral primarily consists of boats, recreational vehicles, campers, horse trailers and cargo trailers.
The average yield on total loans was 5.94% for the nine months ended September 30, 2026, compared to 6.07% for the corresponding period of 2025.
The tables below summarize loan balances by portfolio category, as well as the ACL, as of the end of each of the most recent five quarters as of September 30, 2026:
|
Quarter Ended |
||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||
|
September |
June |
March |
December |
September |
||||||||||||||||
|
(Dollars in Thousands) |
||||||||||||||||||||
|
Real estate loans: |
||||||||||||||||||||
|
Construction, land development and other land loans |
$ |
35,778 |
$ |
41,062 |
$ |
27,236 |
$ |
32,618 |
$ |
38,560 |
||||||||||
|
Secured by 1-4 family residential properties |
63,282 |
63,093 |
65,460 |
66,996 |
67,620 |
|||||||||||||||
|
Secured by multi-family residential properties |
98,613 |
119,362 |
124,826 |
117,769 |
112,763 |
|||||||||||||||
|
Secured by non-residential commercial real estate |
181,878 |
181,480 |
189,408 |
200,699 |
211,400 |
|||||||||||||||
|
Commercial and industrial loans |
43,528 |
46,834 |
46,665 |
48,360 |
46,562 |
|||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
4,441 |
4,379 |
4,362 |
4,844 |
4,999 |
|||||||||||||||
|
Indirect |
417,523 |
404,425 |
385,740 |
381,732 |
385,616 |
|||||||||||||||
|
Total loans |
845,043 |
860,635 |
843,697 |
853,018 |
867,520 |
|||||||||||||||
|
Allowance for credit losses on loans and leases |
10,995 |
10,882 |
10,536 |
10,704 |
10,700 |
|||||||||||||||
|
Net loans |
$ |
834,048 |
$ |
849,753 |
$ |
833,161 |
$ |
842,314 |
$ |
856,820 |
||||||||||
As of September 30, 2026 and December 31, 2025, the composition of the non-residential commercial real estate loan portfolio was as follows:
|
September 30, 2026 |
December 31, 2025 |
||||||||||||||||||
|
Owner Occupied |
Non-Owner Occupied |
Total |
Owner Occupied |
Non-Owner Occupied |
Total |
||||||||||||||
|
(Dollars in Thousands) |
|||||||||||||||||||
|
Office (1) |
$ |
6,161 |
$ |
33,397 |
$ |
39,558 |
$ |
7,141 |
$ |
33,170 |
$ |
40,311 |
|||||||
|
Retail single credit tenant |
588 |
37,625 |
38,213 |
603 |
39,028 |
39,631 |
|||||||||||||
|
Industrial |
4,567 |
41,926 |
46,493 |
5,194 |
42,522 |
47,716 |
|||||||||||||
|
Storage |
686 |
4,959 |
5,645 |
727 |
15,645 |
16,372 |
|||||||||||||
|
Retail services |
10,753 |
- |
10,753 |
14,381 |
- |
14,381 |
|||||||||||||
|
Retail with anchor |
2,518 |
6,323 |
8,841 |
2,619 |
3,486 |
6,105 |
|||||||||||||
|
Senior housing / Assisted living |
17,967 |
- |
17,967 |
17,965 |
- |
17,965 |
|||||||||||||
|
Other |
8,847 |
5,561 |
14,408 |
10,222 |
7,996 |
18,218 |
|||||||||||||
|
Total loans |
$ |
52,087 |
$ |
129,791 |
$ |
181,878 |
$ |
58,852 |
$ |
141,847 |
$ |
200,699 |
|||||||
|
(1) Non-owner occupied office consisted of 15 loans with an average loan size of $2.2 million as of September 30, 2026. As of December 31, 2025, non-owner occupied office consisted of 16 loans with an average loan size of $2.1 million. For both dates presented, the properties were located in Tuscaloosa, AL, Birmingham, AL, and Chattanooga, TN. |
As of September 30, 2026 and December 31, 2025, the composition of the construction, land development, and other land loans portfolio was as follows:
