Press Release

United Security Bancshares reports 2nd Quarter 2017 profits of $2.5 million

Company Release - 7/18/2017 6:20 PM ET

FRESNO, Calif., July 18, 2017 /PRNewswire/ -- United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter ended June 30, 2017.  The Company reported consolidated net income of $2,492,000, or $0.15 per basic and diluted common share, for the quarter ended June 30, 2017, as compared to $2,021,000, or $0.12 per basic and diluted common share, for the quarter ended June 30, 2016.  The Company recognized net income of $4,263,000 for the six months ended June 30, 2017, an increase of 12.48% compared to the net income of $3,790,000 recognized for the six months ended June 30, 2016.  Basic and diluted earnings per share increased to $0.25 for the six months ended June 30, 2017, as compared to $0.22 for the six months ended June 30, 2016.

Dennis Woods, President and Chief Executive Officer, added: "This quarter we resumed payment of a cash dividend, reflecting solid earnings and improved credit quality, as well as our commitment to our shareholders."

Additionally, Mr. Woods noted that "There is an important matter not apparent to the casual reader of this earnings release that I wanted to point out. Excluding Non-Core items such as the Fair Value Adjustment for Trust Preferred Securities ("TRUPS") and the gain on sale of Other Real Estate Owned (OREO), net income was $4,422,000 for the six months ended June 30, 2017, an increase of approximately 27.22% compared to net income of $3,476,000 for the six months ended June 30, 2016. Neither of these items are part of Core Income and specifically the TRUPS Fair Value Adjustment is dependent upon market rates, which can 'add to' or 'subtract from' Core Income and mask Core Income change."

A reconciliation of Core Income, as a non-GAAP measure, to Net Income appears at the end of this Press Release.

Second Quarter 2017 Highlights (at or for the quarter ended June 30, 2017)

  • Net interest income after provision for credit losses increased to $7,724,000 compared to $6,654,000 for the quarter ended June 30, 2016, and $7,207,000 for the quarter ended March 31, 2017.
  • Annualized net interest margin increased to 4.25% from 3.92% for the quarter ended June 30, 2016.
  • Net recoveries totaled $110,000, compared to net recoveries of $25,000 in the preceding quarter and net charge-offs of $821,000 for the quarter ended June 30, 2016.
  • Total loans decreased to $568,163,000, compared to $570,834,000 at December 31, 2016.
  • Nonperforming assets as a percentage of total assets decreased to 2.28%, compared to 2.40% at December 31, 2016.
  • Nonperforming assets decreased approximately $1,070,000 between December 31, 2016 and June 30, 2017.
  • Other real estate owned balances decreased to $5,745,000 at June 30, 2017 when compared to $6,471,000, at December 31, 2016.
  • The allowance for credit losses as a percentage of gross loans increased to 1.59%, compared to 1.56% at December 31, 2016.
  • Total deposits decreased to $666,311,000, compared to $676,629,000 at December 31, 2016.
  • Tangible book value per share increased to $5.63, compared to $5.52 at December 31, 2016.

Annualized return on average equity (ROAE) for the six months ended June 30, 2017 was 8.72%, compared to 8.30% for the six months ended June 30, 2016.  Annualized return on average assets (ROAA) was 1.09% for the six months ended June 30, 2017, compared to 1.03% for the six months ended June 30, 2016.  Annualized ROAE for the quarter ended June 30, 2017 was 10.06% compared to 8.76% for the same period in 2016.  Annualized ROAA was 1.26% for the quarter ended June 30, 2017, compared to 1.07% for the same period in 2016.  The annualized average cost of deposits was 0.22% for the quarter ended June 30, 2017, up from 0.17% for the quarter ended June 30, 2016. Shareholders' equity at June 30, 2017 was $99,521,000, up $2,867,000 from shareholders' equity of $96,654,000 at December 31, 2016. 

Total assets decreased $6,406,000, or 0.81%, for the six months ended June 30, 2017, due partially to declines of $4,030,000 in the investment portfolio, $3,524,000 in overnight funds, and $2,671,000 in gross loan balances.

Total deposits decreased $10,318,000, or 1.52%, to $666,311,000 during the six months ended June 30, 2017.  The overall decrease was lead by $35,203,000 in maturities of non-core brokered certificates and non-relationship time deposits. Offsetting these maturities, interest bearing transaction and savings accounts increased 0.19% to $311,520,000 at June 30, 2017, compared to $310,941,000 at December 31, 2016.  Noninterest bearing deposits increased 9.25% to $287,003,000 at June 30, 2017, compared to $262,697,000 at December 31, 2016. As a result of the increases in non-interest bearing deposits and interest bearing transactions and saving accounts, net core deposits increased $24,885,000.

