First US Bancshares, Inc. Reports Third Quarter 2019 Results

BIRMINGHAM, Ala., Oct. 28, 2019 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. (Nasdaq: FUSB) (the “Company”), the parent company of First US Bank (the “Bank”), today reported third quarter 2019 net income of $1.1 million, compared to $0.2 million for the third quarter of 2018. Diluted net income per share was $0.16 in the third quarter of 2019, compared to $0.15 in the second quarter of 2019 and $0.03 in the third quarter of 2018.

Net loans for the Company increased by $33.0 million, or 25.6% on an annualized basis, during the third quarter of 2019. This growth included $30.8 million attributable to the Bank’s commercial lending efforts, along with $2.2 million in growth at the Bank’s wholly-owned subsidiary, Acceptance Loan Company (“ALC”). ALC’s growth was most pronounced in its indirect sales portfolio, which has been an area of focus for management over the past several years.

For the nine months ended September 30, 2019, the Company’s net income totaled $3.4 million, or $0.49 per diluted share, compared to $1.0 million, or $0.15 per diluted share, for the nine months ended September 30, 2018. Net loans as of September 30, 2019 totaled $544.5 million, compared to $514.9 million as of December 31, 2018, an increase of $29.6 million, or 7.7% on an annualized basis.

“We have experienced continued momentum in our lending efforts as the year has progressed,” stated James F. House, President and CEO of the Company. “Despite the additional loan loss provisioning that resulted from the substantial increase in loan volume during the quarter, we are pleased to report earnings improvement,” continued Mr. House.

The improvement in earnings for the three- and nine-month periods ended September 30, 2019 compared to the corresponding periods of 2018 resulted primarily from additional earning assets and efficiencies of scale obtained through the previously-announced acquisition of The Peoples Bank (“TPB”). TPB was acquired by the Company and merged with the Bank on August 31, 2018.

Other Highlights

Balance Sheet Efficiency and Consistent Margin – During the third quarter of 2019, management continued efforts to improve balance sheet efficiency by funding a portion of loan growth from the maturity or sale of investment securities, thereby shifting the mix of earning assets to a larger concentration of loans relative to other lower-earning assets. As a result of these efforts, coupled with reductions in higher-priced wholesale deposit funding sources, the Company maintained a relatively consistent net interest margin level in the third quarter of 2019. Net interest margin was 5.23% for the third quarter of 2019, compared to 5.21% for the second quarter of 2019 and 5.25% for the third quarter of 2018. For the nine months ended September 30, 2019, net interest margin was 5.20%, compared to 5.27% for the nine months ended September 30, 2018.

Stabilized Asset Quality – The Company experienced stabilized asset quality during the third quarter of 2019 compared to the previous quarter. Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), were $2.7 million as of both September 30, 2019 and June 30, 2019, compared to $5.3 million as of September 30, 2018. As a percentage of total assets, non-performing assets totaled 0.35% as of both September 30, 2019 and June 30, 2019, compared to 0.66% as of September 30, 2018. 

Growth in Net Interest Income – Net interest income increased by $0.1 million, or 1.2%, in the third quarter of 2019 compared to the second quarter of 2019.  Compared to the third quarter of 2018, net interest income increased by $1.0 million, or 12.2%, in the third quarter of 2019.

Provision for Loan and Lease Losses – The provision for loan and lease losses was $0.9 million during the third quarter of 2019, compared to $0.7 million during the second quarter of 2019 and $0.8 million during the third quarter of 2018. The increased provisioning in the third quarter compared to the second quarter of 2019 was due primarily to increased loan growth at the Bank, offset in part by reductions in provisioning at ALC.  For the nine months ended September 30, 2019, the Company’s loan loss provision totaled $2.0 million, compared to $2.1 million for the nine months ended September 30, 2018.

