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First US Bancshares, Inc. Reports Third Quarter 2018 Results

Reports Successful Acquisition of The Peoples Bank

BIRMINGHAM, Ala., Nov. 06, 2018 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. (FUSB) (the “Company”) today announced results as of and for the third quarter ended September 30, 2018.  Net income totaled $0.2 million, or $0.03 per diluted share, for the quarter, and was significantly impacted by one-time, nonrecurring expenses of $1.5 million associated with the acquisition of The Peoples Bank.  These one-time expenses were partially offset by nonrecurring gains on the settlement of derivative contracts totaling $1.0 million.  Net income for the third quarter of 2017 totaled $0.6 million, or $0.10 per diluted share.  Earnings during the 2017 period were positively impacted by nonrecurring gains on sale of investment securities totaling $0.2 million.

For the nine months ended September 30, 2018, net income totaled $1.0 million, or $0.15 per diluted share, compared to $1.5 million, or $0.22 per diluted share, for the corresponding period of 2017. 

Acquisition and Merger of The Peoples Bank

As previously announced, on August 31, 2018, the Company completed its acquisition of The Peoples Bank (“TPB”) and then merged TPB with and into its wholly owned subsidiary, First US Bank (the “Bank”).  

“This is an exciting time for our institution,” stated James F. House, President and CEO of the Company.  “We have now added a talented banking team and an excellent customer base in the Knoxville, Tennessee and southwest Virginia areas. We believe that this expansion will provide significant opportunity for future growth, particularly with respect to commercial lending in the vibrant Knoxville market.  As we complete the integration of our organizations and move beyond the nonrecurring acquisition expenses, the acquisition should quickly begin to bring improved efficiency and earnings growth.”

As of the acquisition date, TPB’s assets totaled $166.5 million, consisting primarily of pre-discounted gross loans totaling $156.8 million. Total deposits were $140.0 million.  Preliminary purchase accounting adjustments were recorded as of the acquisition date, resulting in goodwill of $7.6 million.  A table summarizing the assets acquired and liabilities assumed from TPB, along with the purchase accounting adjustments, is included in the financial tables herein.

Other Third Quarter Financial Highlights

Organic Loan Growth – Independent of the loan growth resulting from the acquisition, the Company’s net loan balances increased $9.1 million, or 10.5% (annualized), during the third quarter of 2018 and $18.6 million, or 7.2% (annualized), during the nine months ended September 30, 2018.  Organic loan growth at the Bank totaled $6.9 million for the nine-month period, while the Company’s finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”), grew its loan portfolio by $11.7 million during the same period.

Growth in Net Interest Income – Net interest income increased by $0.8 million, or 11.0%, in the third quarter of 2018 compared to the second quarter of 2018.  Compared to the third quarter of 2017, net interest income increased by $1.2 million, or 16.7%. Net interest income attributable to TPB, including accretion of the fair value discount on purchased loans and premium on time deposits, was $0.7 million.  For the nine months ended September 30, 2018, net interest income exceeded the corresponding period of 2017 by $2.0 million, or 9.6%.

Asset Quality, Provision and Allowance for Loan Losses – Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), increased to $5.3 million as of September 30, 2018, compared to $3.9 million as of June 30, 2018, primarily due to the acquisition of TPB.  As a percentage of total assets, non-performing assets totaled 0.66% as of September 30, 2018, compared to 0.61% of total assets as of June 30, 2018 and 0.96% of total assets as of December 31, 2017.              

The provision for loan and lease losses was $0.8 million during the third quarter of 2018, compared to $0.7 million during the second quarter of 2018 and $0.4 million during the third quarter of 2017.  For the nine months ended September 30, 2018, the provision for loan and lease losses totaled $2.1 million, compared to $1.5 million for the corresponding period of 2017.  The increased provision expense in 2018 compared to 2017 resulted from more substantial loan growth in ALC’s loan portfolio, primarily in indirect point-of-sales lending.  In general, ALC’s consumer loans require higher levels of loss provisioning than the Bank’s commercial loans.  However, as a result of higher credit quality, ALC’s indirect point-of-sale lending has historically required lower provisioning than ALC’s traditional consumer loan portfolio.

As of September 30, 2018, the allowance for loan and lease losses totaled $5.1 million, or 0.97% of gross loans outstanding, representing a decrease from 1.37% as of June 30, 2018 and 1.36% as of December 31, 2017. 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 net discount on the loans, which totaled $2.3 million, or 1.51% of gross purchased loans, as of September 30, 2018. Management believes that the allowance for loan and lease losses is sufficient as of September 30, 2018 to provide for losses in the existing portfolio.

Non-interest Income – Non-interest income totaled $2.1 million during the third quarter of 2018, compared to $1.1 million during the second quarter of 2018 and $1.2 million during the third quarter of 2017. The increase compared to both previous quarters resulted primarily from the settlement of two forward interest rate swap contracts with the counterparty that netted a pre-tax gain of $1.0 million.  For the nine months ended September 30, 2018, non-interest income totaled $4.4 million, compared to $3.3 million for the corresponding period of 2017.