The Board of Directors of United Security Bancshares declared cash dividends on common stock on April 25, 2017, and June 27, 2017, for $0.05 per share.  The dividends were payable May 18, 2017, to shareholders of record as of  May 17, 2017, and will be payable on July 21, 2017, to shareholders of record as of July 17, 2017.  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 six months ended June 30, 2017 totaled $14,931,000, an increase of $1,644,000, or 12.37%, from the net interest income of $13,287,000 for the same period ended June 30, 2016. The Company's net interest margin increased from 4.02% for the six months ended June 30, 2016 to 4.17% for the six months ended June 30, 2017.  The 15 basis point increase in net interest margin in the period-to-period comparison was the result of higher yields on both the loan portfolio and overnight deposits, partially offset by declining yields on the investment portfolio.  The yield on loans increased from 5.23% for the six months ended June 30, 2016 to 5.33% for the six months ended June 30, 2017. The 10 basis point increase in loan yields is primarily the result of growth of the higher-yielding student loan portfolio and increases on rates throughout the loan portfolio reflecting the increase in the prime rate.  The increase in net interest income on a year-over-year comparison is the result of an increase in high-yielding loans.  Net interest income after the recovery of provision for credit losses for the quarter ended June 30, 2017 totaled $7,724,000, an increase of $1,070,000 from the net interest income of $6,654,000 for the same period ended June 30, 2016.

Non-interest income for the six months ended June 30, 2017 totaled $1,975,000, reflecting a decrease of $1,013,000 from $2,988,000 in non-interest income reported for the six months ended June 30, 2016.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $1,938,000 and $1,943,000 for the six months ended June 30, 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 $601,000 loss on the fair value option of financial liability for the six months ended June 30, 2017, compared to a $471,000 gain for the same period ended June 30, 2016.

Non-interest income for the quarter ended June 30, 2017 totaled $1,066,000, reflecting a decrease of $361,000 from $1,427,000 in non-interest income reported for the quarter ended June 30, 2016.  This decrease was primarily due to a $264,000 loss recorded on the fair value option of financial liability for the quarter ended June 30, 2017, compared to a $113,000 gain for the same period ended 2016. The change in the fair value of financial liability was primarily caused by fluctuations in the LIBOR yield curve. Customer service fees totaled $997,000 for the quarter ended June 30, 2017, as compared to $1,017,000 for the quarter ended June 30, 2016. 

For the six months ended June 30, 2017, non-interest expense totaled $9,798,000, a decrease of $326,000 compared to $10,124,000 for the six months ended June 30, 2016.  On a year-over-year comparative basis, non-interest expense decreased primarily due to decreases of $454,000 in the net cost on operation and sale of OREO, $232,000 in regulatory assessments, and $190,000 in professional fees, partially offset by an increase of $513,000 in salaries and employee benefit expenses.  Professional fees for the six months ended June 30, 2016, included a $125,000 legal settlement. Salaries and employee benefit expenses for the six months ended June 30, 2017, reflect increases in salaries, higher group insurance expenses, and increases in incentives and bonuses.

Non-interest expense totaled $4,607,000 for the quarter ended June 30, 2017, a decrease of $217,000 as compared to $4,824,000 reported for the quarter ended June 30, 2016. On a quarter-over-quarter comparative basis, non-interest expense decreased primarily due to decreases in regulatory assessments and net cost on operation and sale of OREO. 

The Company recorded a recovery of provision for credit losses of $31,000 for the six months ended June 30, 2017, compared to a recovery of provision of $10,000 for the six months ended June 30, 2016.  Net loan recoveries totaled $136,000 for the six months ended June 30, 2017, as compared to net charge-offs of $794,000 for the six months ended June 30, 2016.  The Company recorded a recovery of provision for credit loss of $52,000 for the quarter ended June 30, 2017, compared to a provision for credit losses of $12,000 for the quarter ended June 30, 2016. Net loan recoveries totaled $110,000 for the quarter ended June 30, 2017, as compared to net loan charge-offs of $821,000 for the quarter ended June 30, 2016.

