First US Bancshares, Inc. Announces Second Quarter 2020 Results

First US Bancshares, Inc.
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BIRMINGHAM, Ala., July 29, 2020 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. (Nasdaq: FUSB) (the “Company”), the parent company of First US Bank (the “Bank”), today reported net income of $0.4 million, or $0.06 per diluted share, for the quarter ended June 30, 2020 (“2Q2020”), compared to $0.8 million, or $0.13 per diluted share, for the quarter ended March 31, 2020 (“1Q2020”) and $1.0 million, or $0.15 per diluted share, for the quarter ended June 30, 2019 (“2Q2019”). For the six months ended June 30, 2020, the Company’s net income totaled $1.3 million, or $0.19 per diluted share, compared to $2.2 million, or $0.33 per diluted share, for the six months ended June 30, 2019. Earnings for both the second quarter and six months ended June 30, 2020 were significantly impacted by the economic ramifications of the COVID-19 pandemic, including compression of net interest margin, increased provisions for loan losses, substantial growth in deposit balances and changes in borrowing activities.

“We remain focused on delivering for our customers, employees, communities and shareholders during this unprecedented time,” stated James F. House, President and CEO of the Company. “Our strong digital capabilities have enabled us to effectively support our customers and employees in a safe and effective manner throughout the pandemic. In addition, we continue to believe that the strength and stability of the Company’s balance sheet will serve us well during the uncertain times that lie ahead,” continued Mr. House.

Second Quarter 2020 Highlights

Net Interest Income – 2Q2020 net interest income decreased by $0.3 million and $0.6 million, respectively, compared to 1Q2020 and 2Q2019. The decrease compared to both prior quarters resulted primarily from margin compression, as interest-earning assets repriced more quickly than interest-bearing liabilities following the 150-basis point reduction in the federal funds rate in March. Net interest margin in 2Q2020 decreased 32 basis points compared to 1Q2020, and 56 basis points compared to 2Q2019.

The COVID-19 pandemic has reduced economic activity and increased liquidity amongst deposit customers, consequently increasing the Company’s cash balances significantly during the quarter. In the current environment, the excess cash balances earn low yields, which has put significant downward pressure on net interest margin. In addition, higher-yielding direct consumer loans at the Company’s wholly owned subsidiary, Acceptance Loan Company (“ALC”), decreased in 2Q2020 due to reduced economic activity and greater availability of cash amongst consumer borrowers. The decrease in direct consumer volume is contrary to historical seasonal trends at ALC.

During 2Q2020, management continued efforts to reprice deposit products in a manner consistent with the declining interest rate environment. The weighted average annualized rate paid for interest-bearing liabilities decreased to 0.80% for 2Q2020, compared to 1.04% for 1Q2020 and 1.17% for 2Q2019. Annualized total funding costs (including both interest-bearing and non-interest-bearing deposits and borrowings) decreased to 0.64% for 2Q2020, compared to 0.87% for 1Q2020 and 0.98% for 2Q2019. If the current interest rate environment continues, management expects to further reduce interest costs as interest-bearing liabilities continue to reprice.

Balance Sheet Growth – Total assets as of June 30, 2020 increased by $57.2 million, or 7.3%, compared to March 31, 2020. Liabilities experienced significant growth in 2Q2020 as a result of inflows of deposits during the quarter. Deposit growth reflected the impact of the COVID-19 pandemic on both business and consumer deposit holders, including preferences for liquidity, loan payment deferrals, tax payment deferrals, stimulus checks and lower consumer spending. Total deposits as of June 30, 2020 were $55.7 million, or 8.2%, higher than deposit balances as of March 31, 2020. Of the total increase in deposits, $37.5 million represented non-interest-bearing deposits, while $18.2 million were interest-bearing.