Non-interest Expense – Non-interest expense totaled $9.1 million for the third quarter of 2018, compared to $7.5 million during the second quarter of 2018 and $7.2 million during the third quarter of 2017.  The increase compared to both previous quarters resulted primarily from expenses associated with the TPB acquisition that totaled approximately $1.5 million during the third quarter of 2018. In addition, salaries and benefits expense increased by $0.1 million compared to the second quarter of 2018 and $0.3 million compared to the third quarter of 2017.  These increases resulted primarily from merit and cost of living salary increases for the Company’s employees, combined with additional expense during the third quarter of 2018 for the assumption by the Bank of salaries and benefits for employees of TPB post-acquisition.  For the nine months ended September 30, 2018, non-interest expense totaled $23.9 million, compared to $21.1 million for the corresponding period of 2017.

Provision for Income Taxes – The provision for income taxes totaled $0.3 million during the third quarter of 2018, representing an effective tax rate of 52.8% for the quarter, compared to an effective tax rate of 18.4% during the second quarter of 2018 and 21.4% during the third quarter of 2017.  The increased tax provisioning during the third quarter of 2018 resulted from the incurrence of acquisition-related expenses during the quarter, a portion of which are non-deductible under IRS regulations.  This resulted in approximately $0.2 million of additional tax expense during the quarter.  For the nine months ended September 30, 2018, the Company’s effective tax rate was 29.8%, compared to 23.0% for the nine months ended September 30, 2017.

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

Regulatory Capital – As of September 30, 2018, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.28%.  Its total capital ratio was 13.20%, and its Tier 1 leverage ratio was 8.78%.  These ratios are lower than those reported as of June 30, 2018 due to changes in the composition of risk-weighted assets and tangible capital resulting from the acquisition of TPB.  However, throughout the third quarter of 2018 and as of September 30, 2018, 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.

Key Performance Measures – Key quarterly performance measures are provided in the table entitled “Selected Financial Data – Linked Quarters” in this press release.  For the nine months ended September 30, 2018, annualized return on average assets was 0.21%, compared to 0.32% for the corresponding period of 2017. Annualized return on average common equity and tangible common equity were 1.79% and 1.81%, respectively, for the nine months ended September 30, 2018.  For the nine months ended September 30, 2017, both annualized return on average equity and annualized return on tangible equity were 2.50%.  Measures of the Company’s performance were significantly impacted by the nonrecurring items discussed earlier in this press release, including acquisition-related expenses and the settlement of derivative contracts. 

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 Securities and Exchange Commission, 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.


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

    Quarter Ended  
     2018
  2017  
  September 30,
  June 30,
  March 31,   December 31,
  September 30,
                                         
                                         
Results of Operations:                                        
Interest income   $   9,452     $   8,390     $   8,119     $   8,087     $   7,820  
Interest expense       1,124       888       805         804         685  
                                         
Net interest income     8,328       7,502       7,314       7,283       7,135  
Provision for loan losses     789       702       658       523       373  
                                         
Net interest income after provision for loan losses     7,539       6,800       6,656       6,760       6,762  
Non-interest income     2,112       1,132       1,140       1,333       1,236  
Non-interest expense     9,142       7,492       7,301       7,359       7,190  
                                         
Income (loss) before income taxes     509       440       495         734       808  
Provision for (benefit from) income taxes     269       81       81         2,600       173  
                                         
Net income (loss)   $   240     $   359     $   414     $   (1,866 )   $   635  
                                         
Per Share Data:                                        
Basic net income (loss) per share   $   0.04     $   0.06     $   0.07     $   (0.30 )   $   0.10  
                                         
Diluted net income (loss) per share   $   0.03     $   0.06     $   0.06     $   (0.29 )   $   0.10  
                                         
Dividends declared   $   0.02     $   0.02     $   0.02     $   0.02     $   0.02  
                                         
                                         
Key Measures (Period-End):                                        
Total assets   $   802,595     $ 634,036     $   627,319     $   625,581     $   614,599  
Tangible assets     793,038       634,036       627,319       625,581       614,599  
Loans, net of allowance for loan losses     519,822       355,529       353,805       346,121       338,026  
Allowance for loan losses     5,116       4,952       4,829       4,774       4,808  
Investment securities, net     159,496       165,740       181,942       180,150       185,802  
Total deposits     715,761       531,428       525,273       517,079       508,385  
Short-term borrowings     192       10,366       10,298       15,594       10,635  
Long-term debt             10,000       10,000       10,000       10,000  
Total shareholders’ equity     77,470       75,634       75,525       76,208       78,854  
Tangible common equity     67,913       75,634       75,525       76,208       78,854  
Book value per common share     12.30       12.41       12.41       12.53       12.98  
Tangible book value per common share     10.79       12.41       12.41       12.53       12.98  
                                         
