Press Release

United Security Bancshares reports 1st Quarter 2017 net income of $1.8 million

Company Release - 4/19/2017 8:22 PM ET

FRESNO, Calif., April 19, 2017 /PRNewswire/ -- United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter ended March 31, 2017.  The Company recognized net income of $1,771,000 for the three months ended March 31, 2017, an increase of 0.11% compared to the net income of $1,769,000 recognized for the three months ended March 31, 2016.  Basic and diluted earnings per share remained at $0.10 for the three months ended March 31, 2017, as compared to $0.10 for the three months ended March 31, 2016.

Dennis Woods, President and Chief Executive Officer, added: "There is an important matter not apparent to the casual reader of this earnings release that I want to point out. Excluding the Fair Value Adjustment for Trust Preferred Securities ("TRUPS"), net income was $1,972,600 for the three months ended March 31, 2017, an increase of approximately 27% compared to net income of $1,554,200 for the three months ended March 31, 2016."  Mr. Woods explained that "the TRUPS Fair Value Adjustment is not part of Core Income and depending upon market rates, can 'add to' or 'subtract from' Core Income and mask Core Income change."

The TRUPS Fair Value Adjustment for the three month periods ended March 31, 2016 and 2017, respectively, are set forth in the table appearing at the end of this Press Release.

First Quarter 2017 Highlights (at or for the quarter ended March 31, 2017)

  • Net interest income increased to $7,228,000, compared to $6,611,000 for the quarter ended March 31, 2016, and decreased from $7,384,000 in the preceding quarter.
  • Annualized net interest margin decreased to 4.10% from 4.12% for the quarter ended March 31, 2016.
  • Net recoveries totaled $25,000, compared to net charge-offs of $2,000 in the preceding quarter and net recoveries of $27,000 for the quarter ended March 31, 2016.
  • Total loans decreased to $547,748,000, compared to $570,834,000 at December 31, 2016.
  • Nonperforming assets as a percentage of total assets increased to 2.54%, compared to 2.40% at December 31, 2016.
  • Nonperforming assets increased approximately $1,027,000 between December 31, 2016 and March 31, 2017.
  • Other real estate owned balances remained unchanged at $6,471,000, when compared to December 31, 2016.
  • The allowance for credit losses as a percentage of gross loans increased to 1.64%, compared to 1.56% at December 31, 2016.
  • Total deposits decreased to $670,541,000, compared to $676,629,000 at December 31, 2016.
  • Tangible book value per share increased to $5.57, compared to $5.52 at December 31, 2016.

Return on average equity (ROAE) for the three months ended March 31, 2017 was 7.34%, compared to 7.82% for the three months ended March 31, 2016.  Return on average assets (ROAA) was 0.92% for the three months ended March 31, 2017, compared to 0.98% for the three months ended March 31, 2016.  The annualized average cost of deposits was 0.20% for the quarter ended March 31, 2017, up from 0.18% for the quarter ended March 31, 2016. Shareholders' equity at March 31, 2017 was $98,498,000, up $1,844,000 from shareholders' equity of $96,654,000 at December 31, 2016. 

Total assets decreased $3,874,000, or 0.49%, for the three months ended March 31, 2017, due partially to a decline of $2,140,000 in the investment portfolio and $23,086,000 in gross loan balances, offset by an increase of $20,100,000 in overnight funds.

Total deposits decreased $6,088,000, or 0.90%, to $670,541,000 during the three months ended March 31, 2017.  Interest bearing transaction and savings accounts decreased 0.81% to $308,420,000 at March 31, 2017, compared to $310,941,000 at December 31, 2016.  Noninterest bearing deposits increased 6.46%  to $279,668,000 at March 31, 2017, compared to $262,697,000 at December 31, 2016. This increase was partially offset by a decrease in time deposits which included the maturity of $6,000,000 in purchased brokered certificates of deposit.

The Board of Directors of United Security Bancshares declared a first quarter 2017 stock dividend of one percent (1%) on March 28, 2017. The stock dividend was payable to shareholders of record on April 7, 2017, and the shares were issued on April 17, 2017. This marks the 34th consecutive quarterly stock dividend since 2008.  The Company's Board of Directors has elected to issue stock dividends in order to preserve capital for future growth opportunities.  No assurances can be provided that future dividends, whether payable in stock or cash, will be declared and/or as to the timing of such future dividends, if any.