Lending Activity – Total loans increased by $26.4 million during 2Q2020. Growth in indirect sales lending totaled $20.0 million for the quarter. The Company’s indirect sales portfolio is comprised of loans secured by collateral that generally includes recreational vehicles, campers, boats and horse trailers. Effective January 1, 2020, the portfolio was transferred from ALC to the Bank, and, during the pandemic, demand for this financing grew substantially as consumers sought alternatives to more traditional travel and leisure activities. In addition to indirect lending, the Bank’s commercial lending activities resulted in growth of $13.8 million from the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”), as well as $1.5 million in growth in real estate loans. Loan growth during the quarter was partially offset by decreases in the Bank’s commercial and industrial portfolio totaling $6.8 million, as well as a reduction in consumer lending, primarily through ALC’s branch system, that totaled $1.6 million.

Loan Loss Provisions – The ratio of net charge-offs to average loans was 0.27% annualized for 2Q2020, compared to 0.28% annualized for 1Q2020 and 0.43% annualized for 2Q2019. Although net charge-off experience improved, due to uncertainty related to the ultimate economic impact of the pandemic, the Company continued to increase qualitative factors in the calculation of the allowance for loan and lease losses, resulting in increased loan loss provisioning during 2Q2020. The provision for loan and lease losses totaled $0.9 million during 2Q2020, compared to $0.6 million during 1Q2020 and $0.7 million during 2Q2019. The allowance as a percentage of total loans increased to 1.15% (excluding PPP loans, which are guaranteed by the SBA) as of June 30, 2020, compared to 1.09% as of March 31, 2020 and 0.98% as of June 30, 2019.

In accordance with relevant accounting guidance for smaller reporting companies, the Company has not yet adopted the Current Expected Credit Loss (CECL) accounting model for the calculation of credit losses. Management believes that the allowance for loan and lease losses as of June 30, 2020, which was calculated under an incurred loss model, was sufficient to absorb losses in the Company’s loan portfolio based on circumstances existing as of the balance sheet date. However, the economic environment as a result of the COVID-19 pandemic remains uncertain, and accordingly, management will continue to closely monitor the impact of changing economic circumstances on the Company’s loan portfolio.

Asset Quality – Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), were $4.4 million as of June 30, 2020, compared to $4.8 million as of December 31, 2019. As a percentage of total assets, non-performing assets totaled 0.52% as of June 30, 2020, compared to 0.61% as of December 31, 2019.

Non-interest Income – Non-interest income remained consistent, totaling $1.3 million in 2Q2020, 1Q2020 and 2Q2019. However, as a result of reduced economic activity, the Company did experience reductions in certain components of non-interest income, including service charges and credit insurance income, during 2Q2020 as compared to 1Q2020. These reductions, which totaled approximately $0.3 million, were offset by gains on the sale of investment securities during the quarter. Non-interest income totaled $2.6 million for both of the six-month periods ended June 30, 2020 and 2019.

Non-interest Expense – Non-interest expense totaled $8.6 million during 2Q2020, compared to $8.5 million during both 1Q2020 and 2Q2019. For the six-month period ended June 30, 2020, non-interest expense totaled $17.1 million, compared to $17.0 million for the six months ended June 30, 2019.

Provision for Income Taxes – The Company’s effective tax rate was 22.6% for 2Q2020, compared to 23.6% for 1Q2020 and 23.0% for 2Q2019. For the six months ended June 30, 2020, the Company’s effective tax rate was 23.3%, compared to 22.5% for the six months ended June 30, 2019.

Cash Dividend – The Company declared a cash dividend of $0.03 per share on its common stock in both 2Q2020 and 1Q2020, resulting in a dividend of $0.06 per share for the six months ended June 30, 2020, compared to $0.04 per share for the six months ended June 30, 2019.

Regulatory Capital – During 2Q2020, 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, 2020, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.84%. Its total capital ratio was 13.94%, and its Tier 1 leverage ratio was 9.36%.

Liquidity – As of June 30, 2020, the Company continued to maintain excess 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, Federal Home Loan Bank advances and brokered deposits.

