FIRST US BANCSHARES, INC. quarterly report, Q1 FY2016

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Business context and reporting period

United Security Bancshares, Inc. and subsidiaries filed this unaudited Form 10-Q for the three months ended March 31, 2016. Its subsidiaries include First US Bank (FUSB), a community bank, and Acceptance Loan Company (ALC), a consumer finance company. Unless noted, amounts below are in millions; the financial statements report dollars in thousands.

The request identifies the company as FIRST US BANCSHARES, INC., while the filing names United Security Bancshares, Inc. and identifies First US Bank as a subsidiary. Verify the issuer identity and ticker before relying on this summary.

Financial results and condition

  • Earnings: Net income was $0.317 million, down from $0.836 million in Q1 2015; diluted EPS was $0.05 versus $0.13. Pretax income fell to $0.417 million from $1.187 million.
  • Revenue and margins: Net interest income was $6.661 million, versus $6.707 million. Net interest yield on interest-earning assets was 5.10%, compared with 5.12%. Total interest income declined to $7.196 million from $7.321 million, while interest expense decreased to $0.535 million from $0.614 million.
  • Credit costs: The company recorded a $0.167 million loan-loss provision, compared with a $0.166 million reserve reduction in Q1 2015. Non-interest income fell 23.4% to $0.989 million, principally because the prior-year quarter included $0.277 million in securities gains. Non-interest expense increased 1.3% to $7.066 million.
  • Balance sheet: Total assets were $575.6 million at March 31, essentially unchanged from $575.8 million at year-end 2015. Net loans rose to $264.0 million from $255.4 million; deposits increased to $485.5 million from $479.3 million. Shareholders’ equity was $77.7 million, or 13.5% of assets, versus $77.0 million, or 13.4%, at year-end.
  • Cash flow and liquidity: Operating activities provided $1.315 million; investing activities used $14.151 million and financing activities used $0.750 million. Cash and cash equivalents decreased $13.586 million to $30.486 million; the company also held $3.0 million in federal funds sold. Core deposits were $460.5 million, 94.8% of deposits. Available unused FHLB credit was $167.7 million, subject to collateral, and unused federal funds lines were $18.8 million.
  • Debt and capital: Short-term borrowings were $0.446 million, down from $7.354 million at year-end, while long-term debt remained $5.0 million. The company repaid $7.0 million of short-term FHLB advances during the quarter.

Material changes versus comparable periods

  • Net income declined about 62% year over year, reflecting higher loan-loss provisioning and lower non-interest income, especially the absence of prior-year securities-sale gains.
  • Net loans increased $8.5 million from year-end, with $9.8 million growth at FUSB partly offset by a seasonal $1.2 million decline at ALC. Management reported a second consecutive quarter of loan growth.
  • Nonperforming assets declined to $8.6 million from $9.1 million at year-end and $12.8 million a year earlier; they were 1.50% of assets, versus 1.59% and 2.27%, respectively. OREO was $5.4 million, down from $6.0 million at year-end.
  • The allowance for loan losses was $3.375 million, down from $3.781 million at year-end. FUSB’s allowance was 0.58% of loans; ALC’s was 2.79%. ALC recorded $0.592 million in net charge-offs during Q1.
  • Accumulated other comprehensive income increased as available-for-sale securities recorded $0.410 million of other comprehensive income. Management cautioned that unrealized gains may fluctuate with interest rates.

Outlook, risks, contingencies and unusual items

  • No formal earnings guidance is provided. Management expects loan growth, if credit quality is maintained, to support net interest income, but cautions that competition, lower reinvestment yields, and limited scope for further funding-cost reductions may pressure results. New loan yields are generally expected to be below yields on existing loans.
  • The company purchased approximately $3.0 million of land in the Birmingham-area market for expansion. It plans a 40,000-square-foot office complex, with construction expected to begin in Q2 2016 and operations targeted for mid-2017. Total capital expenditures, including land, are estimated at $14.5 million; approximately 25% of the space is expected to be used by the bank and the balance leased to commercial tenants.
  • Credit risk includes real-estate concentration: 57.8% of the loan portfolio was secured by real estate, primarily in one geographic region. Management considers the allowance adequate but notes estimates are imprecise and economic or property-value deterioration could affect credit quality and reserves.
  • Off-balance-sheet commitments included $47.288 million to extend credit and $0.683 million in standby letters of credit. The filing states these commitments do not necessarily represent future cash requirements. The company also had $2.0 million in commitments to purchase securities for delayed delivery.
  • Ordinary-course litigation is ongoing; management, after consulting counsel, does not expect it to materially adversely affect financial statements or results. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported.
  • Management described available-for-sale and held-to-maturity securities in unrealized loss positions as affected by interest rates rather than issuer creditworthiness; it reported no other-than-temporary impairment at quarter-end.

Important facts for investors to verify

  1. Confirm issuer identity: the request’s company name differs from the registrant named in the filing.
  2. Assess whether the $14.5 million Birmingham-area construction and expansion plan, including financing, leasing assumptions, and timing, remains on schedule.
  3. Review subsequent credit trends, particularly ALC consumer-loan charge-offs and past-due/nonperforming loans, and whether the lower allowance remains adequate.
  4. Track net interest income, loan growth, funding costs, and the effect of competition and interest-rate changes on margins.
  5. Check later filings for developments in litigation, credit commitments, property values, and the company’s liquidity and available borrowing capacity.