|
September 30, 2026 |
December 31, 2025 |
||||||||||||||||||
|
Owner Occupied |
Non-Owner Occupied |
Total |
Owner Occupied |
Non-Owner Occupied |
Total |
||||||||||||||
|
(Dollars in Thousands) |
|||||||||||||||||||
|
Apartments |
$ |
- |
$ |
30,561 |
$ |
30,561 |
$ |
- |
$ |
22,722 |
$ |
22,722 |
|||||||
|
Farmland |
2,252 |
- |
2,252 |
2,322 |
- |
2,322 |
|||||||||||||
|
Retail |
- |
- |
- |
- |
7,445 |
7,445 |
|||||||||||||
|
Other |
- |
2,965 |
2,965 |
- |
129 |
129 |
|||||||||||||
|
Total loans |
$ |
2,252 |
$ |
33,526 |
$ |
35,778 |
$ |
2,322 |
$ |
30,296 |
$ |
32,618 |
|||||||
The following table classifies the Company's fixed and variable rate loans as of September 30, 2026 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:
|
September 30, 2026 |
||||||||||||||||||||
|
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 |
$ |
42 |
$ |
35,736 |
$ |
- |
$ |
- |
$ |
35,778 |
||||||||||
|
Secured by 1-4 family residential properties |
3,706 |
13,639 |
23,594 |
22,343 |
63,282 |
|||||||||||||||
|
Secured by multi-family residential properties |
75,260 |
21,983 |
440 |
930 |
98,613 |
|||||||||||||||
|
Secured by non-residential commercial real estate |
67,670 |
81,144 |
33,064 |
- |
181,878 |
|||||||||||||||
|
Commercial and industrial loans |
8,962 |
31,838 |
2,728 |
- |
43,528 |
|||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
1,541 |
2,847 |
53 |
- |
4,441 |
|||||||||||||||
|
Indirect (1) |
33,034 |
16,655 |
367,834 |
- |
417,523 |
|||||||||||||||
|
Total loans |
$ |
190,215 |
$ |
203,842 |
$ |
427,713 |
$ |
23,273 |
$ |
845,043 |
||||||||||
|
Loans with fixed interest rates: |
||||||||||||||||||||
|
Real estate loans: |
||||||||||||||||||||
|
Construction, land development and other land loans |
$ |
42 |
$ |
2,312 |
$ |
- |
$ |
- |
$ |
2,354 |
||||||||||
|
Secured by 1-4 family residential properties |
1,962 |
3,715 |
3,776 |
11,017 |
20,470 |
|||||||||||||||
|
Secured by multi-family residential properties |
22,627 |
8,800 |
440 |
930 |
32,797 |
|||||||||||||||
|
Secured by non-residential commercial real estate |
26,296 |
68,929 |
15,153 |
- |
110,378 |
|||||||||||||||
|
Commercial and industrial loans |
5,218 |
14,877 |
2,728 |
- |
22,823 |
|||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
1,541 |
2,847 |
53 |
- |
4,441 |
|||||||||||||||
|
Indirect |
33,034 |
16,655 |
367,834 |
- |
417,523 |
|||||||||||||||
|
Total loans with fixed interest rates |
$ |
90,720 |
$ |
118,135 |
$ |
389,984 |
$ |
11,947 |
$ |
610,786 |
||||||||||
|
Loans with variable interest rates: |
||||||||||||||||||||
|
Real estate loans: |
||||||||||||||||||||
|
Construction, land development and other land loans |
$ |
- |
$ |
33,424 |
$ |
- |
$ |
- |
$ |
33,424 |
||||||||||
|
Secured by 1-4 family residential properties |
1,744 |
9,924 |
19,818 |
11,326 |
42,812 |
|||||||||||||||
|
Secured by multi-family residential properties |
52,633 |
13,183 |
- |
- |
65,816 |
|||||||||||||||
|
Secured by non-residential commercial real estate |
41,374 |
12,215 |
17,911 |
- |
71,500 |
|||||||||||||||
|
Commercial and industrial loans |
3,744 |
16,961 |
- |
- |
20,705 |
|||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
- |
- |
- |
- |
- |
|||||||||||||||
|
Indirect |
- |
- |