COVID-19 Borrower Support Actions – Following the declaration of COVID-19 as a global pandemic in March 2020, the Company participated in a number of actions to support borrowers, including the origination of PPP loans to deliver funding to small business owners, as well as processing loan payment deferments for consumer and business borrowers.

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, interest costs, growth and earnings potential, expansion and the Company’s positioning to handle the challenges presented by COVID-19, 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; changes in interest rates; the impact of the current COVID-19 pandemic on the Company’s business, the Company’s customers, the communities that the Company serves and the United States economy, including the impact of actions taken by governmental authorities to try to contain the virus or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security Act and subsequent federal legislation) and the resulting effect on the Company’s operations, liquidity and capital position and on the financial condition of the Company’s borrowers and other customers; the pending discontinuation of LIBOR as an interest rate benchmark; 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; collateral values; and cybersecurity threats. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

Contact:

Thomas S. Elley

205-582-1200


FIRST US BANCSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – LINKED QUARTERS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

Quarter Ended

Six Months Ended

2020

2019

2020

2019

June
30,

March
31,

December
31,

September
30,

June
30,

June
30,

June
30,

Results of Operations:

Interest income

$

9,780

$

10,397

$

10,825

$

11,027

$

10,923

$

20,177

$

21,736

Interest expense

1,157

1,511

1,636

1,680

1,690

2,668

3,330

Net interest income

8,623

8,886

9,189

9,347

9,233

17,509

18,406

Provision for loan and lease losses

850

580

716

883

715

1,430

1,115

Net interest income after provision for loan
and lease losses

7,773

8,306

8,473

8,464

8,518

16,079

17,291

Non-interest income

1,330

1,297

1,396

1,414

1,291

2,627

2,556

Non-interest expense

8,581

8,494

8,279

8,546

8,504

17,075

16,957

Income before income taxes

522

1,109

1,590

1,332

1,305

1,631

2,890

Provision for income taxes

118

262

381

214

300

380

651

Net income

$

404

$

847

$

1,209

$

1,118

$

1,005

$

1,251

$

2,239

Per Share Data:

Basic net income per share

$

0.07

$

0.13

$

0.19

$

0.17

$

0.16

$

0.20

$

0.35

Diluted net income per share

$

0.06

$

0.13

$

0.18

$

0.16

$

0.15

$

0.19

$

0.33

Dividends declared

$

0.03

$

0.03

$

0.03

$

0.02

$

0.02

$

0.06

$

0.04

Key Measures (Period End):

Total assets

$

845,747

$

788,565

$

788,738

$

771,930

$

777,171

Tangible assets (1)

837,142

779,850

779,913

762,996

768,115

Loans, net of allowance for loan losses

566,062

539,685

545,243

544,519

511,515

Allowance for loan and lease losses

6,423

5,954

5,762

5,585

5,087

Investment securities, net

103,964

110,079

108,356

114,309

136,649

Total deposits

738,290

682,595

683,662

677,640

682,806

Short-term borrowings

10,334

10,152

10,025

221

73

Total shareholders’ equity

85,281

84,332

84,748

83,790

83,748

Tangible common equity (1)

76,676

75,617

75,923

74,856

74,692

Book value per common share

13.81

13.73

13.76

13.47

13.28

Tangible book value per common share (1)

12.41

12.31

12.33

12.03

11.84

Key Ratios:

Return on average assets (annualized)

0.20

%

0.43

%

0.61

%

0.57

%

0.51

%

0.31

%

0.57

%

Return on average common equity
(annualized)

1.91

%

4.02

%

5.68

%

5.28

%

4.89

%

2.96

%

5.54

%

Return on average tangible common equity
(annualized) (1)

2.13

%

4.49

%

6.35

%

5.92

%

5.50

%

3.30

%

6.25

%

Net interest margin

4.65

%

4.97

%

5.12

%

5.23

%

5.21

%

4.81

%

5.19

%

Efficiency ratio (2)

