United Security Bancshares, Inc. Reports Second Quarter Results

Reports Loan Growth and Increased Earnings over the First Quarter of 2016

Birmingham, Alabama, UNITED STATES

THOMASVILLE, Ala., July 28, 2016 (GLOBE NEWSWIRE) -- United Security Bancshares, Inc. (Nasdaq:USBI) (the “Company”) today reported net income of $0.5 million, or $0.07 per diluted share, for the quarter ended June 30, 2016 and $0.8 million, or $0.12 per diluted share, for the six months ended June 30, 2016. The results represent an increase of $0.02 per diluted share compared to the prior quarter and a decrease of $0.05 per diluted share compared to the second quarter of 2015.

Second Quarter Highlights

  • Loan growth - Net loans increased $34.9 million during the second quarter, an increase of 13.2% from March 31, 2016, or 52.9% on an annualized basis. Growth at the Company’s banking subsidiary, First US Bank (“FUSB” or the “Bank”), totaled $29.4 million during the quarter, while net loans at the Company’s finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”), grew $5.5 million during the quarter. Year-to-date growth in net loans as of June 30, 2016 totaled $43.5 million for the Company, or 34.0% on an annualized basis. Of the total, $39.2 and $4.3 million was attributable to FUSB and ALC, respectively.

  • Asset quality improvement - Non-performing assets decreased by $0.6 million during the second quarter to $8.0 million as of June 30, 2016. Non-performing assets as a percentage of total assets were reduced to 1.33% as of June 30, 2016, compared to 1.50% as of March 31, 2016 and 1.59% as of December 31, 2015.

  • Geographic expansion – The Bank continued efforts to expand its presence in the Birmingham, Alabama metropolitan area through the opening of a loan production office in Mountain Brook, a suburb of Birmingham. In addition, the design and planning phase continued for a new 40,000 square foot office complex on a parcel of land located in the Birmingham area along U.S. Highway 280 that was purchased by the Bank during the first quarter. Construction is expected to begin during the third quarter, and once completed, the office complex is intended to serve as the Bank’s focal point in the Birmingham area. The complex will house a retail branch of the Bank, as well as the Birmingham commercial lending team and certain members of the Bank’s executive management team. Approximately 25% of the square footage of the office complex will be utilized by the Bank, with the remainder to be leased to commercial tenants. It is expected that the office complex will be operational by the second half of 2017.

“We are gratified with the significant level of loan growth that we experienced during the second quarter at both the Bank and ALC,” said James F. House, President and Chief Executive Officer of the Company. “This represents the Company’s third consecutive quarter of loan growth. The expansion of the Bank’s activities in the larger metropolitan market of Birmingham has contributed significantly to growth in the Bank’s commercial loan portfolio. As we expand the portfolio, we continue to maintain vigilance in our credit quality standards. This approach has contributed to another quarter of improved asset quality,” continued Mr. House.

Results of Operations

  • Pre-provision net interest income totaled $6.9 million in the second quarter of 2016, compared to $6.7 million in the prior quarter. The increase was primarily attributable to loan growth in the second quarter at both the Bank and ALC. Net yield on interest-earning assets was 5.19% for the second quarter, compared to 5.10% for the prior quarter. The improvement in net yield was driven by a 58 basis point increase in yield on ALC’s loans, offset in part by an eight basis point decrease at the Bank.

    For the six months ended June 30, 2016, pre-provision net interest income totaled $13.6 million, compared to $13.9 million for the corresponding period of 2015. The decrease resulted from declining yields on loans at both FUSB and ALC. Net yield on interest-earning assets was 5.15% and 5.29% for the six months ended June 30, 2016 and 2015, respectively.

  • The provision for loan losses increased to $0.5 million for the second quarter of 2016, compared to $0.2 million during the previous quarter. For the six months ended June 30, 2016, the provision for loan losses totaled $0.7 million, compared to a negative provision (reduction in reserve) of $0.1 million for the six months ended June 30, 2015. The increased provisioning for both the second quarter and first six months of 2016 was due to loan growth at both the Bank and ALC. Credit quality of the portfolio continued to improve during the second quarter primarily as a result of continued reduction in historical loss rates used in the calculation of the allowance for loan losses. The allowance for loan losses as a percentage of loans was 1.19% as of June 30, 2016, compared to 1.26% as of March 31, 2016 and 2.00% as of June 30, 2015.

  • Non-interest income totaled $1.5 million in the second quarter of 2016, compared to $1.0 million in the prior quarter. The increase resulted primarily from gains on the sale of investment securities of $0.4 million that were realized during the second quarter. Non-interest income totaled $2.5 million and $2.4 million for the six-month periods ended June 30, 2016 and 2015, respectively.