- |
- |
- |
|||||||||||||||
|
Total loans with variable interest rates |
$ |
99,495 |
$ |
85,707 |
$ |
37,729 |
$ |
11,326 |
$ |
234,257 |
||||||||||
|
(1) While the Indirect portfolio has contractual maturities of up to 15 years, the weighted average term to payoff has trended at less than 5 years. |
Allowance for Credit Losses on Loans and Leases
The tables below summarize changes in the ACL on loans and leases for each of the most recent five quarters as of September 30, 2026:
|
Quarter Ended |
||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||
|
September |
June |
March |
December |
September |
||||||||||||||||
|
(Dollars in Thousands) |
||||||||||||||||||||
|
Balance at beginning of period |
$ |
10,882 |
$ |
10,536 |
$ |
10,704 |
$ |
10,700 |
$ |
11,388 |
||||||||||
|
Charge-offs: |
||||||||||||||||||||
|
Real estate loans: |
||||||||||||||||||||
|
Construction, land development and other land loans |
- |
- |
- |
- |
- |
|||||||||||||||
|
Secured by 1-4 family residential properties |
- |
- |
- |
- |
- |
|||||||||||||||
|
Secured by multi-family residential properties |
- |
- |
- |
- |
- |
|||||||||||||||
|
Secured by non-residential commercial real estate |
- |
- |
(48 |
) |
- |
- |
||||||||||||||
|
Commercial and industrial loans |
- |
- |
- |
- |
(1,024 |
) |
||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
- |
(2 |
) |
(1 |
) |
(4 |
) |
- |
||||||||||||
|
Indirect |
(548 |
) |
(745 |
) |
(590 |
) |
(464 |
) |
(411 |
) |
||||||||||
|
Total charge-offs |
(548 |
) |
(747 |
) |
(639 |
) |
(468 |
) |
(1,435 |
) |
||||||||||
|
Recoveries: |
||||||||||||||||||||
|
Real estate loans: |
||||||||||||||||||||
|
Construction, land development and other land loans |
- |
- |
- |
- |
- |
|||||||||||||||
|
Secured by 1-4 family residential properties |
4 |
5 |
5 |
9 |
10 |
|||||||||||||||
|
Secured by multi-family residential properties |
- |
- |
- |
- |
- |
|||||||||||||||
|
Secured by non-residential commercial real estate |
- |
12 |
- |
49 |
- |
|||||||||||||||
|
Commercial and industrial loans |
- |
4 |
10 |
149 |
- |
|||||||||||||||
|
Consumer loans: |
||||||||||||||||||||
|
Direct |
22 |
30 |
32 |
42 |
42 |
|||||||||||||||
|
Indirect |
50 |
57 |
99 |
36 |
45 |
|||||||||||||||
|
Total recoveries |
76 |
108 |
146 |
285 |
97 |
|||||||||||||||
|
Net charge-offs |
(472 |
) |
(639 |
) |
(493 |
) |
(183 |
) |
(1,338 |
) |
||||||||||
|
Provision for credit losses on loans and leases |
585 |
985 |
325 |
187 |
650 |
|||||||||||||||
|
Ending balance |
$ |
10,995 |
$ |
10,882 |
$ |
10,536 |
$ |
10,704 |
$ |
10,700 |
||||||||||
|
Ending balance as a percentage of loans |
1.30 |
% |
1.26 |
% |
1.25 |
% |
1.25 |
% |
1.23 |
% |
||||||||||
|
Net charge-offs as a percentage of average loans |
0.22 |
% |
0.30 |
% |
0.23 |
% |
0.08 |
% |
0.61 |
% |
||||||||||
Allowance for Credit Losses on Unfunded Lending Commitments
The Company records an ACL on unfunded lending commitments in which the Company is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable. 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 September 30, 2026, the Company's reserve for unfunded commitments, which is recorded in other liabilities in the Company's consolidated balance sheets, totaled $0.3 million, compared to $0.4 million as of December 31, 2025.