86.2

%

83.4

%

78.2

%

79.4

%

80.8

%

84.8

%

80.9

%

Net loans to deposits

76.7

%

79.1

%

79.8

%

80.4

%

74.9

%

Net loans to assets

66.9

%

68.4

%

69.1

%

70.5

%

65.8

%

Tangible common equity to tangible
assets (1)

9.16

%

9.70

%

9.73

%

9.81

%

9.72

%

Tier 1 leverage ratio (3)

9.36

%

9.46

%

9.61

%

9.55

%

9.43

%

Allowance for loan losses as % of loans (4)

1.12

%

1.09

%

1.05

%

1.02

%

0.98

%

Nonperforming assets as % of total assets

0.52

%

0.60

%

0.61

%

0.35

%

0.35

%

(1) Refer to Non-GAAP reconciliation of tangible balances and measures beginning on page 12
(2) Efficiency ratio = non-interest expense / (net interest income + non-interest income)
(3) First US Bank Tier 1 leverage ratio
(4) The allowance for loan losses as a % of loans excluding PPP loans, which are guaranteed by the SBA, was 1.15% as of June 30, 2020

FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollars in Thousands)
(Unaudited)

Three Months Ended

Three Months Ended

June 30, 2020

June 30, 2019

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

ASSETS

Interest-earning assets:

Total Loans

$

557,511

$

9,237

6.66

%

$

513,284

$

9,833

7.68

%

Taxable investment securities

104,449

493

1.90

%

140,716

735

2.10

%

Tax-exempt investment securities

1,737

12

2.78

%

2,197

15

2.74

%

Federal Home Loan Bank stock

1,135

15

5.32

%

713

12

6.75

%

Federal funds sold

6,233

4

0.26

%

15,080

98

2.61

%

Interest-bearing deposits in banks

74,596

19

0.10

%

39,492

230

2.34

%

Total interest-earning assets

745,661

9,780

5.28

%

711,482

10,923

6.16

%

Non-interest-earning assets:

Other assets

72,990

73,189

Total

$

818,651

$

784,671

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Demand deposits

$

183,536

$

138

0.30

%

$

169,745

$

215

0.51

%

Savings deposits

155,953

146

0.38

%

165,318

460

1.12

%

Time deposits

234,041

847

1.46

%

244,984

1,015

1.66

%

Total interest-bearing deposits

573,530

1,131

0.79

%

580,047

1,690

1.17

%

Borrowings

10,230

26

1.02

%

98

—

—

Total interest-bearing liabilities (1)

583,760

1,157

0.80

%

580,145

1,690

1.17

%

Non-interest-bearing liabilities:

Demand deposits

140,621

111,929

Other liabilities

9,317

10,262

Shareholders’ equity

84,953

82,335

Total

$

818,651

$

784,671

Net interest income

$

8,623

$

9,233

Net interest margin

4.65

%

5.21

%

(1) The annualized rate on total average funding costs, including total average interest-bearing liabilities and average non-interest-bearing demand deposits, was 0.64% and 0.98% for the three-month periods ended June 30, 2020 and 2019, respectively.

FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollars in Thousands)
(Unaudited)

Six Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

ASSETS

Interest-earning assets:

Total Loans

$

552,810

$

18,876

6.87

%

$

512,669

$

19,506

7.67

%

Taxable investment securities

104,286

1,024

1.97

%

144,503

1,529

2.13

%

Tax-exempt investment securities

1,464

23

3.16

%

2,199

30

2.75

%

Federal Home Loan Bank stock

1,136

30

5.31

%

708

23

6.55

%

Federal funds sold

9,448

45

0.96

%

11,129

142

2.57

%

Interest-bearing deposits in banks

63,311

179

0.57

%

43,989

506

2.32

%

Total interest-earning assets

732,455

20,177

5.54

%

715,197

21,736

6.13

%

Non-interest-earning assets:

Other assets

73,199

71,539

Total

$

805,654

$

786,736

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Demand deposits

$

176,480

$

313

0.36

%

$

169,507

$

421

0.50

%

Savings deposits

160,686

458

0.57

%

167,111

921

1.11

%

Time deposits

236,137

1,835

1.56

%

249,771

1,988

1.61

%

Total interest-bearing deposits

573,303

2,606

0.91

%

586,389

3,330

1.15

%

Borrowings

10,176

62

1.23

%

223

—

—

Total interest-bearing liabilities (1)

583,479

2,668

0.92

%

586,612

3,330

1.14

%

Non-interest-bearing liabilities:

Demand deposits

127,431

109,501

Other liabilities

9,906

9,151

Shareholders’ equity

84,838

81,472

Total

$

805,654

$

786,736

Net interest income

$

17,509

$

18,406

Net interest margin

4.81

%

5.19

%

(1) The annualized rate on total average funding costs, including total average interest-bearing liabilities and average non-interest-bearing demand deposits, was 0.75% and 0.96% for the six-month periods ended June 30, 2020 and 2019, respectively.

FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)

June 30,

December 31,

2020

2019

(Unaudited)

ASSETS

Cash and due from banks

$

12,751

$

11,939

Interest-bearing deposits in banks

95,517

45,091

Total cash and cash equivalents

108,268

57,030

Federal funds sold

80

10,080

Investment securities available-for-sale, at fair value

94,658

94,016

Investment securities held-to-maturity, at amortized cost

9,306

14,340

Federal Home Loan Bank stock, at cost

1,135

1,137

Loans and leases, net of allowance for loan and lease losses of $6,423 and
$5,762, respectively

566,062

545,243

Premises and equipment, net of accumulated depreciation of $23,195
and $22,570, respectively

28,724

29,216

Cash surrender value of bank-owned life insurance

15,696

15,546

Accrued interest receivable

3,140

2,488

Goodwill and core deposit intangible, net

8,605

8,825

Other real estate owned

1,003

1,078

Other assets

9,070

9,739

Total assets

$

845,747

$

788,738

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:

Non-interest-bearing

$

153,664

$

112,729

Interest-bearing

584,626

570,933

Total deposits

738,290

683,662

Accrued interest expense

438

537

Other liabilities

11,404

9,766

Short-term borrowings

10,334

10,025

Total liabilities

760,466

703,990

Shareholders’ equity:

Common stock, par value $0.01 per share, 10,000,000 shares authorized;
7,596,551 and 7,568,053 shares issued, respectively; 6,176,433 and 6,157,692
shares outstanding, respectively

75

75

Additional paid-in capital

13,573

13,814

Accumulated other comprehensive loss, net of tax

(145

)

(46

)

Retained earnings

93,636

92,755

Less treasury stock: 1,420,118 and 1,410,361 shares at cost, respectively

(21,858

)

(21,850

)

Total shareholders’ equity

85,281

84,748

Total liabilities and shareholders’ equity

$

845,747

$

788,738


FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Interest income:

Interest and fees on loans

$

9,237

$

9,833

$

18,876

$

19,506

Interest on investment securities

543

1,090

1,301

2,230

Total interest income

9,780

10,923

20,177

21,736

Interest expense:

Interest on deposits

1,131

1,690

2,606

3,330

Interest on borrowings

26

—

62

—

Total interest expense

1,157

1,690

2,668

3,330

Net interest income

8,623

9,233

17,509

18,406

Provision for loan and lease losses

850

715

1,430

1,115

Net interest income after provision for loan and lease losses

7,773

8,518

16,079

17,291

Non-interest income:

Service and other charges on deposit accounts

263

443

697

903

Credit insurance income

45

108

198

251

Net gain on sales and prepayments of investment securities

326

9

326

22

Mortgage fees from secondary market

176

186

303

289

Lease income

212

212

424

421

Other income, net

308

333

679

670

Total non-interest income

1,330

1,291

2,627

2,556

Non-interest expense:

