Analyst Summary
- Net income decreased slightly from $8.5 million in 2023 to $8.2 million in 2024, primarily due to a decrease in net interest income impacted by rising interest rates and increased funding costs.
- Net interest margin compressed from 3.87% in 2023 to 3.59% in 2024, indicating potential challenges in maintaining profitability.
- Total assets increased modestly to $1,101.1 million, driven by growth in the investment securities portfolio.
- Non-performing assets increased, rising from 0.28% to 0.50% of total assets, signaling a potential deterioration in asset quality.
- Management focuses on increasing franchise value through loan and deposit growth, effective credit underwriting, and expense control.
- The company’s Common equity tier 1 risk-based capital ratio increased from 10.88% in 2023 to 11.31% in 2024, indicating a stronger capital position.
- The Price-to-Earnings Ratio (P/E) increased from 7.26 in 2023 to 9.64 in 2024, and the Price-to-Book Ratio (P/B) increased from 0.65 to 0.78.
Opportunities and Risks
- Risk: Increase in non-performing assets suggests a potential deterioration in credit quality, requiring close monitoring of the loan portfolio.
- Risk: Compressed net interest margin indicates vulnerability to changes in interest rates, necessitating effective management of the asset-liability mix.
- Risk: The banking industry is highly competitive, which could put pressure on loan and deposit pricing.
- Risk: Increasing sophistication of cyber threats poses a significant risk to the company’s operations and customer data.
- Opportunity: Loan and deposit growth strategy could drive future profitability if executed successfully.
- Opportunity: Expansion of digital banking offerings could attract new customers and improve efficiency.
- Opportunity: Strategic acquisitions could accelerate growth and diversification.
Potential Implications
Company Performance
- Challenges related to asset quality and interest rate risk could impact future profitability.
- Strong capital ratios and liquidity provide a solid foundation for future growth.
- Effective management of credit risk and interest rate risk is crucial for maintaining financial stability.
- Expense control is essential for improving profitability.
Stock Price
- Increased non-performing assets and compressed net interest margin could negatively impact investor sentiment.
- Successful execution of growth strategies and effective risk management could boost investor confidence.
- The increase in the Price-to-Earnings Ratio (P/E) and Price-to-Book Ratio (P/B) may indicate increased investor optimism.
Executive Summary
This report analyzes First US Bancshares, Inc.’s 10-K filing for the year ended December 31, 2024. Key findings include a slight decrease in net income, driven by increased interest expense, and a modest increase in total assets. The company maintains strong capital ratios and adequate liquidity. However, increasing non-performing assets and a compressed net interest margin warrant close monitoring. Overall Assessment: HOLD. Recommendations: Focus on improving asset quality, managing interest rate risk, and controlling expenses.
Company Overview
First US Bancshares, Inc. is a bank holding company operating primarily through its subsidiary, First US Bank, in Alabama, Tennessee, and Virginia. The Bank provides a range of commercial banking services, including loans, deposits, and other financial products. The company also engages in indirect lending through third-party retailers. The current economic environment presents both challenges and opportunities for the banking sector, including First US Bancshares.
Financial Statement Analysis
Income Statement
Net income decreased slightly from $8.5 million in 2023 to $8.2 million in 2024. This was primarily due to a decrease in net interest income, which was impacted by rising interest rates and increased funding costs.
| Metric |
2024 |
2023 |
Change |
| Net Interest Income |
$36.1 million |
$37.4 million |
-$1.3 million |
| Net Interest Margin |
3.59% |
3.87% |
-0.28% |
| Return on Average Assets |
0.76% |
0.82% |
-0.06% |
| Return on Average Equity |
8.62% |
9.88% |
-1.26% |
The compression of the net interest margin is a key area of concern, indicating potential challenges in maintaining profitability in the current interest rate environment.
Balance Sheet
Total assets increased modestly, driven by growth in the investment securities portfolio. However, non-performing assets also increased, indicating a potential deterioration in asset quality.
| Metric |
2024 |
2023 |
Change |
| Total Assets |
$1,101.1 million |
$1,072.9 million |
+$28.2 million |
| Total Loans |
$823.0 million |
$821.8 million |
+$1.2 million |
| Total Deposits |
$972.6 million |
$950.2 million |
+$22.4 million |
| Non-Performing Assets / Total Assets |
0.50% |
0.28% |
+0.22% |
The increase in non-performing assets as a percentage of total assets is a potential red flag and requires careful monitoring.