The Company has maintained an adequate allowance for loan losses which totaled 1.59% of total loans at June 30, 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 June 30, 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, decreased approximately $1,070,000 between December 31, 2016 and June 30, 2017 to $17,811,000.  Nonperforming assets as a percentage of total assets decreased from 2.40% at December 31, 2016 to 2.28% at June 30, 2017.  The decrease in nonperforming assets is mainly attributed to decreases in nonaccrual loans.  Nonaccrual loans decreased $1,756,000 between December 31, 2016 and June 30, 2017 to $5,508,000.  Impaired loans totaled $16,024,000 at June 30, 2017, a decrease of $155,000 from the balance of $16,179,000 at December 31, 2016. OREO totaled $5,745,000 at June 30, 2017 as compared to $6,471,000 at 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 Non-Core) 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)




June 30, 2017


December 31, 2016

Assets



Cash and non-interest-bearing deposits in other banks

$

21,016


$

25,781

Cash and due from Federal Reserve Bank

88,492


87,251

Cash and cash equivalents

109,508


113,032

Interest-bearing deposits in other banks

652


650

Investment securities available for sale (at fair value)

53,461


57,491

Loans and leases, net of unearned fees

568,163


570,834

Less: Allowance for credit losses

(9,007)


(8,902)

Net loans

559,156


561,932

Premises and equipment - net

10,710


10,445

Other real estate owned

5,745


6,471

Goodwill and intangible assets

4,488


4,488

Cash surrender value of life insurance

19,313


19,047

Deferred income tax asset - net

3,392


3,298

Other assets

15,141


11,118

Total assets

$

781,566


$

787,972




Liabilities and Shareholders' Equity



Deposits



Non-interest bearing demand deposits

$

287,003


$

262,697

Money market, NOW, and savings

311,520


310,941

Time

67,788


102,991

Total deposits

666,311


676,629

Accrued interest payable

33


76

Other liabilities

6,260


5,781

Junior subordinated debentures (at fair value)

9,441


8,832

Total liabilities

682,045


691,318

Shareholders' equity






Common stock, no par value 20,000,000 shares authorized, 16,875,190 issued and outstanding at June 30, 2017, and 16,705,594 at December 31, 2016

57,844


56,557

Retained earnings

42,053


40,701

Accumulated other comprehensive loss

(376)

(604)

Total shareholders' equity

99,521

96,654

Total liabilities and shareholders' equity

$

781,566


$

787,972

 

United Security Bancshares

Consolidated Statements of Income (unaudited)

(in thousands)


Three Months Ended June 30,


Six months ended June 30,


2017


2016


2017


2016

Interest income:








Interest and fees on loans

$

7,579


$

6,658


$

14,804


$

13,288

Interest on investment securities

229


185


453


374

Interest on deposits in FRB

301


151


484


276

Interest on deposits in other banks

1


2


2


4

Total interest income

8,110


6,996


15,743


13,942

Interest expense:








Interest on deposits

364


272


700


549

Interest on other borrowed funds

74


58


143


116

Total interest expense

438


330


843


665

Net interest income

7,672


6,666


14,900


13,277

(Recovery) Provision for Credit Losses

(52)


12


(31)


(10)

Net interest income after (recovery) provision for credit losses

7,724


6,654


14,931


13,287

Non-interest income:








Customer service fees

997


1,017


1,938


1,943

Increase in cash surrender value of bank-owned life insurance

134


132


266


264

(Loss) gain on Fair Value of Financial Liability

(264)


113


(601)


471

Other non-interest income

199


165


372


310

Total non-interest income

1,066


1,427


1,975


2,988

Non-interest expense:








Salaries and employee benefits

2,586


2,469


5,571


5,058

Occupancy expense

1,043


1,018


2,058


2,115

Data processing

25


26


52


85

Professional fees

345


301


600


790

Regulatory assessments

133


246


269


501

Director fees

75


73


143


143

Correspondent bank service charges

19


19


37


39

Loss on California tax credit partnership

10


37


119


73

Net (gain) loss on operation and sale of OREO

(309)


60


(277)


177

Other non-interest expense

680


575


1,226


1,143

Total non-interest expense

4,607


4,824


9,798


10,124









Income before income tax provision

4,183


3,257


7,108


6,151

Provision for income taxes

1,691


1,236


2,845


2,361

Net income

$

2,492


$

2,021


$

4,263


$

3,790









Basic earnings per common share

$

0.15


$

0.12


$

0.25


$

0.22

Diluted earnings per common share

$

0.15


$

0.12


$

0.25


$

0.22

Weighted average basic shares for EPS

16,875,190


16,870,113


16,875,134


16,870,113

Weighted average diluted shares for EPS

16,894,227


16,875,339


16,891,784


16,874,260

 

United Security Bancshares

Average Balances and Rates (unaudited)

(in thousands)

Three Months Ended June 30,


Six months ended June 30,


2017


2016


2017


2016

Average Balances:








Loans (1)

$

554,553



$

518,468



$

560,282



$

510,522


Investment securities – taxable

54,505



43,486



55,541



41,075


Interest-bearing deposits in other banks

651



1,531



651



1,530


Interest-bearing deposits in FRB

113,981



121,738



102,898



112,029


Total interest-earning assets

723,690



685,223



719,372



665,156


Allowance for credit losses

(9,021)