Salaries and employee benefits

5,193

5,195

10,329

10,183

Net occupancy and equipment

995

1,046

1,996

2,135

Computer services

424

333

841

684

Fees for professional services

401

321

679

563

Other expense

1,568

1,609

3,230

3,392

Total non-interest expense

8,581

8,504

17,075

16,957

Income before income taxes

522

1,305

1,631

2,890

Provision for income taxes

118

300

380

651

Net income

$

404

$

1,005

$

1,251

$

2,239

Basic net income per share

$

0.07

$

0.16

$

0.20

$

0.35

Diluted net income per share

$

0.06

$

0.15

$

0.19

$

0.33

Dividends per share

$

0.03

$

0.02

$

0.06

$

0.04

COVID-19 Risk Identification

A significant amount of uncertainty continues to exist as to what the ultimate economic impact of the COVID-19 pandemic will be on the Company’s borrowers. In response to this uncertainty, during the first six months of 2020, the Company has increased qualitative factors in the calculation of the allowance for loan and lease losses. Although we believe that the allowance was sufficient to absorb losses in the portfolio based on circumstances existing as of June 30, 2020, management is continuing to closely monitor the Company’s loan portfolio for indications of credit deterioration, particularly with respect to those loans that have had payments deferred in connection with the pandemic, as well as those loans that management currently considers to potentially be more vulnerable (“at-risk”) as a result of the pandemic. The aggregate balances and categories of these loans are identified in the tables below. It should be noted that the tables below are not necessarily indicative of loans that have experienced credit deterioration; rather, they represent loans that are currently being given heightened attention by management as a result of the pandemic.

Loan Deferments

In accordance with section 4013 of the Coronavirus Aid, Relief and Economic Security Act, the Company implemented initiatives to provide short-term payment relief to borrowers who have been negatively impacted by COVID-19. Over 1,700 of the Company’s borrowers requested and were granted COVID-19 pandemic-related deferments by the Company during the six months ended June 30, 2020. Although the interpretive guidance defines short-term as six months, the deferments granted by the Company were generally for terms of 90 days or less. The table below summarizes all remaining COVID-19 loan payment deferments made by the Company as of June 30, 2020.

As of June 30, 2020

Number
of Loans
Deferred

Principal
Balance of
Loans
Deferred

% of
Portfolio
Balance

Principal
and
Interest
Deferments

Principal
Only
Deferments

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans

7

$

4,544

14.5

%

$

4,544

$

—

Secured by 1-4 family residential properties

50

9,474

10.2

%

8,078

1,396

Secured by multi-family residential properties

12

29,726

60.9

%

15,523

14,203

Secured by non-farm, non-residential properties

49

42,797

26.6

%

37,073

5,724

Commercial and industrial loans

9

1,460

1.7

%

831

629

Consumer loans:

Direct consumer

442

2,188

6.6

%

2,188

—

Branch retail

172

1,856

5.6

%

1,856

—

Indirect sales

123

3,199

3.6

%

3,199

—

Total loans

864

$

95,244

16.5

%

$

73,292

$

21,952

At-Risk Categories

While most industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, the Company has identified certain loan categories considered to be “at-risk” of significant impact. The “at-risk” categories have been further subdivided into those deemed by management to be of “high-risk” and those deemed to be of “moderate-risk.” The categories were determined based on management’s current judgment as to the risk that the borrower and underlying collateral supporting the loans could ultimately be negatively impacted by the economic impact of the COVID-19 pandemic. The table below summarizes the “at-risk” categories and the relative percentage of the Company’s loan portfolio for each as of June 30, 2020.