Non-interest Income – Non-interest income totaled $1.4 million during the third quarter of 2019, compared to $1.3 million during the second quarter of 2019 and $2.1 million during the third quarter of 2018.  For the nine months ended September 30, 2019, non-interest income totaled $4.0 million, compared to $4.4 million for the nine months ended September 30, 2018. The decrease comparing both the third quarter of 2019 to the third quarter of 2018, as well as the nine months ended September 30, 2019 to the nine months ended September 30, 2018, was mostly attributable to nonrecurring gains on the settlement of derivative contracts of $1.0 million in the third quarter of 2018. The decrease was partially offset by lease income in both the third quarter and nine months ended September 30, 2019 associated with the lease-up of previously unused office space at the Company’s headquarters location in Birmingham, Alabama.  Lease-up of the space occurred at the end of the fourth quarter of 2018.

Non-interest Expense – Non-interest expense totaled $8.5 million during both the third quarter and second quarter of 2019, compared to $9.1 million during the third quarter of 2018. The decrease comparing the 2019 quarters to the 2018 third quarter was attributable primarily to nonrecurring acquisition expenses of $1.5 million that were recorded in 2018 associated with the acquisition of TPB.  This expense decrease was partially offset by an increase in salaries and benefits, occupancy and other expenses associated with the addition of employees, facilities and other services in connection with the acquisition of TPB. For the nine months ended September 30, 2019, non-interest expense totaled $25.5 million, compared to $23.9 million for the nine months ended September 30, 2018.  The majority of the 2019 increase was due to a full nine-month period of operations following the acquisition of TPB as of September 30, 2019, compared to only one month as of September 30, 2018.

Provision for Income Taxes – The Company recorded $0.2 million in income tax expense for the third quarter of 2019, compared to $0.3 million in both the second quarter of 2019 and third quarter of 2018.  For the nine months ended September 30, 2019, the Company’s effective tax rate was 20.5%, compared to 29.8% for the nine months ended September 30, 2018. The reduction in the Company’s effective tax rate comparing 2019 to 2018 resulted primarily from certain non-deductible expenses associated with the acquisition of TPB in 2018 that were not incurred in 2019.  

Cash Dividend – The Company declared a cash dividend of $0.02 per share on its common stock in the third quarter of 2019. This amount is consistent with the Company’s quarterly dividend declarations in the first and second quarters of 2019 and each quarter of 2018.

Regulatory Capital – During the third quarter of 2019, the Bank continued to maintain capital ratios at higher levels than the ratios required to be considered a “well-capitalized” institution under applicable banking regulations. As of September 30, 2019, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.67%. Its total capital ratio was 13.63%, and its Tier 1 leverage ratio was 9.55%.

About First US Bancshares, Inc.

First US Bancshares, Inc. is a bank holding company that operates banking offices in Alabama, Tennessee and Virginia through First US Bank. In addition, the Company’s operations include Acceptance Loan Company, Inc., a consumer loan company, and FUSB Reinsurance, Inc., an underwriter of credit life and credit accident and health insurance policies sold to the Bank’s and ALC’s consumer loan customers. The Company files periodic reports with the U.S. Securities and Exchange Commission (the “SEC”). Copies of its filings may be obtained through the SEC’s website at www.sec.gov or at www.firstusbank.com. More information about the Company and the Bank may be obtained at www.firstusbank.com. The Company’s stock is traded on the Nasdaq Capital Market under the symbol “FUSB.”

Forward-Looking Statements

This press release contains forward-looking statements, as defined by federal securities laws. Statements contained in this press release that are not historical facts are forward-looking statements. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. The Company undertakes no obligation to update these statements following the date of this press release, except as required by law. In addition, the Company, through its senior management, may make from time to time forward-looking public statements concerning the matters described herein. Such forward-looking statements are necessarily estimates reflecting the best judgment of the Company’s senior management based upon current information and involve a number of risks and uncertainties. Certain factors that could affect the accuracy of such forward-looking statements are identified in the public filings made by the Company with the SEC, and forward-looking statements contained in this press release or in other public statements of the Company or its senior management should be considered in light of those factors. Specifically, with respect to statements relating to the sufficiency of the allowance for loan and lease losses, loan demand, cash flows, growth and earnings potential and expansion, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy generally and in the Bank’s and ALC’s service areas, market conditions and investment returns, the availability of quality loans in the Bank’s and ALC’s service areas, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and collateral values. With respect to statements relating to the Company’s acquisition of TPB, these factors include, but are not limited to, difficulties, delays and unanticipated costs in integrating the organizations’ businesses or realized expected cost savings and other benefits; business disruptions as a result of the integration of the organizations, including possible loss of customers; diversion of management time to address acquisition-related issues; and changes in asset quality and credit risk as a result of the acquisition. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