Net interest income after the provision for credit losses for the three months ended March 31, 2017 totaled $7,207,000, an increase of $574,000, or 8.65%, from the net interest income of $6,633,000 for the same period ended March 31, 2016. Although net interest income increased, the Company's net interest margin declined from 4.12% for the three months ended March 31, 2016 to 4.10% for the three months ended March 31, 2017.  The 2 basis point decrease in net interest margin in the period-to-period comparison resulted primarily from declining yields on the loan and investment portfolios.  The yield on loans declined from 5.31% for the three months ended March 31, 2016 to 5.18% for the three months ended March 31, 2017. The 13 basis point decrease in loan yields is the result of strong loan growth in lower-yielding mortgage loans and competitive pressures on loan yields.  The increase in net interest income on a year-over-year comparison is the result of an increase in loan balances between the two periods.

Non-interest income for the three months ended March 31, 2017 totaled $909,000, reflecting a decrease of $652,000 from $1,561,000 in non-interest income reported for the three months ended March 31, 2016.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $941,000 and $926,000 for the three months ended March 31, 2017 and 2016, respectively.  On a year-over-year comparative basis, non-interest income decreased primarily due to the change in fair value option of financial liability caused by fluctuations in the LIBOR yield curve.  The Company recorded a $336,000 loss on the fair value option of financial liability for the three months ended March 31, 2017, compared to a $358,000 gain for the same period ended March 31, 2016.

For the three months ended March 31, 2017, non-interest expense totaled $5,190,000, a decrease of $110,000 compared to $5,300,000 for the three months ended March 31, 2016.  On a year-over-year comparative basis, non-interest expense decreased primarily due to decreases of $234,000 in professional fees, $120,000 in regulatory assessments, and $82,000 in occupancy expenses, partially offset by an increase of $395,000 in salaries and employee benefit expenses.  Professional fees for the three months ended March 31, 2016, included a $125,000 legal settlement. Salaries and employee benefit expenses for the three months ended March 31, 2017, reflect increases in salaries, higher group insurance expenses, and increases in incentives and bonuses.

The Company recorded a provision for credit losses of $21,000 for the three months ended March 31, 2017, compared to a recovery of provision of $22,000 for the three months ended March 31, 2016.  Net loan recoveries totaled $25,000 for the three months ended March 31, 2017, as compared to net recoveries of $27,000 for the three months ended March 31, 2016.

Over the quarter the allowance for loan losses increased slightly as a percentage of total loans. The allowance for loan losses totaled 1.64% of total loans at March 31, 2017, compared to 1.56% of total loans at December 31, 2016. In determining the adequacy of the allowance for loan losses, the judgment of the Company's management is a significant factor and management considers the allowance for credit losses at March 31, 2017 to be adequate.

Non-performing assets, comprised of nonaccrual loans, troubled debt restructures (TDR), other real estate owned through foreclosure (OREO), and loans more than 90 days past due and still accruing interest, increased approximately $1,027,000 between December 31, 2016 and March 31, 2017 to $19,908,000.  Nonperforming assets as a percentage of total assets increased from 2.40% at December 31, 2016 to 2.54% at March 31, 2017.  The increase in nonperforming assets is mainly attributed to increases in restructured loans.  Nonaccrual loans decreased $80,000 between December 31, 2016 and March 31, 2017 to $7,184,000.  Impaired loans totaled $17,740,000 at March 31, 2017, an increase of $1,561,000 from the balance of $16,179,000 at December 31, 2016. OREO totaled $6,471,000 at March 31, 2017 and December 31, 2016.

About United Security Bancshares

United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, which was founded in 1987. United Security Bank is headquartered in Fresno and operates 11 full-service branch offices in Fresno, Bakersfield, Campbell, Caruthers, Coalinga, Firebaugh, Oakhurst, San Joaquin, and Taft.  Additionally, United Security Bank operates Commercial Real Estate Construction, Commercial Lending, Consumer Lending, and Financial Services departments.  For more information, please visit www.unitedsecuritybank.com.

