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First US Bancshares, Inc. Reports Fourth Quarter 2018 Results

Reports Earnings Growth Following Acquisition of The Peoples Bank

BIRMINGHAM, Ala., Jan. 28, 2019 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. (FUSB) (the “Company”) today announced unaudited results as of and for the fourth quarter ended December 31, 2018.  Net income totaled $1.5 million, or $0.22 per diluted share, for the quarter, an improvement of $0.19 per diluted share compared to the third quarter of 2018.  The improvement in earnings resulted primarily from additional earning assets acquired by the Company through the previously announced acquisition of The Peoples Bank (“TPB”).  TPB was acquired by the Company and merged with the Company’s wholly-owned subsidiary, First US Bank (the “Bank”), on August 31, 2018.

“We are pleased to report significantly improved results due to our first full quarter of operations following the acquisition,” stated James F. House, President and CEO of the Company.  “The fourth quarter was very active for our institution as we continued to integrate our banking teams and completed conversion of the assets and liabilities of The Peoples Bank into our core operating system.  We are excited as we move into 2019 with a larger and more diverse platform from which to grow,” continued Mr. House. 

For the year ended December 31, 2018, the Company’s net income totaled $2.5 million, or $0.37 per diluted share, compared to a net loss of $0.4 million, or ($0.06) per diluted share, for the year ended December 31, 2017. The 2018 full year results were positively impacted by four months of earnings following the acquisition of TPB. A table summarizing the assets acquired and liabilities assumed from TPB, along with the purchase accounting adjustments, is included in the financial tables herein. The net loss during 2017 was due to a one-time, non-cash charge of $2.5 million that resulted from the adjustment of deferred tax assets upon the enactment of the Tax Cuts and Jobs Act of 2017.

Other Fourth Quarter Financial Highlights

Growth in Net Interest Income – Net interest income increased by $1.3 million, or 15.8%, in the fourth quarter of 2018 compared to the third quarter of 2018.  Compared to the fourth quarter of 2017, net interest income increased by $2.4 million, or 32.4%. Net yield on interest-earning assets increased to 5.27% during the fourth quarter of 2018, compared to 5.25% during the third quarter of 2018 and 5.09% during the fourth quarter of 2017.  Net income was enhanced by accretion of discounts and premiums on loans and time deposits acquired in the TPB transaction totaling $0.4 million during the fourth quarter of 2018, compared to $0.1 million during the previous quarter.

Improvement in Asset Quality – Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), decreased to $4.3 million as of December 31, 2018, compared to $5.3 million as of September 30, 2018, primarily due to the resolution during the fourth quarter of certain impaired loans acquired from TPB.  As a percentage of total assets, non-performing assets totaled 0.54% as of December 31, 2018, compared to 0.66% of total assets as of September 30, 2018 and 0.96% of total assets as of December 31, 2017.

Provision for Loan and Lease Losses The provision for loan and lease losses was $0.5 million during the fourth quarter of 2018, compared to $0.8 million during the third quarter of 2018 and $0.5 million during the fourth quarter of 2017.  Provisioning decreased during the fourth quarter of 2018 in part due to reductions in loan volume at both the Bank and the Bank’s wholly-owned subsidiary, Acceptance Loan Company (“ALC”).  Net loans at the Bank decreased $2.3 million during the fourth quarter, while net loans at ALC decreased by $2.7 million.  The decrease in net loans at the Bank resulted primarily from the resolution of certain impaired loans acquired from TPB.  At ALC, loan volume reductions resulted primarily from seasonal impacts in ALC’s indirect lending portfolio. 

As of both December 31, 2018 and 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 1.36% 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 $1.9 million, or 1.27% of gross purchased loans, as of December 31, 2018. The allowance for loan and lease losses as a percentage of gross loans outstanding less gross purchased loans was 1.36% as of December 31, 2018. 

Non-interest Income – Non-interest income totaled $1.2 million during the fourth quarter of 2018, compared to $2.1 million during the third quarter of 2018 and $1.3 million during the fourth quarter of 2017. During the third quarter of 2018, the Bank generated $1.0 million in pre-tax gains on the settlement of derivative contracts that were not generated during the fourth quarter of 2018.  