Cash Flow Statement
Cash flow from operating activities decreased, while cash flow from financing activities increased. This suggests a shift in the company’s funding strategy.
Management’s Discussion and Analysis (MD&A) Insights
Management acknowledges the challenging economic environment and competitive pressures. Their strategy focuses on increasing franchise value through loan and deposit growth, effective credit underwriting, and expense control. The MD&A highlights the company’s commitment to maintaining strong capital ratios and adequate liquidity.
However, the MD&A also mentions potential risks related to credit losses, commercial real estate lending, and changes in interest rates. These risks align with the financial statement analysis and warrant further investigation.
Risk and Opportunity Assessment
Risks
- Credit Risk: The increase in non-performing assets suggests a potential deterioration in credit quality. The company needs to closely monitor its loan portfolio and proactively manage credit risk.
- Interest Rate Risk: The compressed net interest margin indicates vulnerability to changes in interest rates. The company needs to effectively manage its asset-liability mix to mitigate this risk.
- Competition: The banking industry is highly competitive, which could put pressure on loan and deposit pricing.
- Cybersecurity: The increasing sophistication of cyber threats poses a significant risk to the company’s operations and customer data.
Opportunities
- Loan and Deposit Growth: The company’s strategy focuses on increasing franchise value through loan and deposit growth. Successful execution of this strategy could drive future profitability.
- Digital Banking: Expansion of digital banking offerings could attract new customers and improve efficiency.
- Acquisition Opportunities: The company is considering acquisition opportunities to enter new markets. Strategic acquisitions could accelerate growth and diversification.
Conclusion and Actionable Insights
First US Bancshares faces challenges related to asset quality and interest rate risk. However, the company’s strong capital ratios and liquidity provide a solid foundation for future growth. The HOLD rating reflects a balanced view of the company’s strengths and weaknesses.
Recommendations:
- Improve Asset Quality: Implement enhanced risk management policies and procedures to address the increase in non-performing assets.
- Manage Interest Rate Risk: Actively manage the asset-liability mix to mitigate the impact of changing interest rates on the net interest margin.
- Control Expenses: Continue to focus on expense control to improve profitability.
- Monitor CRE Exposure: Closely monitor the commercial real estate portfolio, given the current market conditions and regulatory scrutiny.
Financial Analysis of First US Bancshares, Inc. (FUSB)
1. Commentary
First US Bancshares, Inc. (FUSB) reported a slight decrease in net income for 2024 compared to 2023, driven primarily by a decrease in net interest income. While interest income increased, interest expense increased at a higher rate, leading to a lower net interest income. The company maintained a strong capital position, exceeding regulatory requirements. Asset quality remains a key area of focus, with nonperforming assets showing an increase.