Nonperforming Assets
Nonperforming assets at the end of the five most recent quarters as of September 30, 2026 were as follows:
|
Quarter Ended |
||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||
|
September |
June |
March |
December |
September |
||||||||||||||||
|
(Dollars in Thousands) |
||||||||||||||||||||
|
Non-accrual loans |
$ |
1,296 |
$ |
1,294 |
$ |
1,629 |
$ |
1,373 |
$ |
1,066 |
||||||||||
|
Other real estate owned and other assets held-for-sale |
380 |
636 |
215 |
256 |
1,158 |
|||||||||||||||
|
Total |
$ |
1,676 |
$ |
1,930 |
$ |
1,844 |
$ |
1,629 |
$ |
2,224 |
||||||||||
|
Nonperforming assets as a percentage of total loans and other real estate |
0.20 |
% |
0.22 |
% |
0.22 |
% |
0.19 |
% |
0.26 |
% |
||||||||||
|
Nonperforming assets as a percentage of total assets |
0.14 |
% |
0.17 |
% |
0.16 |
% |
0.14 |
% |
0.19 |
% |
||||||||||
|
Non-accrual loans as a percentage of total loans |
0.15 |
% |
0.15 |
% |
0.19 |
% |
0.16 |
% |
0.12 |
% |
||||||||||
|
ACL as a percentage of non-accrual loans |
848.38 |
% |
840.96 |
% |
646.78 |
% |
779.61 |
% |
1003.75 |
% |
||||||||||
Allocation of Allowance for Credit Losses on Loans and Leases
While no portion of the ACL 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 ACL for the periods indicated:
|
As of and for the Nine Months Ended |
As of and for the Year Ended |
|||||||||||||||||||||||
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||||||||||||
|
Allowance Allocation |
Allowance as Percentage of Total Loans |
Net Charge-offs as a Percentage of Average Loans |
Allowance Allocation |
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 |
$ |
188 |
0.53 |
% |
- |
$ |
222 |
0.68 |
% |
- |
||||||||||||||
|
Secured by 1-4 family residential properties |
336 |
0.53 |
% |
-0.03 |
% |
371 |
0.55 |
% |
-0.04 |
% |
||||||||||||||
|
Secured by multi-family residential properties |
524 |
0.53 |
% |
- |
666 |
0.57 |
% |
- |
||||||||||||||||
|
Secured by non-residential commercial real estate |
1,239 |
0.68 |
% |
0.03 |
% |
1,420 |
0.71 |
% |
-0.02 |
% |
||||||||||||||
|
Commercial and industrial loans |
338 |
0.78 |
% |
-0.04 |
% |
399 |
0.83 |
% |
4.55 |
% |
||||||||||||||
|
Consumer loans: |
||||||||||||||||||||||||
|
Direct |
22 |
0.50 |
% |
-2.42 |
% |
50 |
1.03 |
% |
-3.78 |
% |
||||||||||||||
|
Indirect |
8,348 |
2.00 |
% |
0.56 |
% |
7,576 |
1.98 |
% |
0.50 |
% |
||||||||||||||
|
Total |
$ |
10,995 |
1.30 |
% |
0.25 |
% |
$ |
10,704 |
1.25 |
% |
0.41 |
% |
||||||||||||
Net charge-offs as a percentage of average loans in the three prior full years were as follows: 0.14% (2024), 0.14% (2023), 0.16% (2022).
Deposits
Total deposits decreased by $12.9 million, or 1.3%, during the nine months ended September 30, 2026, to $1.015 billion. This decrease reflected a $21.9 million reduction in wholesale brokered deposits, partially offset by a $9.0 million, or 1.0%, increase in all other deposits. The reduction in wholesale brokered deposits assisted management's efforts to reduce overall deposit costs while maintaining an appropriate level of core funding.
Non-interest-bearing demand deposits totaled $162.3 million, or 16.0% of total deposits, as of September 30, 2026, compared to $153.8 million, or 15.0% of total deposits, as of December 31, 2025. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $844.6 million, or 83.2% of total deposits, as of September 30, 2026, compared to $838.3 million, or 81.6% of total deposits, as of December 31, 2025.