Non-interest Expense – Non-interest expense totaled $8.4 million during the fourth quarter of 2018, compared to $9.1 million during the third quarter of 2018 and $7.4 million during the fourth quarter of 2017.  The decrease in expense compared to the third quarter of 2018 resulted primarily from a decrease in acquisition-related expenses of $1.3 million, offset in part by increases in salaries and employee benefits and other expenses that netted to increased expense of $0.6 million.  These increases were primarily the result of a full quarter of inclusion of TPB in operations.  Comparing the fourth quarter of 2018 to the fourth quarter of 2017, non-interest expense increased by $1.0 million, primarily the result of a $0.7 million increase in salaries and employee benefits expenses due to the addition of employees from TPB, as well as merit and routine cost of living salary increases for legacy employees of the Company. In addition, acquisition-related expenses and other non-interest expense led to an increase in non-interest expense of approximately $0.2 million, comparing the fourth quarter of 2018 to the fourth quarter of 2017.

Provision for Income Taxes – The provision for income taxes totaled $0.5 million during the fourth quarter of 2018, representing an effective tax rate of 24.1% for the quarter, compared to an effective tax rate of 52.8% for the third quarter of 2018. The tax provisioning during the third and fourth quarters of 2018 was impacted by the incurrence of acquisition-related expenses, a portion of which are non-deductible under IRS regulations. 

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

Regulatory Capital – As of December 31, 2018, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.62%.  Its total capital ratio was 13.53%, and its Tier 1 leverage ratio was 8.96%.  These ratios are lower than those reported prior to the TPB transaction due to changes in the composition of risk-weighted assets and tangible capital resulting from the acquisition.  However, throughout the fourth quarter of 2018 and as of December 31, 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.

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.

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

  Quarter Ended
  Year Ended
  2018
  2017   2018   2017
  December 
31,
  September 
30,
  June 
30,
  March 
31,
  December 
31,
  December 
31,
  December 
31,
                                                       
  (Unaudited)
  (Unaudited)
       
Results of Operations:                                                      
Interest income $ 11,177     $ 9,452     $ 8,390     $ 8,119     $ 8,087     $ 37,138     $ 31,100  
Interest expense   1,533       1,124       888       805       804       4,350       2,706  
                                                       
Net interest income   9,644       8,328       7,502       7,314       7,283       32,788       28,394  
Provision for loan and lease losses   473       789       702       658       523       2,622       1,987  
                                                       
Net interest income after provision for loan and lease losses   9,171       7,539       6,800       6,656       6,760       30,166       26,407  
Non-interest income   1,158       2,112       1,132       1,140       1,333       5,542       4,666  
Non-interest expense   8,382       9,142       7,492       7,301       7,359       32,317       28,449  
                                                       
Income (loss) before income taxes   1,947       509       440       495       734       3,391       2,624  
Provision for (benefit from) income taxes   470       269       81       81       2,600       901       3,035  
                                                       
Net income (loss) $ 1,477     $ 240     $ 359     $ 414     $ (1,866 )   $ 2,490     $ (411 )
                                                       
Per Share Data:                                                      
Basic net income (loss) per share $ 0.23     $ 0.04     $ 0.06     $ 0.07     $ (0.30 )   $ 0.40     $ (0.07 )
                                                       
Diluted net income (loss) per share $ 0.22     $ 0.03     $ 0.06     $ 0.06     $ (0.29 )   $ 0.37     $ (0.06 )
                                                       
Dividends declared $ 0.02     $ 0.02     $ 0.02     $ 0.02     $ 0.02     $ 0.08     $ 0.08  
                                                       
                                                       
Key Measures (Period End):                                                      
Total assets $ 791,939     $ 802,595     $ 634,036     $ 627,319     $ 625,581        
Tangible assets   782,627       793,038       634,036       627,319       625,581        
Loans, net of allowance for loan losses   514,867       519,822       355,529       353,805       346,121        
Allowance for loan losses   5,055       5,116       4,952       4,829       4,774        
Investment securities, net   153,949       159,496       165,740       181,942       180,150        
Total deposits   704,725       715,761       531,428       525,273       517,079        
Short-term borrowings   527       192       10,366       10,298       15,594        
Long-term debt               10,000       10,000       10,000        
Total shareholders’ equity   79,437       77,470       75,634       75,525       76,208        
Tangible common equity   70,125       67,913       75,634       75,525       76,208        
Book value per common share   12.61       12.30       12.41       12.41       12.53        
Tangible book value per common share   11.13       10.79       12.41       12.41       12.53        
Key Ratios:              
Return on average assets (annualized)   0.74 %     0.14 %     0.23 %     0.27 %     (1.18 %)     0.36 %     (0.07 %)
Return on average common equity (annualized)   7.49 %     1.25 %     1.91 %     2.21 %     (9.38 %)     3.26 %     (0.52 %)
Return on average tangible common equity (annualized)   8.52 %     1.30 %     1.91 %     2.21 %     (9.38 %)     3.40 %     (0.52 %)
Net yield on interest-earning assets   5.27 %     5.25 %     5.31 %     5.24 %     5.09 %     5.27 %     5.08 %
Efficiency ratio   77.6 %     87.6 %     86.8 %     86.4 %     85.4 %     84.3 %     86.1 %
Net loans to deposits   73.1 %     72.6 %     66.9 %     67.4 %     66.9 %      
Net loans to assets   65.0 %     64.8 %     56.1 %     56.4 %     55.3 %      
Tangible common equity to tangible assets   8.96 %     8.56 %     11.93 %     12.04 %     12.18 %      
Allowance for loan losses as % of loans   0.97 %     0.97 %     1.37 %     1.35 %     1.36 %      
Nonperforming assets as % of total assets   0.54 %     0.66 %     0.61 %     0.86 %     0.96 %      
               