NON-GAAP FINANCIAL MEASURES

This press release and the accompanying financial tables contain a non-GAAP financial measure (Net Income before TRUPS Adjustment) within the meaning of the Securities and Exchange Commission's Regulation G. In the accompanying financial tables, the Company has provided a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure. The Company's management believes that this non-GAAP financial measure provides useful information about the Company's results of operations and/or financial position to both investors and management. The Company provides this non-GAAP financial measure to investors to assist them in performing their analysis of its historical operating results. The non-GAAP financial measure shows the Company's operating results before consideration of certain adjustments and, consequently, this non-GAAP financial measure should not be construed as an alternative to net income (loss) as an indicator of the Company's operating performance, as determined in accordance with GAAP. The Company may calculate this non-GAAP financial measure differently than other companies.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and the Company intends such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management's knowledge and belief as of today and include information concerning the Company's possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) changes in interest rates, (2) significant changes in banking laws or regulations, (3) increased competition in the company's market, (4) other-than-expected credit losses, (5) earthquake or other natural disasters impacting the condition of real estate collateral, (6) the effect of acquisitions and integration of acquired businesses, (7) the impact of proposed and/or recently adopted changes in laws, and regulations on the Company and its business; (8) changing bank regulatory conditions, policies, whether arising as new legislation or regulatory initiatives or changes in our regulatory classifications, that could lead to restrictions on activities of banks generally or as to the Bank, including specifically the formal order between the Federal Reserve Bank of San Francisco and the Company and the Bank, (9) failure to comply with the written regulatory agreement under which the Company is subject and (10) unknown economic impacts caused by the State of California's budget issues, including the effect on Federal spending due to sequestration required by the Budget Control Act of 2011. Management cannot predict at this time the severity or duration of the effects of the recent business slowdown on the Company's specific business activities and profitability. Weaker or a further decline in capital and consumer spending, and related recessionary trends could adversely affect the Company's performance in a number of ways including decreased demand for our products and services and increased credit losses. Likewise, changes in interest rates, among other things, could slow the rate of growth or put pressure on current deposit levels and affect the ability of borrowers to repay loans. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the statements are made, or to update earnings guidance including the factors that influence earnings. For a more complete discussion of these risks and uncertainties, see the Company's Annual Report on Form 10-K for the year ended December 31, 2016, and particularly the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."  Readers should carefully review all disclosures the Company files from time to time with the Securities and Exchange Commission ("SEC").

United Security Bancshares

Consolidated Balance Sheets (unaudited)

(in thousands)


March 31, 2017


December 31, 2016

Assets




Cash and non-interest-bearing deposits in other banks

$

18,707



$

25,781


Cash and due from Federal Reserve Bank

114,425



87,251


Cash and cash equivalents

133,132



113,032


Interest-bearing deposits in other banks

651



650


Investment securities available for sale (at fair value)

55,351



57,491


Loans and leases, net of unearned fees

547,748



570,834


Less: Allowance for credit losses

(8,948)



(8,902)


Net loans

538,800



561,932


Premises and equipment - net

10,799



10,445


Other real estate owned

6,471



6,471


Goodwill and intangible assets

4,488



4,488


Cash surrender value of life insurance

19,178



19,047


Deferred income tax asset - net

3,395



3,298


Other assets

11,833



11,118


Total assets

$

784,098



$

787,972






Liabilities and Shareholders' Equity




Deposits




Non-interest bearing demand deposits

$

279,668



$

262,697


Money market, NOW, and savings

308,420



310,941


Time

82,453



102,991


Total deposits

670,541



676,629


Accrued interest payable

52



76


Other liabilities

5,836



5,781


Junior subordinated debentures (at fair value)

9,171



8,832


Total liabilities

685,600



691,318


Shareholders' equity








Common stock, no par value 20,000,000 shares authorized, 16,872,372 issued and outstanding at March 31, 2017, and 16,705,294 at December 31, 2016

57,790



56,557


Retained earnings

41,252



40,701


Accumulated other comprehensive loss

(544)



(604)


Total shareholders' equity

98,498



96,654


Total liabilities and shareholders' equity

$

784,098



$

787,972


 

United Security Bancshares

Consolidated Statements of Income (unaudited)

(in thousands)


Three Months Ended March 31,


2017


2016

Interest income:




Interest and fees on loans

$

7,225


$

6,631

Interest on investment securities

224


189

Interest on deposits in FRB

183


124

Interest on deposits in other banks

1


2

Total interest income

7,633


6,946

Interest expense:




Interest on deposits

336


277

Interest on other borrowed funds

69


58

Total interest expense

405


335

Net interest income

7,228


6,611

Provision for Credit Losses

21


(22)

Net interest income after provision for credit losses

7,207


6,633

Non-interest income:




Customer service fees

941


926

Increase in cash surrender value of bank-owned life insurance

132


131

(Loss) gain on Fair Value of Financial Liability

(336)


358

Other non-interest income

172


146

Total non-interest income

909


1,561

Non-interest expense:




Salaries and employee benefits

2,985


2,590

Occupancy expense

1,015


1,097

Data processing

27


59

Professional fees

255


489

Regulatory assessments

136


256

Director fees

68


70

Correspondent bank service charges

18


20

Loss on California tax credit partnership

108


37

Net cost on operation and sale of OREO

32


116

Other non-interest expense

546


566

Total non-interest expense

5,190


5,300





Income before income tax provision

2,926


2,894

Provision for income taxes

1,155


1,125

Net income

$

1,771


$

1,769





Basic earnings per common share

$

0.10


$

0.10

Diluted earnings per common share

$

0.10


$

0.10

Weighted average basic shares for EPS

16,874,778


16,869,813

Weighted average diluted shares for EPS

16,888,573


16,872,871





 

United Security Bancshares

Average Balances and Rates (unaudited)

(in thousands)

Three Months Ended March 31,


2017


2016

Average Balances:




Loans (1)

$

566,075



$

502,576


Investment securities – taxable

56,589



38,664


Interest-bearing deposits in other banks

651



1,529


Interest-bearing deposits in FRB

91,692



102,320


Total interest-earning assets

715,007



645,089


Allowance for credit losses

(8,924)



(9,694)


Cash and due from banks

20,916



22,842


Other real estate owned

6,471



12,920


Other non-earning assets

50,251



50,199


Total average assets

783,721



721,356






Interest bearing deposits

405,445



365,893


Junior subordinated debentures

8,797



8,268


Total interest-bearing liabilities

414,242



374,161


Non-interest-bearing deposits

263,923



249,855


Other liabilities

7,762



6,651


Total liabilities

685,927



630,667


Total equity

97,794



90,689


Total liabilities and equity

$

783,721



$

721,356






Average Rates (annualized):




Loans (1)

5.18

%


5.31

%

Investment securities- taxable

1.61

%


1.97

%

Interest-bearing deposits in other banks

0.62

%


0.53

%

Interest-bearing deposits in FRB

0.81

%


0.49

%

Earning assets

4.33

%


4.33

%

Interest bearing deposits

0.34

%


0.30

%

Junior subordinated debentures

3.18

%


2.82

%

Total interest-bearing liabilities

0.40

%


0.36

%

Net interest margin

4.10

%


4.12

%





(1) Loan amounts include nonaccrual loans, but the related interest income has been included only if collected for the period prior to the loan being placed on a nonaccrual basis.

 

United Security Bancshares

Credit Quality (unaudited)

(dollars in thousands)


March 31, 2017


December 31, 2016


March 31, 2016

Commercial and industrial

$

565



$

565



$

955


Real estate - mortgage

1,091



1,126



1,613


RE construction & development

4,563



4,608



4,808


Installment/other

965



965



977


Total Nonaccrual Loans

$

7,184



$

7,264



$

8,353








Loans past due 90 days and still accruing






Restructured Loans

6,253



5,146



10,627


Total nonperforming loans

$

13,437



$

12,410



$

18,980


Other real estate owned

6,471



6,471



12,207


Total nonperforming assets

$

19,908



$

18,881



$

31,187








Nonperforming assets to total gross loans

3.63

%


3.31

%


6.02

%

Nonperforming assets to total assets

2.54

%


2.40

%


4.20

%

Allowance for loan losses to nonperforming loans

66.59

%


71.73

%


51.20

%

 

United Security Bancshares

Selected Financial Data (unaudited)

(dollars in thousands, except per share amounts)


Three Months Ended March 31,


2017


2016





Annualized return on average assets

0.92

%


0.98

%

Annualized return on average equity

7.34

%


7.82

%

Annualized net recoveries to average loans

(0.02)

%


(0.02)

%










March 31, 2017


December 31, 2016

Shares outstanding - period end

16,874,890



16,705,294


Book value per share

$5.84



$5.79


Tangible book value per share (1)

$5.57



$5.52


Efficiency ratio (2)

60.88

%


61.49

%

Total impaired loans

$17,740



$16,179


Loan to deposit ratio

81.55

%


84.21

%

Allowance for credit losses to total loans

1.64

%


1.56

%

Total capital to risk weighted assets




Company

18.44

%


17.26

%

Bank

18.29

%


17.19

%

Tier 1 capital to risk-weighted assets




Company

17.18

%


16.01

%

Bank

17.04

%


15.94

%

Common equity tier 1 capital to risk-weighted assets




Company

15.73

%


14.68

%

Bank

17.04

%


15.94

%

Tier 1 capital to adjusted average assets (leverage)




Company

13.16

%


12.97

%

Bank

13.15

%


12.99

%














(1) Tangible book value per share is defined as total shareholders' equity minus goodwill divided by shares outstanding.

(2) Efficiency ratio is defined as total noninterest expense minus net cost on operation of OREO divided by net interest income before provision for credit losses plus total noninterest income minus loss on fair value of financial liability.

 

United Security Bancshares

Selected Financial Data

Non-GAAP Information

(unaudited)



Three Months Ended March 31







2016


2017


Change $


Change %

TRUPs (1) Fair Value Adjustment Pretax


358,000



(336,000)






Income Tax Effect


143,200



(134,400)






TRUPs Fair Value Adjustment Net


214,800



(201,600)






Net Income


1,769,000



1,771,000



2,000



0.11

%

Non-GAAP Net Income before TRUPs Adjustment


1,554,200



1,972,600



418,400



26.92

%





















(1) Trust Preferred Securities ("TRUPs") Fair Value Adjustment is not part of Core Income and depending upon market rates, can "add to" or "subtract from" Core Income and mask Core Income change.

 

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SOURCE United Security Bancshares