For the nine months ended September 30, 2026, the average rate on total deposits was 2.05%, compared to 2.10% for the corresponding period of 2025.
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 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.
The following tables present details on the composition of the Company's deposits for the periods indicated:
|
As of and for the Nine Months Ended |
||||||||||||||||
|
September 30, 2026 |
||||||||||||||||
|
Number of Accounts |
Average Balance Per Account |
Dollars |
Percentage of Total Deposits |
|||||||||||||
|
(Dollars in Thousands) |
||||||||||||||||
|
Non-interest-bearing demand deposits |
8,858 |
$ |
18 |
$ |
162,270 |
16.0 |
% |
|||||||||
|
Interest-bearing demand deposits |
5,948 |
33 |
199,230 |
19.6 |
% |
|||||||||||
|
Money market and savings |
8,237 |
38 |
317,027 |
31.2 |
% |
|||||||||||
|
Certificates of deposits >$250 thousand |
113 |
481 |
54,404 |
5.4 |
% |
|||||||||||
|
Certificates of deposits $100-$250 thousand |
532 |
144 |
76,724 |
7.6 |
% |
|||||||||||
|
Certificates of deposits <$100 thousand |
3,635 |
25 |
89,371 |
8.8 |
% |
|||||||||||
|
Total (excluding brokered certificates of deposit) |
27,323 |
$ |
33 |
899,026 |
88.6 |
% |
||||||||||
|
Brokered deposits |
116,041 |
11.4 |
% |
|||||||||||||
|
Total |
$ |
1,015,067 |
100.0 |
% |
||||||||||||
|
As of and for the Year Ended |
||||||||||||||||
|
December 31, 2025 |
||||||||||||||||
|
Number of Accounts |
Average Balance Per Account |
Dollars |
Percentage of Total Deposits |
|||||||||||||
|
(Dollars in Thousands) |
||||||||||||||||
|
Non-interest-bearing demand deposits |
8,822 |
$ |
17 |
$ |
153,809 |
15.0 |
% |
|||||||||
|
Interest-bearing demand deposits |
6,124 |
34 |
206,985 |
20.1 |
% |
|||||||||||
|
Money market and savings |
8,332 |
37 |
307,007 |
29.9 |
% |
|||||||||||
|
Certificates of deposits >$250 thousand |
110 |
470 |
51,699 |
5.0 |
% |
|||||||||||
|
Certificates of deposits $100-$250 thousand |
537 |
142 |
76,475 |
7.4 |
% |
|||||||||||
|
Certificates of deposits <$100 thousand |
3,900 |
24 |
94,043 |
9.2 |
% |
|||||||||||
|
Total (excluding brokered certificates of deposit) |
27,825 |
$ |
32 |
890,018 |
86.6 |
% |
||||||||||
|
Brokered deposits |
137,944 |
13.4 |
% |
|||||||||||||
|
Total |
$ |
1,027,962 |
100.0 |
% |
||||||||||||
Other Interest-Bearing Liabilities
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, 2026, other interest-bearing liabilities totaled 4.6% of total interest-bearing liabilities, compared to 1.2% as of December 31, 2025.
Shareholders' Equity
As of September 30, 2026, shareholders' equity totaled $96.6 million, or 8.29% of total assets, compared to $105.6 million, or 9.15% of total assets, as of December 31, 2025. While earnings, net of dividends paid, increased shareholders' equity during the nine months ended September 30, 2026, the increase was fully offset by share repurchases during the period, combined with an increase in the Company's
accumulated other comprehensive loss resulting from increases in market interest rates comparing September 30, 2026 to December 31, 2025. During both the nine months ended September 30, 2026 and 2025, the Company declared cash dividends totaling $0.21 per share on its common stock. In addition, during the nine months ended September 30, 2026, the Company completed the repurchase of 627,500 shares of its common stock at a weighted average price of $16.02 per share. The repurchases were completed under the Company's previously announced share repurchase program. As of September 30, 2026, 1,157,313 shares remained available for repurchase under the program.