  • Non-interest expense totaled $7.3 million in the second quarter of 2016, compared to $7.1 million in the prior quarter. For the six months ended June 30, 2016 and 2015, non-interest expense totaled $14.3 million and $14.1 million, respectively. Approximately $0.1 million of the increase in both the 2016 second quarter and the six months ended June 30, 2016 was associated with the closure of one of the Bank’s branches in Grove Hill, Alabama. The branch closure resulted from ongoing efforts by Bank management to evaluate the profitability of branches and make adjustments that will positively impact the Company’s cost structure over time, while enabling the Company to continue to effectively serve its customer base. An additional branch closure in Brent, Alabama is planned for the third quarter.

“We continue to work through a challenging earnings environment,” commented Mr. House. “Although we have experienced solid growth in the Bank’s loan portfolio during the last three quarters, we continue our efforts to increase loan volume to a level that will translate into solid earnings performance. The reduction in non-performing assets and improved credit quality of the portfolio puts us on solid footing to focus more attention on our loan growth objectives.”

Balance Sheet Management

  • Net loans increased to $298.9 million as of June 30, 2016, compared to $255.4 million as of December 31, 2015, an increase of $43.5 million. The loan growth was funded through the Bank’s available cash balances, growth in deposits and borrowings, and cash flows generated from the investment securities portfolio. Of the total loan growth during the six-month period, $21.7 million represented real estate loans secured by non-farm, non-residential collateral in the Bank’s portfolio. An additional $12.5 million and $8.8 million in growth occurred in the Bank’s construction real estate and commercial and industrial (C&I) portfolios, respectively. The growth in FUSB’s portfolio is indicative of management’s ongoing efforts to broaden the Bank’s commercial loan portfolio with a diversified mix of real estate and C&I loans. ALC’s loan portfolio grew by $4.3 million during the six months ended June 30, 2016. This growth was comprised of $8.1 million in growth in point-of-sale consumer lending with established retail partners, partially offset by reductions of $1.8 million and $2.0 million in ALC’s real estate and traditional consumer lending portfolios, respectively. Point-of-sale retail lending continues to be a primary focus of ALC management, as it broadens the diversification of ALC’s portfolio with consumer loans that are generally of higher credit quality than traditional consumer loans.

  • Investment securities totaled $213.2 million as of June 30, 2016, compared to $231.2 million as of December 31, 2015, a decrease of $18.0 million. The decrease resulted from maturity of securities, as well as the sale of securities from the Company’s available-for-sale portfolio. The cash generated from the reduction of the portfolio was primarily redeployed in the Company’s loan portfolio. Investment securities serve to both enhance interest income and provide an additional source of liquidity available to fund loan growth and capital expenditures.

  • Liabilities totaled $523.2 million and $498.8 million as of June 30, 2016 and December 31, 2015, respectively, an increase of $24.5 million. The increase resulted from increases in deposits of $16.4 million and an increase in long-term debt of $10.0 million. These increases were partially offset by a decrease in short-term borrowings of approximately $2.0 million. Deposits generated through the Bank’s branch system are considered the Company’s primary funding source to meet short- and long-term liquidity needs. Deposit levels fluctuate throughout the year based on seasonality, as well as specific circumstances impacting deposit customers. In addition to deposits, significant external sources of liquidity are available to the Company, including access to funding through federal funds lines, Federal Home Loan Bank advances and brokered deposits.

  • Shareholders’ equity increased to $78.5 million, or $13.00 per common share, as of June 30, 2016, compared to $77.0 million, or $12.76 per common share, as of December 31, 2015. The increase in shareholders’ equity resulted from continued growth in retained earnings and increases in other comprehensive income resulting from changes in the fair value of investment securities available-for-sale.

  • The Company declared a cash dividend of $0.02 per share on its common stock in the second quarter of 2016. This amount is consistent with the Company’s quarterly dividend declarations during the first quarter of 2016 and for each quarter of 2015.

  • During the second quarter, 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. The Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were 19.66%, its total capital ratio was 20.63%, and its Tier 1 leverage ratio was 12.62%.

About United Security Bancshares, Inc.

United Security Bancshares, Inc. is a bank holding company that operates banking offices in Alabama 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’s stock is traded on the Nasdaq Capital Market under the symbol “USBI.”