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

  Three Months Ended   Three Months Ended
  December 31, 2018
  December 31, 2017
  Average 
Balance
Interest Annualized
Yield/ 
Rate %
  Average 
Balance
Interest Annualized
Yield/ 
Rate %
ASSETS              
Interest-earning assets:              
Loans – Bank $ 419,527 $ 5,606 5.30 %   $ 252,364 $ 2,722 4.28 %
Loans – ALC   104,353   4,478 17.02 %     92,394   4,346 18.66 %
Taxable investment securities   155,066   818 2.09 %     177,115   828 1.85 %
Non-taxable investment securities   2,203   16 2.88 %     6,474   59 3.62 %
Federal funds sold   6,726   38 2.24 %     5,054   20 1.57 %
Interest-bearing deposits in banks   38,121   221 2.30 %     34,461   112 1.29 %
Total interest-earning assets   725,996   11,177 6.11 %     567,862   8,087 5.65 %
Non-interest-earning assets:              
Other assets   68,528         59,340    
Total $ 794,524       $ 627,202    
               
               
LIABILITIES AND
SHAREHOLDERS’ EQUITY
             
Interest-bearing liabilities:              
Demand deposits $ 165,743 $ 205 0.49 %   $ 164,432 $ 168 0.41 %
Savings deposits   167,207   407 0.97 %     84,553   67 0.32 %
Time deposits   265,696   920 1.37 %     184,175   459 0.99 %
Borrowings   521   1 0.76 %     27,490   110 1.59 %
Total interest-bearing liabilities   599,167   1,533 1.02 %     460,650   804 0.69 %
Non-interest-bearing liabilities:              
Demand deposits   108,469         80,487    
Other liabilities   8,613         7,105    
Shareholders’ equity   78,275         78,960    
Total $ 794,524       $ 627,202    
               
Net interest income   $ 9,644       $ 7,283  
Net yield on interest-earning assets     5.27 %       5.09 %
               
               

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       (2,195 )     154,577
Allowance for loan losses   (1,702 )     1,702    
Net loans   155,070       (493 )     154,577
Premises and equipment, net   1,198       17       1,215
Other real estate owned   85             85
Other assets   551       (328 )     223
Core deposit intangible         2,048       2,048
Total assets acquired $ 166,531     $ 1,244     $ 167,775
           
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   $ 16,963
  Purchase price     24,398
  Goodwill   $ 7,435
         

Fair Value Adjustments and Resulting Changes to Goodwill

The acquisition of TPB was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Due to the significant judgments regarding the methods and assumptions used in the determination, fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. During the fourth quarter of 2018, certain refinements were made to loan and deferred tax valuations that resulted in a net reduction to goodwill of approximately $0.1 million.

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

...
  December
31,
  December
31,
  2018   2017
  (Unaudited)    
ASSETS
Cash and due from banks $ 9,796     $ 7,577  
Interest-bearing deposits in banks   39,803       19,547  
Total cash and cash equivalents   49,599       27,124  
Federal funds sold   8,354       15,000  
Investment securities available-for-sale, at fair value   132,487       153,871  
Investment securities held-to-maturity, at amortized cost   21,462       26,279  
Federal Home Loan Bank stock, at cost   703       1,609  
Loans and leases, net of allowance for loan and lease losses of $5,055 and $4,774, respectively   514,867       346,121  
Premises and equipment, net   27,643       26,433  
Cash surrender value of bank-owned life insurance   15,237       14,923  
Accrued interest receivable   2,816       2,057  
Goodwill and core deposit intangible, net   9,312        
Other real estate owned   1,505       3,792  
Other assets   7,954       8,372  
Total assets $ 791,939     $ 625,581  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits $ 704,725     $ 517,079  
Accrued interest expense   424       381  
Other liabilities   6,826