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CST: 20/11/2019 22:06:53   

First US Bancshares, Inc. Reports Third Quarter 2019 Results

23 Days ago

Reports Earnings Improvement and $33 Million in Loan Growth for Quarter

BIRMINGHAM, Ala., Oct. 28, 2019 (GLOBE NEWSWIRE) -- First US Bancshares, Inc. (Nasdaq: FUSB) (the “Company”), the parent company of First US Bank (the “Bank”), today reported third quarter 2019 net income of $1.1 million, compared to $0.2 million for the third quarter of 2018. Diluted net income per share was $0.16 in the third quarter of 2019, compared to $0.15 in the second quarter of 2019 and $0.03 in the third quarter of 2018.

Net loans for the Company increased by $33.0 million, or 25.6% on an annualized basis, during the third quarter of 2019. This growth included $30.8 million attributable to the Bank’s commercial lending efforts, along with $2.2 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 nine months ended September 30, 2019, the Company’s net income totaled $3.4 million, or $0.49 per diluted share, compared to $1.0 million, or $0.15 per diluted share, for the nine months ended September 30, 2018. Net loans as of September 30, 2019 totaled $544.5 million, compared to $514.9 million as of December 31, 2018, an increase of $29.6 million, or 7.7% on an annualized basis.

“We have experienced continued momentum in our lending efforts as the year has progressed,” stated James F. House, President and CEO of the Company. “Despite the additional loan loss provisioning that resulted from the substantial increase in loan volume during the quarter, we are pleased to report earnings improvement,” continued Mr. House.

The improvement in earnings for the three- and nine-month periods ended September 30, 2019 compared to the corresponding periods of 2018 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.

Other Highlights

Balance Sheet Efficiency and Consistent Margin – During the third quarter of 2019, management continued efforts to improve balance sheet efficiency by funding a portion of loan growth from the maturity or sale of investment securities, thereby shifting the mix of earning assets to a larger concentration of loans relative to other lower-earning assets. As a result of these efforts, coupled with reductions in higher-priced wholesale deposit funding sources, the Company maintained a relatively consistent net interest margin level in the third quarter of 2019. Net interest margin was 5.23% for the third quarter of 2019, compared to 5.21% for the second quarter of 2019 and 5.25% for the third quarter of 2018. For the nine months ended September 30, 2019, net interest margin was 5.20%, compared to 5.27% for the nine months ended September 30, 2018.

Stabilized Asset Quality – The Company experienced stabilized asset quality during the third quarter of 2019 compared to the previous quarter. Non-performing assets, including loans in non-accrual status and other real estate owned (OREO), were $2.7 million as of both September 30, 2019 and June 30, 2019, compared to $5.3 million as of September 30, 2018. As a percentage of total assets, non-performing assets totaled 0.35% as of both September 30, 2019 and June 30, 2019, compared to 0.66% as of September 30, 2018. 

Growth in Net Interest Income – Net interest income increased by $0.1 million, or 1.2%, in the third quarter of 2019 compared to the second quarter of 2019.  Compared to the third quarter of 2018, net interest income increased by $1.0 million, or 12.2%, in the third quarter of 2019.

Provision for Loan and Lease Losses The provision for loan and lease losses was $0.9 million during the third quarter of 2019, compared to $0.7 million during the second quarter of 2019 and $0.8 million during the third quarter of 2018. The increased provisioning in the third quarter compared to the second quarter of 2019 was due primarily to increased loan growth at the Bank, offset in part by reductions in provisioning at ALC.  For the nine months ended September 30, 2019, the Company’s loan loss provision totaled $2.0 million, compared to $2.1 million for the nine months ended September 30, 2018.

Non-interest Income – Non-interest income totaled $1.4 million during the third quarter of 2019, compared to $1.3 million during the second quarter of 2019 and $2.1 million during the third quarter of 2018.  For the nine months ended September 30, 2019, non-interest income totaled $4.0 million, compared to $4.4 million for the nine months ended September 30, 2018. The decrease comparing both the third quarter of 2019 to the third quarter of 2018, as well as the nine months ended September 30, 2019 to the nine months ended September 30, 2018, was mostly attributable to nonrecurring gains on the settlement of derivative contracts of $1.0 million in the third quarter of 2018. The decrease was partially offset by lease income in both the third quarter and nine months ended September 30, 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 both the third quarter and second quarter of 2019, compared to $9.1 million during the third quarter of 2018. The decrease comparing the 2019 quarters to the 2018 third quarter was attributable primarily to nonrecurring acquisition expenses of $1.5 million that were recorded in 2018 associated with the acquisition of TPB.  This expense decrease was partially offset by an increase in salaries and benefits, occupancy and other expenses associated with the addition of employees, facilities and other services in connection with the acquisition of TPB. For the nine months ended September 30, 2019, non-interest expense totaled $25.5 million, compared to $23.9 million for the nine months ended September 30, 2018.  The majority of the 2019 increase was due to a full nine-month period of operations following the acquisition of TPB as of September 30, 2019, compared to only one month as of September 30, 2018.

