First US Bancshares, Inc. Reports First Quarter 2019 Results

BIRMINGHAM, Ala., April 29, 2019 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. FUSB (the "Company") today reported net income of $1.2 million, or $0.18 per diluted share, for the quarter ended March 31, 2019, compared to $0.4 million, or $0.06 per diluted share, for the quarter ended March 31, 2018, an increase of 198.1%.  The improvement in earnings compared to the first quarter of 2018 resulted primarily from additional earning assets and cost efficiencies obtained by the Company through the previously-announced acquisition of The Peoples Bank ("TPB"), which resulted in TPB being merged with the Company's wholly-owned subsidiary, First US Bank (the "Bank"), on August 31, 2018.  Compared to the fourth quarter of 2018, earnings in the first quarter of 2019 decreased by $0.2 million, or 16.5%, primarily due to a decrease in average loan volume, increased deposit costs, and the impact of two less earning days in the quarter.

"We continue to be gratified by the improvement in earnings that we have experienced since the acquisition of The Peoples Bank," stated James F. House, President and CEO of the Company.  "We also remain excited about the prospects for future loan growth, both in our newly acquired and legacy service territories.  However, we are not satisfied with the Company's level of loan growth in the first quarter.  With a loans to deposits ratio of 71.5% as of March 31, 2019, we continue to have significant runway for future growth.  Quality loan growth will continue to be our primary focus as we move forward," continued Mr. House.

Other First Quarter Highlights

Expansion into New Markets – During the first quarter of 2019, the Bank received regulatory approval to open a loan production office in Mobile, Alabama.  Expansion of the Bank's presence in the Mobile area is consistent with the Company's strategy to gain a foothold in or near larger metropolitan markets that management believes have strong potential for future growth.  The Mobile area represents a natural fit given its proximity to the Bank's legacy service territories in southwest Alabama. In addition, the Bank's wholly-owned subsidiary, Acceptance Loan Company ("ALC"), has been headquartered in Mobile since 2015. The Bank's Mobile loan production office opened earlier this month.

Improvement in Asset Quality – The Company continued to experience improvement in asset quality during the first quarter of 2019.  Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), decreased to $3.1 million as of March 31, 2019, compared to $4.3 million as of December 31, 2018 and $5.4 million as of March 31, 2018. As a percentage of total assets, non-performing assets totaled 0.39% as of March 31, 2019, compared to 0.54% of total assets as of December 31, 2018 and 0.86% of total assets as of March 31, 2018. 

Net Interest Margin – Net yield on interest-earning assets decreased in the first quarter of 2019 to 5.17%, compared to 5.27% during the fourth quarter of 2018 and 5.24% during the first quarter of 2018. Compared to the fourth quarter of 2018, loan yields in the first quarter of 2019 remained flat, while funding costs increased by 10 basis points. Loan yields in the first quarter of 2019 improved by 28 basis points compared to the first quarter of 2018; however, these gains were offset by a 40-basis point increase in funding costs, comparing the two periods.

Provision for Loan and Lease Losses – The provision for loan and lease losses was $0.4 million during the first quarter of 2019, compared to $0.5 million during the fourth quarter of 2018 and $0.7 million during the first quarter of 2018.  Compared to the fourth quarter of 2018, provisioning decreased primarily due to reductions in loan volume at both the Bank and ALC.  Net loans at the Bank decreased $10.6 million during the first quarter, while net loans at ALC decreased by $1.5 million.  At the Bank, the reduction in loan volume resulted primarily from the scheduled payoff of one significant loan relationship, coupled with an overall soft market in commercial lending during the first quarter.  At ALC, the modest loan volume reductions resulted primarily from seasonal impacts in ALC's consumer lending portfolio. 

As of March 31, 2019 and December 31, 2018, the allowance for loan and lease losses totaled $4.9 million and $5.1 million, respectively, or 0.97% of gross loans outstanding as of both dates, representing a decrease from 1.35% as of March 31, 2018. In accordance with generally accepted accounting principles for acquisition accounting, the loans acquired through the acquisition of TPB were recorded at fair value; accordingly, there was no allowance for loan losses associated with the acquired loan portfolio at the acquisition date.  Management continues to evaluate the need for an allowance on the acquired portfolio, factoring in the remaining fair value discount on the loans, which totaled $1.6 million, or 1.13% of gross purchased loans, as of March 31, 2019. During the first quarter of 2019, management reapportioned approximately $0.1 million of the allowance for loan and lease losses on the Bank's portfolio of non-purchased loans to the allowance on the acquired portfolio. Following this reapportionment, the allowance on purchased loans combined with the fair value discount totaled $1.7 million, or 1.18% of the gross purchased loans balance, as of March 31, 2019. The allowance for loan and lease losses as a percentage of non-purchased gross loans outstanding was 1.34% as of March 31, 2019.

Non-interest Income – Non-interest income totaled $1.3 million during the first quarter of 2019, compared to $1.2 million during the fourth quarter of 2018 and $1.1 million during the first quarter of 2018. The increase comparing the first quarter of 2019 to both the fourth quarter of 2018 and the first quarter of 2018 was mostly attributable to rental income of $0.2 million associated with the lease-up of remaining 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, and, accordingly, the first quarter of 2019 represents the first full quarter of lease earnings.

Non-interest Expense – Non-interest expense totaled $8.5 million during the first quarter of 2019, compared to $8.4 million during the fourth quarter of 2018 and $7.3 million during the first quarter of 2018. The increase compared to the fourth quarter of 2018 was mostly due to increases in net occupancy and equipment expenses resulting from certain facilities upgrades and property tax expenses.  The increase compared to the first quarter of 2018 was attributable primarily to additional salaries and benefits, occupancy and other expenses associated with the addition of employees, facilities and other services in connection with the acquisition of TPB.

Provision for Income Taxes – The provision for income taxes totaled $0.4 million during the first quarter of 2019, representing an effective tax rate of 22.1% for the quarter, compared to an effective tax rate of 24.1% for the fourth quarter of 2018. The tax provisioning during the fourth quarter of 2018 was impacted by the incurrence of acquisition-related expenses, a portion of which were non-deductible under IRS regulations. 

Cash Dividend – The Company declared a cash dividend of $0.02 per share on its common stock in the first quarter of 2019. This amount is consistent with the Company's quarterly dividend declarations for each quarter of 2018 and 2017.

Regulatory Capital – During the first 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 March 31, 2019, the Bank's common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.81%. Its total capital ratio was 13.69%, and its Tier 1 leverage ratio was 9.22%.

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
Operating income is a non-GAAP financial measure that adjusts net income for the following non-operating items:

• Provision for (benefit from) income taxes
• 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
• Acquisition expenses
• Accretion of discount on purchased loans
• Accretion of premium on purchased time deposits
• Amortization of core deposit intangible asset

A reconciliation of the Company's net income to its operating income for each of the most recent five quarters as of March 31, 2019 is set forth below.  A limitation of the non-GAAP financial measures presented below is that the adjustments include gains, losses or expenses that the Company does not expect to continue to recognize at a consistent level in the future; 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 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.

1. Calculation = ((net income (d) / number of days in period) * number of days in year) / average tangible shareholders' equity (c)

Contact:   
Thomas S. Elley
205-582-1200