(9,716)



(8,973)



(9,705)


Cash and due from banks

20,872



21,682



20,894



22,262


Other real estate owned

6,041



9,090



6,255



11,005


Other non-earning assets

51,925



48,307



51,093



49,253


Total average assets

793,507



754,586



788,641



737,971










Interest bearing deposits

400,245



366,541



402,831



366,217


Junior subordinated debentures

9,139



7,914



8,969



8,091


Total interest-bearing liabilities

409,384



374,455



411,800



374,308


Non-interest-bearing deposits

278,457



280,649



271,230



265,252


Other liabilities

6,317



6,945



7,035



6,798


Total liabilities

694,158



662,049



690,065



646,358


Total equity

99,349



92,537



98,576



91,613


Total liabilities and equity

$

793,507



$

754,586



$

788,641



$

737,971










Average Rates (annualized):








Loans (1)

5.48

%


5.16

%


5.33

%


5.23

%

Investment securities- taxable

1.69

%


1.71

%


1.64

%


1.83

%

Interest-bearing deposits in other banks

0.62

%


0.53

%


0.62

%


0.53

%

Interest-bearing deposits in FRB

1.06

%


0.50

%


0.95

%


0.50

%

Earning assets

4.49

%


4.11

%


4.41

%


4.22

%

Interest bearing deposits

0.36

%


0.30

%


0.35

%


0.30

%

Junior subordinated debentures

3.25

%


2.95

%


3.24

%


2.88

%

Total interest-bearing liabilities

0.43

%


0.35

%


0.41

%


0.36

%

Net interest margin

4.25

%


3.92

%


4.17

%


4.02

%









(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)


June 30, 2017


December 31, 2016


June 30, 2016

Commercial and industrial

$

561



$

565



$

227


Real estate - mortgage

473



1,126



1,629


RE construction & development

4,474



4,608



4,741


Installment/other



965



965


Total Nonaccrual Loans

$

5,508



$

7,264



$

7,562








Loans past due 90 days and still accruing

87






Restructured Loans

6,471



5,146



11,106


Total nonperforming loans

$

12,066



$

12,410



$

18,668


Other real estate owned

5,745



6,471



7,454


Total nonperforming assets

$

17,811



$

18,881



$

26,122








Nonperforming assets to total gross loans

3.13

%


3.31

%


4.68

%

Nonperforming assets to total assets

2.28

%


2.40

%


3.51

%

Allowance for loan losses to nonperforming loans

74.65

%


71.73

%


47.42

%

 

United Security Bancshares

Selected Financial Data (unaudited)

(dollars in thousands, except per share amounts)


Three Months Ended June 30,


Six months ended June 30,


2017


2016


2017


2016









Annualized return on average assets

1.26

%


1.07

%


1.09%


1.03%

Annualized return on average equity

10.06

%


8.76

%


8.72%


8.30%

Annualized net (recoveries) charge-offs to average loans

(0.08)

%


0.64

%


(0.05)%


0.31%


















June 30, 2017


December 31, 2016





Shares outstanding - period end

16,875,190



16,705,594






Book value per share

$5.90



$5.79






Tangible book value per share (1)

$5.63



$5.52






Efficiency ratio (2)

57.65

%


61.49

%





Total impaired loans

$16,024



$16,179






Net Loan to deposit ratio

83.92

%


83.05

%





Allowance for credit losses to total loans

1.59

%


1.56

%





Total capital to risk weighted assets








Company

17.40

%


17.26

%





Bank

17.42

%


17.19

%





Tier 1 capital to risk-weighted assets








Company

16.15

%


16.01

%





Bank

16.17

%


15.94

%





Common equity tier 1 capital to risk-weighted assets








Company

14.75

%


14.68

%





Bank

16.17

%


15.94

%





Tier 1 capital to adjusted average assets (leverage)








Company

13.13

%


12.97

%





Bank

13.33

%


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 (dollars in thousands)

(unaudited)



Six Months Ended June 30







2017


2016


Change $


Change %

TRUPs (1) Fair Value Adjustment (Loss) Gain Pretax


(601)



471






Gain on sale of Other Real Estate Owned (OREO) (2)


336



53






Total balance of Non-Core items


(265)



524















Income Tax Effect (40%)


(106)



210






Non-Core Items Net of Taxes


(159)



314















Net Income


$

4,263



3,790



473



12.48

%

Non-GAAP Core Net Income


4,422



3,476



946



27.22

%



(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.



(2)

Gain on sale of Other Real Estate Owned (OREO) is not part of Core Income.

 

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SOURCE United Security Bancshares