Non-GAAP Financial Measures

In addition to the financial results presented in this press release that have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company’s management believes that certain non-GAAP financial measures and ratios are beneficial to the reader. These non-GAAP measures have been provided to enhance overall understanding of the Company’s current financial performance and position. Management believes that these presentations provide meaningful comparisons of financial performance and position in various periods and can be used as a supplement to the GAAP-based measures presented in this press release. The non-GAAP financial results presented should not be considered a substitute for the GAAP-based results. Management believes that both GAAP measures of the Company’s financial performance and the respective non-GAAP measures should be considered together.

The non-GAAP measures and ratios that have been provided in this press release include measures of operating income, tangible assets and equity, and certain ratios that include tangible assets and equity. Discussion of these measures and ratios is included below, along with reconciliations of each relevant non-GAAP measure to GAAP-based measures included in the financial statements previously presented in the press release.

Operating Income

In addition to GAAP-based measures of net income, management periodically reviews certain non-GAAP measures of pre-tax income that factor out the impact of discrete income or expense items that, although not infrequent or nonrecurring, tend to fluctuate significantly from quarter to quarter or are based on events that are not necessarily indicative of the Company’s core operating earnings as a financial institution. An example includes the provision for loan and lease losses which, although a core part of the Company’s operating activities, may fluctuate significantly based on the level of loan growth in a quarter, changes in economic factors or other events during the quarter. Examples of items that are not necessarily considered by management to be core to the Company’s operating earnings include accretion and amortization of discounts, premiums and intangible assets associated with purchase accounting. In its own analysis, management has defined operating income as a non-GAAP financial measure that adjusts net income for the following items:

• Provision for (benefit from) income taxes
• Accretion of discount on purchased loans
• Accretion of premium on purchased time deposits
• Gains (losses) on sales and prepayments of investment securities
• Gains (losses) on settlements of derivative contracts
• Gains (losses) on sales of foreclosed real estate
• Provision for loan and lease losses
• Amortization of core deposit intangible asset
• Acquisition expenses

A reconciliation of the Company’s net income to its operating income for each of the most recent five quarters as of September 30, 2019 is set forth below. A limitation of the non-GAAP calculation of operating income presented below is that the adjustments to the comparable GAAP measure (net income) include gains, losses or expenses that the Company does not expect to continue to recognize at a consistent level in the future; however, the adjustments of these items should not be construed as an inference that these gains, losses or expenses are unusual, infrequent or nonrecurring.

Tangible Balances and Measures

In addition to capital ratios defined by GAAP and banking regulators, the Company utilizes various tangible common equity measures when evaluating capital utilization and adequacy. These measures, which are presented in the financial tables in this press release, may also include calculations of tangible assets. As defined by the Company, tangible common equity represents shareholders’ equity less goodwill and identifiable intangible assets, while tangible assets represent total assets less goodwill and identifiable intangible assets.

Management believes that the measures of tangible equity are important because they reflect the level of capital available to withstand unexpected market conditions. In addition, presentation of these measures allows readers to compare certain aspects of the Company’s capitalization to other organizations. In management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets that typically result from the use of the purchase accounting method in accounting for mergers and acquisitions.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these measures, management believes that there are no comparable GAAP financial measures to the tangible common equity ratios that the Company utilizes. Despite the importance of these measures to the Company, there are no standardized definitions for the measures, and, therefore, the Company’s calculations may not be comparable with those of other organizations. In addition, there may be limits to the usefulness of these measures to investors. Accordingly, management encourages readers to consider the Company’s consolidated financial statements in their entirety and not to rely on any single financial measure. The table below reconciles the Company’s calculations of these measures to amounts reported in accordance with GAAP.