First US Bancshares, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; interim financial statements are unaudited. The company operates First US Bank and consumer-finance subsidiary Acceptance Loan Company (ALC). Unless stated otherwise, dollar amounts below are in millions.
Financial results and position
| Metric | Q1 2017 / March 31, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Interest income | $7.510 | $7.196 in Q1 2016 |
| Net interest income | $6.919 | $6.661 in Q1 2016 |
| Provision for loan losses | $0.515 | $0.167 in Q1 2016 |
| Non-interest income | $1.167 | $0.989 in Q1 2016 |
| Non-interest expense | $7.037 | $7.066 in Q1 2016 |
| Net income | $0.404; diluted EPS $0.06 | $0.317; diluted EPS $0.05 in Q1 2016 |
| Net yield on interest-earning assets | 5.05% | 5.10% in Q1 2016 |
| Total assets | $619.827 | $606.892 at Dec. 31, 2016 |
| Net loans | $317.677 | $322.772 at Dec. 31, 2016 |
| Deposits | $509.078 | $497.556 at Dec. 31, 2016 |
| Cash and cash equivalents | $32.905 | $23.530 at Dec. 31, 2016 |
| Borrowings | $25.750 total: $10.750 short-term and $15.000 long-term | $25.119 total at Dec. 31, 2016 |
| Shareholders’ equity | $77.297; 12.5% of assets | $76.241; 12.6% of assets at Dec. 31, 2016 |
Cash provided by operating activities was $1.473 million; investing activities used $4.091 million and financing activities provided $11.993 million. Cash increased $9.375 million during the quarter. The company paid $0.121 million of dividends, or $0.02 per share.
Material changes and asset quality
- Net income rose about 27% year over year. Management attributed the improvement to higher loan-related interest income and non-interest income, partly offset by the higher loan-loss provision.
- Interest income increased $0.314 million as average loans grew, while net interest yield eased to 5.05% from 5.10%. Management cited lower loan yields associated with tighter credit standards and a shift in ALC lending mix.
- Non-interest income increased $0.178 million, led by credit insurance income (up $0.104 million) and deposit charges. Non-interest expense decreased $0.029 million; salaries and benefits rose $0.234 million.
- Net loans declined $5.1 million from year-end. Deposits rose $11.5 million. Investment securities totaled $213.5 million, up from $207.8 million at year-end.
- The allowance for loan losses was $4.879 million, versus $4.856 million at year-end. Nonperforming assets declined to $6.792 million, or 1.10% of assets, from $7.275 million and 1.20% at year-end. ALC continued to record net charge-offs, $0.604 million for the quarter.
Outlook, risks and contingencies
- No formal earnings or financial guidance was provided. Management remained optimistic about loan growth for the remainder of 2017, subject to competitive conditions and maintaining underwriting standards.
- Management reported adequate liquidity, citing core deposits, securities cash flows, $157 million of remaining FHLB capacity subject to collateral, and $18.8 million of unused federal funds lines. It stated it believed liquidity was sufficient for obligations and commitments over the next 12 months.
- A Birmingham office and branch project was under construction and expected to be operational in Q3 2017. Costs incurred were approximately $8.2 million; remaining contractor commitments were $3.5 million, with an estimated additional $1.7 million for finishes and other costs. Expected annual depreciation once placed in service is about $0.5 million. Leasing income and timing are uncertain.
- Off-balance-sheet commitments to extend credit were $43.806 million; standby letters of credit were $0.183 million. These amounts are contractual exposures, not necessarily expected cash outflows.
- Management identified risks from economic and real-estate conditions, loan demand and credit quality, competition for quality loans, funding costs, and interest-rate movements. The company reported no significant increase in market-risk exposure since year-end. Ordinary-course litigation was not expected by management to have a material adverse effect.
- Unrealized gains on available-for-sale securities contributed to other comprehensive income and equity; management cautioned that these fair-value gains can fluctuate with interest rates. Securities in unrealized loss positions were attributed to interest rates, not issuer credit, and no other-than-temporary impairment was recorded.
- The company began self-insuring employee health benefits in Q1 and accrued estimated claims costs, including incurred-but-not-reported claims. Management noted that actual claims costs could differ from estimates.
Important facts for investors to verify
- Whether loan growth resumes and whether the higher allowance and provision adequately reflect portfolio growth and credit risk.
- ALC’s charge-offs, delinquency trends, and consumer-loan mix, alongside continued improvement in consolidated nonperforming assets.
- Whether deposit growth and available borrowing capacity sustain liquidity, and how borrowing costs affect margins.
- Actual total cost, completion timing, tenant leasing, and expense impact of the Birmingham project.
- Future healthcare claims experience and any changes in securities valuations, interest-rate sensitivity, or litigation exposure.