June 30, 2020

At-Risk Loan Category Due to COVID-19

Balance of
Risk Category

% of Total
Loan Balance

(Dollars in Thousands)

High-risk loan categories:

Hotels/motels

$

10,410

1.8

%

Dine-in restaurants

4,459

0.8

%

Total high-risk loans

14,869

2.6

%

Moderate-risk loan categories:

Fast food restaurants

5,326

0.9

%

Retail

34,587

6.0

%

1-4 family investment

21,874

3.8

%

Total moderate-risk loans

61,787

10.7

%

Total at-risk loans

$

76,656

13.3

%

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 unusual, 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 June 30, 2020 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.

FIRST US BANCSHARES, INC. AND SUBSIDIARIES
OPERATING INCOME – LINKED QUARTERS
(Non-U.S. GAAP Unaudited Reconciliation)

Quarter Ended

2020

2019

June
30,

March
31,

December
31,

September
30,

June
30,

(Dollars in Thousands)

Net income

$

404

$

847

$

1,209

$

1,118

$

1,005

Add back:

Provision for income taxes

118

262

381

214

300

Income before income taxes

522

1,109

1,590

1,332

1,305

Add back (subtract) adjustments to net interest income:

Accretion of discount on purchased loans

(226

)

(131

)

(174

)

(180

)

(172

)

Accretion of premium on purchased time deposits

(5

)

(9

)

(11

)

(21

)

(35

)

Net adjustments to net interest income

(231

)

(140

)

(185

)

(201

)

(207

)

Add back (subtract) non-interest adjustments:

Net gain on sales and prepayments of investment securities

(326

)

—

(25

)

(45

)

(9

)

Net loss (gain) on sales of foreclosed real estate

5

5

30

19

(3

)

Provision for loan and lease losses

850

580

716

883

715

Amortization of core deposit intangible

110

110

110

122

128

Net non-interest adjustments

639

695

831

979

831

Operating income

$

930

$

1,664

$

2,236

$

2,110

$

1,929

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.

Quarter Ended

Six Months Ended

2020

2019

2020

2019

June
30,

March
31,

December
31,

September
30,

June
30,

June
30,

June
30,

(Dollars in Thousands, Except Per Share Data)

(Unaudited Reconciliation)

TANGIBLE BALANCES

Total assets

$

845,747

$

788,565

$

788,738

$

771,930

$

777,171

Less: Goodwill

7,435

7,435

7,435

7,435

7,435

Less: Core deposit intangible

1,170

1,280

1,390

1,499

1,621

Tangible assets

(a)

$

837,142

$

779,850

$

779,913

$

762,996

$

768,115

Total shareholders’ equity

$

85,281

$

84,332

$

84,748

$

83,790

$

83,748

Less: Goodwill

7,435

7,435

7,435

7,435

7,435

Less: Core deposit intangible

1,170

1,280

1,390

1,499

1,621

Tangible common equity

(b)

$

76,676

$

75,617

$

75,923

$

74,856

$

74,692

Average shareholders’ equity

$

84,953

$

84,721

$

84,345

$

83,991

$

82,335

$

84,837

$

81,472

Less: Average goodwill

7,435

7,435

7,435

7,435

7,435

7,435

7,435

Less: Average core deposit intangible

1,224

1,332

1,442

1,556

1,683

1,278

1,750

Average tangible shareholders’ equity

(c)

$

76,294

$

75,954

$

75,468

$

75,000

$

73,217

$

76,124

$

72,287

Net income

(d)

$

404

$

847

$

1,209

$

1,118

$

1,005

$

1,251

$

2,239

Common shares outstanding (in thousands)

(e)

6,176

6,143

6,158

6,222

6,306

TANGIBLE MEASURES

Tangible book value per common share

(b)/(e)

$

12.41

$

12.31

$

12.33

$

12.03

$

11.84

Tangible common equity to tangible assets

(b)/(a)

9.16

%

9.70

%

9.73

%

9.81

%

9.72

%

Return on average tangible common equity (annualized)

(1

)

2.13

%

4.49

%

6.35

%

5.92

%

5.50

%

3.30

%

6.25

%

(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)


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