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 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 $157.1 million as of September 30, 2026 and $274.7 million as of December 31, 2025. Investment securities forecasted to mature or reprice in one year or less were estimated to be $22.5 million and $27.5 million as of September 30, 2026 and December 31, 2025, respectively.
Although some securities in the investment portfolio have 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 4.0 years and 3.7 years as of September 30, 2026 and December 31, 2025, 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 outstanding borrowings under FHLB advances of $25.0 million as of September 30, 2026, while as of December 31, 2025, the Company had no balances outstanding under FHLB advances. 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. The Company had up to $299.3 million and $324.1 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of September 30, 2026 and December 31, 2025, respectively.
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. The Company maintains pledges of its consumer indirect loan portfolio and selected investment securities with the FRB as collateral to provide immediate access to funding through the discount window. As of September 30, 2026, the Company had $5.0 million in outstanding federal funds purchased from the FRB's discount window, while there were no outstanding federal funds purchased from the discount window as of December 31, 2025. As of September 30, 2026 and December 31, 2025 the Company had $221.4 million and $210.9 million, respectively, in secured unused borrowing capacity with the FRB's discount window.
In addition to collateralized funding sources through the FHLB and FRB, the Company had $48.0 million in unused established unsecured lines of credit with banks as of both September 30, 2026 and December 31, 2025.
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 $11.0 million and $10.9 million as of September 30, 2026 and December 31, 2025, 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 September 30, 2026 and December 31, 2025.
|
September 30, |
December 31, |
||||||
|
(Dollars in Thousands) |
|||||||
|
(Unaudited) |
(Unaudited) |
||||||
|
Liquidity from cash, federal funds sold and securities purchased under reverse repurchase agreements: |
|||||||
|
Cash and cash equivalents |
$ |
61,580 |
$ |
73,547 |
|||
|
Federal funds sold and securities purchased under reverse repurchase agreements |
4,850 |
4,850 |
|||||
|
Total liquidity from cash, federal funds sold and securities purchased under reverse repurchase agreements |
66,430 |
78,397 |
|||||
|
Liquidity from pledgable investment securities: |
|||||||
|
Investment securities available-for-sale, at fair value |
194,352 |
168,075 |
|||||
|
Investment securities held-to-maturity, at amortized cost |
353 |
465 |
|||||
|
Less: securities pledged |
(79,671 |
) |
(58,497 |
) |
|||
|
Less: estimated collateral value discounts |
(10,778 |
) |
(10,671 |
) |
|||
|
Liquidity from pledgable investment securities |
104,256 |
99,372 |
|||||
|
Liquidity from unused lendable collateral (loans) at FHLB |
23,866 |
30,504 |
|||||
|
Liquidity from unused lendable collateral (loans and securities) at FRB |
221,361 |
210,921 |
|||||
|
Unsecured lines of credit with banks |
48,000 |
48,000 |
|||||
|
Total readily available liquidity |
$ |
463,913 |
$ |
467,194 |
|||
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.
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.
The Company's readily available liquidity position decreased to $463.9 million as of September 30, 2026, compared to $467.2 million as of December 31, 2025, due to a number of factors, including a reduction in cash and cash equivalents commensurate with efforts to improve balance sheet efficiency, combined with increased usage of secured short-term borrowings as of September 30, 2026. While readily available liquidity decreased comparing September 30, 2026 to December 31, 2025, the Company maintained ample access to liquidity relative to estimated uninsured deposits. Excluding wholesale brokered deposits, as of September 30, 2026, the Company had approximately 27 thousand deposit accounts with an average balance of approximately $32.9 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 $190.0 million, or 18.7% of total deposits, as of September 30, 2026. As of December 31, 2025, estimated uninsured deposits totaled $218.0 million, or 21.2% of total deposits. Management believes the Company's on-balance sheet and other readily available liquidity sources as presented in the table above provide strong indicators of the Company's ability to fund obligations in a stressed liquidity environment, particularly when considered relative to the Company's uninsured deposit levels. Furthermore, in addition to the liquidity sources noted in the table above, 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 that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.
First US Bancshares Inc. published this content on November 05, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 05, 2026 at 19:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]