First US Bancshares, Inc. Reports Second Quarter 2019 Results

BIRMINGHAM, Ala., July 29, 2019 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. FUSB (the "Company"), the parent company of First US Bank (the "Bank"), today reported net income of $1.0 million, or $0.15 per diluted share, for the quarter ended June 30, 2019, compared to $0.4 million, or $0.06 per diluted share, for the quarter ended June 30, 2018, an increase of 179.9%.  The improvement in earnings compared to the 2018 period 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.  Compared to the first quarter of 2019, earnings in the second quarter of 2019 decreased by $0.2 million, primarily resulting from an increase in the provision for loan and lease losses due to increased loan volume during the second quarter.  Net loans increased $8.8 million, or 7.0% on an annualized basis, during the second quarter of 2019.  This growth included $3.7 million attributable to the Bank's commercial lending efforts, along with $5.1 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 six months ended June 30, 2019, the Company's net income totaled $2.2 million, or $0.33 per diluted share, compared to $0.8 million, or $0.12 per diluted share, for the six months ended June 30, 2018.  Net loans as of June 30, 2019 totaled $511.5 million, compared to $514.9 million as of December 31, 2018, a decrease of $3.4 million, or 0.7%.   The decrease in net loans over the six-month period was attributable to the first quarter of 2019 and resulted primarily from the pay-off of a significant loan relationship at the Bank, coupled with seasonal trends in ALC's portfolio, during the first quarter.

"We are pleased to report a quarter of solid loan growth," stated James F. House, President and CEO of the Company.  "The loan growth that we experienced during the second quarter offset the majority of reductions from the first quarter. In addition, we continue to enjoy significant improvement in earnings since the acquisition of The Peoples Bank in 2018. Our team remains focused on generating quality loan growth at both the Bank and ALC," continued Mr. House.

Other Highlights

Expansion into New Markets – During the second quarter of 2019, the Bank received regulatory approval to open a loan production office in the Chattanooga, Tennessee area.  Expansion of the Bank's presence into the Chattanooga 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 opening of the Chattanooga-area office followed the opening of a loan production office in Mobile, Alabama during the first quarter of 2019.  

Balance Sheet Management and Reduction in Wholesale Funding – In an effort to improve the efficiency of the Company's balance sheet and reduce interest expense, during the first six months of 2019, management reduced wholesale deposit funding sources by allowing $28.3 million in brokered deposits to mature without renewal.  The reduction in wholesale deposits was partially offset by organic growth in deposits at the Bank of approximately $6.4 million.  As of June 30, 2019, the Company's brokered deposits balances totaled $5.0 million.

Improvement in Asset Quality – The Company continued to experience improvement in asset quality during the second quarter of 2019. Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), decreased to $2.7 million as of June 30, 2019, compared to $3.1 million as of March 31, 2019 and $3.9 million as of June 30, 2018. As a percentage of total assets, non-performing assets totaled 0.35% as of June 30, 2019, compared to 0.39% as of March 31, 2019 and 0.61% as of June 30, 2018. 

Growth in Net Interest Income – Net interest income increased by $0.1 million, or 0.7%, in the second quarter of 2019 compared to the first quarter of 2019.  Compared to the second quarter of 2018, net interest income increased by $1.7 million, or 23.1%.

Net Interest Margin – Net interest margin was 5.21% for the second quarter of 2019, compared to 5.17% for the first quarter of 2019 and 5.31% for the second quarter of 2018.  For the six months ended June 30, 2019, net interest margin was 5.19%, compared to 5.28% for the six months ended June 30, 2018.  The margin reductions comparing the 2019 periods to the 2018 periods are consistent with the rising interest rate environment, which has increased the Company's funding costs.  During 2019, management has focused on ways to reduce interest expense through reductions of wholesale funding sources and judicious management of rates paid on core deposits.  These efforts, coupled with continued improvement in loan yields, resulted in the improvement of net interest margin comparing the second quarter of 2019 to the first quarter of 2019.

Provision for Loan and Lease Losses – The provision for loan and lease losses was $0.7 million during the second quarter of 2019, compared to $0.4 million during the first quarter of 2019 and $0.7 million during the second quarter of 2018. Compared to the first quarter of 2019, provisioning increased primarily due to increases in loan volume at both the Bank and ALC. The Bank experienced loan growth of $11.4 million during the second quarter of 2019, which was partially offset by a decline in the purchased loan portfolio of $7.7 million. Additionally, gross consumer and branch retail loans at ALC increased by $2.7 million during the second quarter of 2019, compared to a decrease in these portfolios of $3.1 million during the first quarter of 2019.

Non-interest Income – Non-interest income totaled $1.3 million during the second quarter of 2019, compared to $1.1 million during the second quarter of 2018. The increase comparing the two quarters was mostly attributable to lease income in the second quarter of 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 the second quarter of 2019, compared to $7.5 million during the second quarter of 2018. The increase comparing the two quarters 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 $0.3 million during the second quarter of 2019, compared to $0.4 million during the first quarter of 2019, representing an effective tax rate of 23.0% for the second quarter of 2019, compared to an effective tax rate of 22.1% for the first quarter of 2019.

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

Regulatory Capital – During the second 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 June 30, 2019, the Bank's common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.86%. Its total capital ratio was 13.76%, and its Tier 1 leverage ratio was 9.43%.

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
• 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 June 30, 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 of Return on average tangible common equity (annualized) = ((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