Provision for Income Taxes – The Company recorded $0.2 million in income tax expense for the third quarter of 2019, compared to $0.3 million in both the second quarter of 2019 and third quarter of 2018.  For the nine months ended September 30, 2019, the Company’s effective tax rate was 20.5%, compared to 29.8% for the nine months ended September 30, 2018. The reduction in the Company’s effective tax rate comparing 2019 to 2018 resulted primarily from certain non-deductible expenses associated with the acquisition of TPB in 2018 that were not incurred in 2019.  

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

Regulatory Capital – During the third 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 September 30, 2019, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 12.67%. Its total capital ratio was 13.63%, and its Tier 1 leverage ratio was 9.55%.

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     Nine Months Ended  
  2019     2018     2019     2018  
  September
30,
    June
30,
    March
31,
    December
31,
    September
30,
    September
30,
    September
30,
 
  (Unaudited)     (Unaudited)  
Results of Operations:                                                      
Interest income $ 11,027     $ 10,923     $ 10,813     $ 11,177     $ 9,452     $ 32,763     $ 25,961  
Interest expense   1,680       1,690       1,640       1,533       1,124       5,010       2,817  
Net interest income   9,347       9,233       9,173       9,644       8,328       27,753       23,144  
Provision for loan and lease losses   883       715       400       473       789       1,998       2,149  
Net interest income after provision for loan
  and lease losses
  8,464       8,518       8,773       9,171       7,539       25,755       20,995  
Non-interest income   1,414       1,291       1,265       1,158       2,112       3,970       4,384  
Non-interest expense   8,546       8,504       8,453       8,382       9,142       25,503       23,935  
Income before income taxes   1,332       1,305       1,585       1,947       509       4,222       1,444  
Provision for income taxes   214       300       351       470       269       865       431  
Net income $ 1,118     $ 1,005     $ 1,234     $ 1,477     $ 240     $ 3,357     $ 1,013  
Per Share Data:                                                      
Basic net income per share $ 0.17     $ 0.16     $ 0.19     $ 0.23     $ 0.04     $ 0.52     $ 0.17  
Diluted net income per share $ 0.16     $ 0.15     $ 0.18     $ 0.22     $ 0.03     $ 0.49     $ 0.15  
Dividends declared $ 0.02     $ 0.02     $ 0.02     $ 0.02     $ 0.02     $ 0.06     $ 0.06  
Key Measures (Period End):                                                      
Total assets $ 771,930     $ 777,171     $ 795,334     $ 791,939     $ 802,595                  
Tangible assets (1)   762,996       768,115       786,150       782,627       793,038                  
Loans, net of allowance for loan losses   544,519       511,515       502,760       514,867       519,822                  
Allowance for loan and lease losses   5,585       5,087       4,924       5,055       5,116                  
Investment securities, net   114,309       136,649       148,025       153,949       159,496                  
Total deposits   677,640       682,806       703,361       704,725       715,761                  
Short-term borrowings   221       73             527       192                  
Total shareholders’ equity   83,790       83,748       81,573       79,437       77,470                  
Tangible common equity (1)   74,856       74,692       72,389       70,125       67,913                  
Book value per common share   13.47       13.28       12.94       12.61       12.30                  
Tangible book value per common share (1)   12.03       11.84       11.48       11.13       10.79                  
Key Ratios:                                                      
Return on average assets (annualized)   0.57 %     0.51 %     0.63 %     0.74 %     0.14 %     0.57 %     0.21 %
Return on average common equity
  (annualized)
  5.28 %     4.89 %     6.21 %     7.49 %     1.25 %     5.45 %     1.79 %
Return on average tangible common equity
  (annualized) (1)
  5.92 %     5.50 %     7.01 %     8.52 %     1.30 %     6.13 %     1.81 %
Net interest margin   5.23 %     5.21 %     5.17 %     5.27 %     5.25 %     5.20 %     5.27 %
Efficiency ratio (2)   79.4 %     80.8 %     81.0 %     77.6 %     87.6 %     80.4 %     86.9 %
Net loans to deposits   80.4 %     74.9 %     71.5 %     73.1 %     72.6 %                
Net loans to assets   70.5 %     65.8 %     63.2 %     65.0 %     64.8 %                
Tangible common equity to tangible
  assets (1)
  9.81 %     9.72 %     9.21 %     8.96 %     8.56 %                
Tier 1 leverage ratio (3)   9.55 %     9.43 %     9.22 %     8.96 %     8.78 %                
Allowance for loan losses as % of loans   1.02 %     0.98 %     0.97 %     0.97 %     0.97 %                
Nonperforming assets as % of total assets   0.35 %     0.35 %     0.39 %     0.54 %     0.66 %                
 