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 loan demand, growth and earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, 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, 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. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

(Dollars in Thousands, Except Per Share Data) 
  Quarter Ended  
  2016    2015
Results of Operations:                    
Interest income $7,478  $7,196  $7,513  $7,328  $7,735 
Interest expense  561   535   549   561   565 
Net interest income  6,917   6,661   6,964   6,767   7,170 
Provision (reduction in reserve) for loan losses  536   167   415   (78)  45 
Net interest income after provision (reduction in reserve) for loan losses  6,381   6,494   6,549   6,845   7,125 
Non-interest income  1,480   989   1,176   996   1,068 
Non-interest expense  7,255   7,066   7,203   7,090   7,107 
Income before income taxes  606   417   522   751   1,086 
Provision for income taxes  144   100   81   207   312 
Net income $462  $317  $441  $544  $774 
Per Share Data:                    
Basic net income per share $0.08  $0.05  $0.07  $0.09  $0.13 
Diluted net income per share $0.07  $0.05  $0.07  $0.09  $0.12 
Dividends declared $0.02  $0.02  $0.02  $0.02  $0.02 
Period-End Balance Sheet:                    
Total assets $601,754  $575,582  $575,782  $548,537  $560,650 
Loans, net of allowance for loan losses  298,901   263,975   255,432   237,715   244,993 
Allowance for loan losses  3,591   3,375   3,781   4,345   5,008 
Investment securities, net  213,165   231,466   231,202   239,009   246,176 
Total deposits  495,618   485,537   479,258   463,266   471,141 
Long-term debt  15,000   5,000   5,000   -   5,000 
Total shareholders’ equity  78,525   77,727   77,030   76,283   75,783 
Key Ratios:                    
Return on average assets (annualized)  0.31%  0.22%  0.31%  0.39%  0.55%
Return on average equity (annualized)  2.30%  1.65%  2.28%  2.84%  4.09%
Loans to deposits  60.3%  54.4%  53.3%  51.3%  52.0%
Allowance for loan losses as % of loans  1.19%  1.26%  1.46%  1.80%  2.00%
Nonperforming assets as % of total assets  1.33%  1.50%  1.59%  1.98%  1.96%


(Dollars in Thousands, Except Share and Per Share Data)
  2016  2015 
Cash and due from banks $9,372  $7,088 
Interest-bearing deposits in banks  33,353   36,984 
Total cash and cash equivalents  42,725   44,072 
Investment securities available-for-sale, at fair value  179,613   198,843 
Investment securities held-to-maturity, at amortized cost  33,552   32,359 
Federal Home Loan Bank stock, at cost  1,368   1,025 
Loans, net of allowance for loan losses of $3,591 and $3,781, respectively  298,901   255,432 
Premises and equipment, net  14,960   12,084 
Cash surrender value of bank-owned life insurance  14,448   14,292 
Accrued interest receivable  1,804   1,833 
Other real estate owned  5,405   6,038 
Other assets  8,978   9,804 
Total assets $601,754  $575,782 
Deposits $495,618  $479,258 
Accrued interest expense  233   180 
Other liabilities  7,026   6,960 
Short-term borrowings  5,352   7,354 
Long-term debt  15,000   5,000 
Total liabilities  523,229   498,752 
Shareholders’ equity:        
Common stock, par value $0.01 per share, 10,000,000 shares authorized;        
7,329,060 shares issued; 6,038,554 shares outstanding  73   73 
Surplus  10,713   10,558 
Accumulated other comprehensive income, net of tax  1,338   536 
Retained earnings  87,231   86,693 
Less treasury stock: 1,290,506 shares at cost  (20,817)  (20,817)
Noncontrolling interest  (13)  (13)
Total shareholders’ equity  78,525   77,030 
Total liabilities and shareholders’ equity $601,754  $575,782 

(Dollars in Thousands, Except Per Share Data)
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2016  2015  2016  2015 
Interest income:                
Interest and fees on loans $6,366  $6,520  $12,419  $12,655 
Interest on investment securities  1,112   1,215   2,255   2,401 
Total interest income  7,478   7,735   14,674   15,056 
Interest expense:                
Interest on deposits  513   557   1,036   1,164 
Interest on borrowings  48   8   60   15 
Total interest expense  561   565   1,096   1,179 
Net interest income  6,917   7,170   13,578   13,877 
Provision (reduction in reserve) for loan losses  536   45   703   (121)
Net interest income after provision (reduction in reserve) for loan losses  6,381   7,125   12,875   13,998 
Non-interest income:                
Service and other charges on deposit accounts  426   472   843   926 
Credit insurance income  162   114   314   189 
Other income, net  496   398   914   883 
Net gain on sales and prepayments of investment securities  396   84   398   361 
Total non-interest income  1,480   1,068   2,469   2,359 
Non-interest expense:                
Salaries and employee benefits  4,236   4,215   8,400   8,407 
Net occupancy and equipment  782   780   1,551   1,603 
Other real estate/foreclosure expense, net  129   347   246   567 
Other expense  2,108   1,765   4,124   3,507 
Total non-interest expense  7,255   7,107   14,321   14,084 
Income before income taxes  606   1,086   1,023   2,273 
Provision for income taxes  144   312   244   663 
Net income $462  $774  $779  $1,610 
Basic net income per share $0.08  $0.13  $0.13  $0.26 
Diluted net income per share $0.07  $0.12  $0.12  $0.25 
Dividends per share $0.02  $0.02  $0.04  $0.04 


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