2. Financial Ratio and Metric Analysis
Profitability
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Gross Profit Margin |
N/A (Banks do not typically report this) |
N/A (Banks do not typically report this) |
N/A |
N/A |
| Operating Profit Margin |
N/A (Operating Income not explicitly provided, calculated as 9.76%) |
N/A (Operating Income not explicitly provided, calculated as 14.92%) |
N/A |
Community banks typically range from 20-30% |
| Net Profit Margin |
13.21% (8,170/61,843) |
15.10% (8,485/56,187) |
-12.52% |
Community banks typically range from 15-25% |
| Return on Assets (ROA) |
0.76% |
0.82% |
-7.32% |
Community banks typically range from 0.8-1.2% |
| Return on Equity (ROE) |
8.62% |
9.88% |
-12.75% |
Community banks typically range from 8-12% |
| Earnings Per Share (EPS) – Basic |
$1.40 |
$1.42 |
-1.41% |
Varies widely; benchmark against peers. |
| Earnings Per Share (EPS) – Diluted |
$1.33 |
$1.33 |
0.00% |
Varies widely; benchmark against peers. |
Liquidity
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Current Ratio |
N/A (Not typically calculated for banks) |
N/A (Not typically calculated for banks) |
N/A |
N/A |
| Quick Ratio (Acid-Test Ratio) |
N/A (Not typically calculated for banks) |
N/A (Not typically calculated for banks) |
N/A |
N/A |
| Cash Ratio |
0.048 (47,216/972,557) |
0.052 (50,279/950,191) |
-7.69% |
Generally, banks maintain a cash ratio between 3% and 8%. |
Solvency/Leverage
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Debt-to-Equity Ratio |
0.021 (20,872/98,624) |
0.023 (20,799/90,593) |
-8.70% |
Community banks typically range from 0.1-0.5 |
| Debt-to-Assets Ratio |
0.019 (20,872/1,101,086) |
0.019 (20,799/1,072,940) |
0.00% |
Community banks typically range from 0.02-0.08 |
| Interest Coverage Ratio (Times Interest Earned) |
0.49 (10,754/22,111) |
0.73 (11,271/15,456) |
-32.88% |
A ratio of 3 or higher is generally considered good. |
Activity/Efficiency
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Inventory Turnover |
N/A (Banks do not typically have inventory) |
N/A (Banks do not typically have inventory) |
N/A |
N/A |
| Days Sales Outstanding (DSO) |
N/A (Not typically calculated for banks) |
N/A (Not typically calculated for banks) |
N/A |
N/A |
| Days Payable Outstanding (DPO) |
N/A (Not typically calculated for banks) |
N/A (Not typically calculated for banks) |
N/A |
N/A |
| Asset Turnover |
0.056 (61,843/1,101,086) |
0.052 (56,187/1,072,940) |
7.69% |
Community banks typically range from 0.05-0.08 |
Valuation
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Price-to-Earnings Ratio (P/E) |
9.64 (13.50/1.40) |
7.26 (10.31/1.42) |
32.78% |
Community banks typically range from 8-15 |
| Price-to-Book Ratio (P/B) |
0.78 (12.59/17.31) |
0.65 (10.31/15.80) |
20.00% |
Community banks typically range from 0.8-1.2 |
| Price-to-Sales Ratio (P/S) |
1.17 (76.19/65.18) |
1.12 (60.04/53.59) |
4.46% |
Varies widely; benchmark against peers. |
| Enterprise Value to EBITDA (EV/EBITDA) |
10.44 (151,747/14,534) |
8.44 (120,587/14,285) |
23.69% |
Varies widely; benchmark against peers. |
Calculations: Market Cap (2024) = 5,696,000 shares * $13.50 = $76,896,000 = $76,896 thousands. Market Cap (2023) = 5,735,000 shares * $10.31 = $59,127,850 = $59,128 thousands. EV (2024) = 76,896 + 20,872 – 2,716 = 95,052 thousands. EV (2023) = 59,128 + 20,799 – 1,856 = 78,071 thousands. EBITDA (2024) = 8,170 + 2,584 + 22,111 – 3,583 = 29,282 thousands. EBITDA (2023) = 8,485 + 2,786 + 15,456 – 3,381 = 23,346 thousands.
Growth Rates
| Ratio/Metric |
2024 |
2023 |
Change (%) |
Industry Comparison |
| Revenue Growth |
10.07% (61,843/56,187) |
N/A |
N/A |
Varies widely; benchmark against peers. |
| Net Income Growth |
-3.71% (8,170/8,485) |
N/A |
N/A |
Varies widely; benchmark against peers. |
| EPS Growth |
-1.41% (1.40/1.42) |
N/A |
N/A |
Varies widely; benchmark against peers. |
Other Relevant Metrics
- Total loans to deposits: Decreased from 86.5% in 2023 to 84.6% in 2024, indicating improved liquidity management.
- Net interest margin: Decreased from 3.87% in 2023 to 3.59% in 2024, reflecting increased funding costs.
- Allowance for credit losses as % of loans: Decreased slightly from 1.28% in 2023 to 1.24% in 2024.
- Nonperforming assets as % of loans and other real estate: Increased from 0.37% in 2023 to 0.66% in 2024, indicating a deterioration in asset quality.
- Common equity tier 1 risk-based capital ratio: Increased from 10.88% in 2023 to 11.31% in 2024, indicating a stronger capital position.
⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️