(1)   Refer to Non-GAAP reconciliation of tangible balances and measures beginning on page 10
(2)   Efficiency ratio = non-interest expense / (net interest income + non-interest income)
(3)  First US Bank Tier 1 leverage ratio



 
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Dollars in Thousands)
(Unaudited)
 
  Three Months Ended     Three Months Ended  
  September 30, 2019     September 30, 2018  
  Average
Balance
    Interest     Annualized
Yield/
Rate %
    Average
Balance
    Interest     Annualized
Yield/
Rate %
 
ASSETS                                              
Interest-earning assets:                                              
Loans – Bank $ 430,307     $ 5,634       5.19 %   $ 315,278     $ 3,859       4.86 %
Loans – ALC   107,987       4,480       16.46 %     104,447       4,536       17.23 %
Taxable investment securities   125,730       648       2.04 %     161,560       814       2.00 %
Tax-exempt investment securities   1,981       14       2.80 %     2,217       16       2.86 %
Federal funds sold   14,442       85       2.34 %     15,102       79       2.08 %
Interest-bearing deposits in banks   28,858       166       2.28 %     30,236       148       1.94 %
Total interest-earning assets   709,305       11,027       6.17 %     628,840       9,452       5.96 %
Non-interest-earning assets:                                              
Other assets   72,414                       61,923                  
Total $ 781,719                     $ 690,763                  
                                               
LIABILITIES AND SHAREHOLDERS EQUITY                                              
Interest-bearing liabilities:                                              
Demand deposits $ 165,877     $ 217       0.52 %   $ 156,142     $ 181       0.46 %
Savings deposits   157,822       389       0.98 %     134,673       277       0.82 %
Time deposits   241,433       1,016       1.67 %     217,288       662       1.21 %
Borrowings   10,166       58       2.26 %     5,888       4       0.27 %
Total interest-bearing liabilities   575,298       1,680       1.16 %     513,991       1,124       0.87 %
Non-interest-bearing liabilities:                                              
Demand deposits   111,845                       92,841                  
Other liabilities   10,585                       7,628                  
Shareholders’ equity   83,991                       76,303                  
Total $ 781,719                     $ 690,763                  
                                               
Net interest income         $ 9,347                     $ 8,328          
Net interest margin                   5.23 %                     5.25 %
                                               



 
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Dollars in Thousands)
(Unaudited)
 
  Nine Months Ended     Nine Months Ended  
  September 30, 2019     September 30, 2018  
  Average
Balance
    Interest     Annualized Yield/
Rate %
    Average
Balance
    Interest     Annualized Yield/
Rate %
 
ASSETS                                              
Interest-earning assets:                                              
Loans – Bank $ 417,018     $ 16,374       5.25 %   $ 277,839     $ 9,590       4.61 %
Loans – ALC   104,286       13,246       16.98 %     99,222       13,225       17.82 %
Taxable investment securities   138,646       2,201       2.12 %     170,671       2,548       2.00 %
Tax-exempt investment securities   2,125       43       2.71 %     4,426       116       3.50 %
Federal funds sold   12,246       227       2.48 %     9,838       144       1.96 %
Interest-bearing deposits in banks   38,890       672       2.31 %     25,074       338       1.80 %
Total interest-earning assets   713,211       32,763       6.14 %     587,070       25,961       5.91 %
Non-interest-earning assets:                                              
Other assets   71,834                       59,550                  
Total $ 785,045                     $ 646,620                  
                                               