Key Ratios:                                        
Return on average assets (annualized)     0.14 %     0.23 %     0.27 %     (1.18 % )   0.41 %
Return on average common equity (annualized)     1.25 %     1.91 %     2.21 %     (9.38 % )   3.21 %
Return on average tangible common equity (annualized)     1.30 %     1.91 %     2.21 %     (9.38 % )   3.21 %
Net yield on interest-earning assets     5.25 %     5.31 %     5.24 %     5.09 %     5.11 %
Net loans to deposits     72.6 %     66.9 %     67.4 %     66.9 %     66.5 %
Net loans to assets     64.8 %     56.1 %     56.4 %     55.3 %     55.0 %
Tangible common equity to tangible assets     8.56 %     11.93 %     12.04 %     12.18 %     12.83 %
Allowance for loan losses as % of loans     0.97 %     1.37 %     1.35 %     1.36 %     1.40 %
Nonperforming assets as % of total assets     0.66 %     0.61 %     0.86 %     0.96 %     0.94 %
                                         

FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NET YIELD ON INTEREST-EARNING ASSETS
(Dollars in Thousands)

  Three Months Ended
  Three Months Ended
  September 30, 2018
  September 30, 2017
  Average
Balance
  Interest
  Annualized Yield/
Rate %
  Average
Balance
  Interest
  Annualized Yield/
Rate %
ASSETS                                  
Interest-earning assets:                                  
Loans – Bank $ 315,278   $ 3,859   4.86 %   $ 240,006   $ 2,578   4.26 %
Loans – ALC   104,447     4,536   17.23 %     91,193     4,224   18.38 %
Taxable investment securities   161,560     814   2.00 %     187,670     857   1.81 %
Non-taxable investment securities   2,217     16   2.86 %     8,225     75   3.62 %
Federal funds sold   15,102     79   2.08 %            
Interest-bearing deposits in banks   30,236     148   1.94 %     27,249     86   1.25 %
Total interest-earning assets   628,840     9,452   5.96 %     554,343     7,820   5.60 %
Non-interest-earning assets:                                  
Other assets   61,923                 58,786            
Total $ 690,763               $ 613,129            
                                   
                                   
LIABILITIES AND SHAREHOLDERS’ EQUITY                                  
Interest-bearing liabilities:                                  
Demand deposits $ 156,142   $ 181   0.46 %   $ 164,852   $ 161   0.39 %
Savings deposits   134,673     277   0.82 %     82,201     53   0.26 %
Time deposits   217,288     662   1.21 %     182,405     403   0.88 %
Borrowings   5,888     4   0.27 %     20,099     68   1.34 %
Total interest-bearing liabilities   513,991     1,124   0.87 %     449,557     685   0.60 %
Non-interest-bearing liabilities:                                  
Demand deposits   92,841                 77,723            
Other liabilities   7,628                 7,282            
Shareholders’ equity   76,303                 78,567            
Total $ 690,763               $ 613,129            
                                   
Net interest income       $ 8,328               $ 7,135      
Net yield on interest-earning assets             5.25 %               5.11 %
                                   


FIRST US BANCSHARES, INC. AND SUBSIDIARIES

NET ASSETS ACQUIRED FROM THE PEOPLES BANK
AUGUST 31, 2018
(Dollars in Thousands)

                       
  Acquired
from TPB

  Fair Value
Adjustments

  Fair Value as of
August 31, 2018

Assets Acquired:                      
Cash and cash equivalents $ 3,085     $     $ 3,085  
Investment securities   5,977             5,977  
Federal Home Loan Bank stock, at cost   565             565  
Loans   156,772       (2,395 )     154,377  
Allowance for loan losses   (1,702 )     1,702        
Net loans   155,070       (693 )     154,377  
Premises and equipment, net   1,198       17       1,215  
Other real estate owned   85             85  
Other assets   551       (245 )     306  
Core deposit intangible         2,048       2,048  
Total assets acquired $ 166,531     $ 1,127     $ 167,658  
                       
Liabilities Assumed:                      
Deposits   140,033       342       140,375  
Short-term borrowings   10,000             10,000  
Other liabilities   437             437  
Total liabilities assumed   150,470       342       150,812  
                       
Shareholders’ Equity Assumed:                      
Common stock   1,027       (1,027 )      
Surplus   5,280       (5,280 )      
Accumulated other comprehensive income, net of tax   17       (17 )      
Retained earnings   9,737       (9,737 )      
Total shareholders’ equity assumed   16,061       (16,061 )      
                       
Total liabilities and shareholders’ equity assumed $ 166,531     $ (15,719 )   $ 150,812  
                       
                       
  Net assets acquired
  $ 16,846  
  Purchase price
    24,398  
  Goodwill
  $ 7,552  


FIRST US BANCSHARES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)

  September 30,
  December 31,
  2018    2017 
  (Unaudited)
       
ASSETS
Cash and due from banks $   11,809     $   7,577  
Interest-bearing deposits in banks   38,274       19,547  
Total cash and cash equivalents   50,083       27,124  
Federal funds sold   8,561       15,000  
Investment securities available-for-sale, at fair value   137,258       153,871  
Investment securities held-to-maturity, at amortized cost   22,238    ...