LIABILITIES AND SHAREHOLDERS EQUITY                                              
Interest-bearing liabilities:                                              
Demand deposits $ 168,284     $ 639       0.51 %   $ 160,094     $ 520       0.43 %
Savings deposits   163,981       1,309       1.07 %     107,444       488       0.61 %
Time deposits   246,961       3,004       1.63 %     192,750       1,611       1.12 %
Borrowings   3,574       58       2.17 %     16,895       198       1.57 %
Total interest-bearing liabilities   582,800       5,010       1.15 %     477,183       2,817       0.79 %
Non-interest-bearing liabilities:                                              
Demand deposits   110,291                       86,490                  
Other liabilities   9,633                       7,088                  
Shareholders’ equity   82,321                       75,859                  
Total $ 785,045                     $ 646,620                  
                                               
Net interest income         $ 27,753                     $ 23,144          
Net interest margin                   5.20 %                     5.27 %
                                               



 
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 
  September 30,     December 31,  
  2019     2018  
  (Unaudited)          
ASSETS              
Cash and due from banks $ 12,358     $ 9,796  
Interest-bearing deposits in banks   23,077       39,803  
Total cash and cash equivalents   35,435       49,599  
Federal funds sold   10,080       8,354  
Investment securities available-for-sale, at fair value   96,550       132,487  
Investment securities held-to-maturity, at amortized cost   17,759       21,462  
Federal Home Loan Bank stock, at cost   713       703  
Loans and leases, net of allowance for loan and lease losses of $5,585 and
  $5,055, respectively
  544,519       514,867  
Premises and equipment, net   29,319       27,643  
Cash surrender value of bank-owned life insurance   15,469       15,237  
Accrued interest receivable   2,348       2,816  
Goodwill and core deposit intangible, net   8,934       9,312  
Other real estate owned   1,248       1,505  
Other assets   9,556       7,954  
Total assets $ 771,930     $ 791,939  
               
LIABILITIES AND SHAREHOLDERS EQUITY              
Deposits $ 677,640     $ 704,725  
Accrued interest expense   548       424  
Other liabilities   9,731       6,826  
Short-term borrowings   221       527  
Total liabilities   688,140       712,502  
               
Shareholders’ equity:              
Common stock, par value $0.01 per share, 10,000,000 shares authorized;
  7,568,053 and 7,562,264 shares issued, respectively; 6,222,230 and 6,298,062
  shares outstanding, respectively
  75       75  
Surplus   13,730       13,496  
Accumulated other comprehensive loss, net of tax   (573 )     (2,377 )
Retained earnings   91,731       88,668  
Less treasury stock: 1,345,823 and 1,264,202 shares at cost, respectively   (21,173 )     (20,414 )
Noncontrolling interest         (11 )
Total shareholders’ equity   83,790       79,437  
               
Total liabilities and shareholders’ equity $ 771,930     $ 791,939  
               



 
FIRST US BANCSHARES, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
 
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2019     2018     2019     2018  
  (Unaudited)     (Unaudited)  
Interest income:                              
Interest and fees on loans $ 10,114     $ 8,395     $ 29,620     $ 22,815  
Interest on investment securities   913       1,057       3,143       3,146  
Total interest income   11,027       9,452       32,763       25,961  
                               
Interest expense:                              
Interest on deposits   1,622       1,120       4,952       2,619  
Interest on borrowings   58       4       58       198  
Total interest expense   1,680       1,124       5,010       2,817  
                               
Net interest income   9,347       8,328       27,753       23,144  
                               
Provision for loan and lease losses   883       789       1,998       2,149  
                               
Net interest income after provision for loan and lease losses   8,464       7,539       25,755       20,995  
                               
Non-interest income:                              
Service and other charges on deposit accounts   472       489       1,375       1,400  
Credit insurance income   175       198       426       516  
Net gain on sales and prepayments of investment securities   45             67       105  
Net gain on settlement of derivative contracts         981             981  
Mortgage fees from secondary market   91       128       380       389  
Other income, net   631       316       1,722       993  
Total non-interest income   1,414       2,112       3,970       4,384  
                               
Non-interest expense:                              
Salaries and employee benefits   5,089       4,643       15,272       13,743  
Net occupancy and equipment   1,055       983       3,190       2,745  
Computer services   421       328       1,105       937  
Fees for professional services   316       242       879       781  
Acquisition expenses         1,492             1,492  
Other expense   1,665       1,454       5,057       4,237  
Total non-interest expense   8,546       9,142       25,503       23,935  
                               
Income before income taxes   1,332       509       4,222       1,444  
Provision for income taxes   214       269       865       431  
Net income $ 1,118     $ 240     $ 3,357     $ 1,013  
Basic net income per share $ 0.17     $ 0.04     $ 0.52     $ 0.17  
Diluted net income per share $ 0.16     $ 0.03     $ 0.49     $ 0.15  
Dividends per share $ 0.02     $ 0.02     $ 0.06     $ 0.06  
                               


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 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 September 30, 2019 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  
  2019     2018  
  September
30,
    June
30,
    March
31,
    December
31,
    September
30,
 
  (Dollars in Thousands)  
Net income $ 1,118     $ 1,005     $ 1,234     $ 1,477     $ 240  
Add back:                                      
Provision for income taxes   214       300       351       470       269  
Income before income taxes   1,332       1,305       1,585       1,947       509  
Add back (subtract) adjustments to net interest income:                                      
Accretion of discount on purchased loans   (180 )     (172 )     (234 )     (249 )     (77 )
Accretion of premium on purchased time deposits   (21 )     (35 )     (64 )     (129 )     (59 )
Net adjustments to net interest income   (201 )     (207 )     (298 )     (378 )     (136 )
Add back (subtract) non-interest adjustments:                                      
Net gain on sales and prepayments of investment securities   (45 )     (9 )     (13 )     (13 )      
Net gain on settlement of derivative contracts                           (981 )
Net loss (gain) on sales of foreclosed real estate   19       (3 )     30       65       (79 )
Provision for loan and lease losses   883       715       400       473       789  
Amortization of core deposit intangible   122       128       128       128       43  
Acquisition expenses                     149       1,492  
Net non-interest adjustments   979       831       545       802       1,264  
Operating income $ 2,110     $ 1,929     $ 1,832     $ 2,371     $ 1,637  
                                       

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     Nine Months Ended  
      2019     2018     2019     2018  
      September
30,
    June
30,
    March
31,
    December
31,
    September
30,
    September
30,
    September
30,
 
      (Dollars in Thousands, Except Per Share Data)  
      (Unaudited Reconciliation)  
TANGIBLE BALANCES                                                          
Total assets     $ 771,930     $ 777,171     $ 795,334     $ 791,939     $ 802,595                  
Less: Goodwill       7,435       7,435       7,435       7,435       7,552                  
Less: Core deposit intangible       1,499       1,621       1,749       1,877       2,005                  
Tangible assets (a)   $ 762,996     $ 768,115     $ 786,150     $ 782,627     $ 793,038                  
                                                           
Total shareholders’ equity     $ 83,790     $ 83,748     $ 81,573     $ 79,437     $ 77,470                  
Less: Goodwill       7,435       7,435       7,435       7,435       7,552                  
Less: Core deposit intangible       1,499       1,621       1,749       1,877       2,005                  
Tangible common equity (b)   $ 74,856     $ 74,692     $ 72,389     $ 70,125     $ 67,913                  
                                                           
Average shareholders’ equity     $ 83,991     $ 82,335     $ 80,600     $ 78,275     $ 76,303     $ 82,321     $ 75,858  
Less: Average goodwill       7,435       7,435       7,435       7,551       2,517       7,435       839  
Less: Average core deposit intangible       1,556       1,683       1,818       1,960       676       1,685       225  
Average tangible shareholders’ equity (c)   $ 75,000     $ 73,217     $ 71,347     $ 68,764     $ 73,110     $ 73,201     $ 74,794  
                                                           
Net income (d)   $ 1,118     $ 1,005     $ 1,234     $ 1,477     $ 240     $ 3,357     $ 1,013  
Common shares outstanding (in thousands) (e)     6,222       6,306       6,304       6,298       6,297                  
                                                           
TANGIBLE MEASURES                                                          
Tangible book value per common share (b)/(e)   $ 12.03     $ 11.84     $ 11.48     $ 11.13     $ 10.79                  
                                                           
Tangible common equity to tangible assets (b)/(a)     9.81 %     9.72 %     9.21 %     8.96 %     8.56 %                
                                                           
Return on average tangible common equity (annualized) (1)     5.92 %     5.50 %     7.01 %     8.52 %     1.30 %     6.13 %     1.81 %
                                                           
(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

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