Press Release

United Security Bancshares reports 3rd Quarter 2017 earnings of $2.7 million

Company Release - 10/17/2017 5:35 PM ET

FRESNO, Calif., Oct. 17, 2017 /PRNewswire/ -- United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter ended September 30, 2017.  The Company reported consolidated net income of $2,741,000, or $0.16 per basic and diluted common share, for the quarter ended September 30, 2017, as compared to $2,040,000, or $0.12 per basic and diluted common share, for the quarter ended September 30, 2016.  The Company recognized net income of $7,004,000 for the nine months ended September 30, 2017, an increase of 20.14% compared to the net income of $5,830,000 recognized for the nine months ended September 30, 2016.  Basic and diluted earnings per share increased to $0.41 for the nine months ended September 30, 2017, as compared to $0.35 for the nine months ended September 30, 2016.

Third Quarter 2017 Highlights (at or for the quarter ended September 30, 2017, except where noted)

  • Net interest income after provision for credit losses increased to $8,150,000 compared to $7,400,000 for the quarter ended September 30, 2016, and increased from $7,724,000 for the quarter ended June 30, 2017.
  • Net interest margin increased to 4.35% from 4.27% for the quarter ended September 30, 2016.
  • Net recoveries totaled $145,000, compared to net recoveries of $110,000 in the preceding quarter and net recoveries of $6,000 for the quarter ended September 30, 2016.
  • Total loans increased to $583,601,000, compared to $570,834,000 at December 31, 2016.
  • Nonperforming assets as a percentage of total assets decreased to 2.12%, compared to 2.40% at December 31, 2016.
  • Nonperforming assets decreased approximately $965,000 between December 31, 2016 and September 30, 2017.
  • Other real estate owned balances decreased to $5,745,000 at September 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 1.57%, compared to 1.56% at December 31, 2016.
  • Total deposits increased to $725,298,000, compared to $676,629,000 at December 31, 2016.
  • Tangible book value per share increased to $5.72, compared to $5.52 at December 31, 2016.

Dennis Woods, President and Chief Executive Officer, stated: "We are pleased to report another solid quarter of earnings, building upon what has so far been a successful 2017. 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 would be $7,215,000 for the nine months ended September 30, 2017, an increase of approximately 25.07% compared to net income of $5,769,000 for same period in 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.

Results of Operations

Annualized return on average equity (ROAE) for the nine months ended September 30, 2017 was 9.42%, compared to 8.38% for the nine months ended September 30, 2016.  Annualized return on average assets (ROAA) was 1.17% for the nine months ended September 30, 2017, compared to 1.04% for the nine months ended September 30, 2016. ROAE for the quarter ended September 30, 2017 was 10.77% compared to 8.53% for the same period in 2016. ROAA was 1.33% for the quarter ended September 30, 2017, compared to 1.07% for the same period in 2016.  The average cost of deposits was 0.20% for the quarter ended September 30, 2017, up from 0.18% for the quarter ended September 30, 2016.

Net interest income after the provision for credit losses for the nine months ended September 30, 2017 totaled $23,081,000, an increase of $2,393,000, or 11.57%, from the net interest income of $20,688,000 for the same period ended September 30, 2016. The Company's net interest margin increased from 4.10% for the nine months ended September 30, 2016 to 4.24% for the nine months ended September 30, 2017.  The 14 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 5.20% for the nine months ended September 30, 2016 to 5.39% for the nine months ended September 30, 2017. The 19 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 loan growth.  Net interest income after the provision for credit losses for the quarter ended September 30, 2017 totaled $8,150,000, an increase of $750,000 from the net interest income of $7,400,000 for the same period ended September 30, 2016.

Non-interest income for the nine months ended September 30, 2017 totaled $3,151,000, reflecting a decrease of $622,000 from $3,773,000 in non-interest income reported for the nine months ended September 30, 2016.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $2,897,000 and $2,867,000 for the nine months ended September 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 $688,000 loss on the fair value option of financial liability for the nine months ended September 30, 2017, compared to a $48,000 gain for the same period ended September 30, 2016.

Non-interest income for the quarter ended September 30, 2017 totaled $1,176,000, reflecting an increase of $390,000 from $786,000 in non-interest income reported for the quarter ended September 30, 2016.  This increase was primarily due to a $88,000 loss recorded on the fair value option of financial liability for the quarter ended September 30, 2017, compared to a $423,000 loss 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 $959,000 for the quarter ended September 30, 2017, as compared to $924,000 for the quarter ended September 30, 2016. 

For the nine months ended September 30, 2017, non-interest expense totaled $14,543,000, a decrease of $445,000 compared to $14,988,000 for the nine months ended September 30, 2016.  On a year-over-year comparative basis, non-interest expense decreased primarily due to decreases of $473,000 in the net cost on operation and sale of OREO, $319,000 in regulatory assessments, and $204,000 in professional fees, partially offset by an increase of $557,000 in salaries and employee benefit expenses.  Professional fees for the nine months ended September 30, 2016, included a $125,000 legal settlement. Salaries and employee benefit expenses for the nine months ended September 30, 2017, reflect increases in salaries, higher group insurance expenses, and increases in incentives and bonuses.

Non-interest expense totaled $4,745,000 for the quarter ended September 30, 2017, a decrease of $119,000 as compared to $4,864,000 reported for the quarter ended September 30, 2016. On a quarter-over-quarter comparative basis, non-interest expense decreased primarily due to decreases in regulatory assessments, professional fees, and net cost on operation and sale of OREO. 

Balance Sheet Review

Total assets increased $55,535,000, or 7.05%, for the nine months ended September 30, 2017, due primarily to increases of $46,860,000 in overnight funds and $12,767,000 in gross loan balances. The increase in loan balances is primarily attributed to the student loan portfolio, which consists entirely of loans to medical and pharmacy students.

Total deposits increased $48,669,000, or 7.19%, to $725,298,000 during the nine months ended September 30, 2017.  The overall increase was led by an increase of $53,180,000 in noninterest bearing deposits and an increase of $32,474,000 in NOW, money market, and savings accounts. These increases were offset by a decrease of $36,985,000 in time deposits. Interest bearing deposits and savings accounts increased 10.44% to $343,415,000 at September 30, 2017, compared to $310,941,000 at December 31, 2016.  Noninterest bearing deposits increased 20.24% to $315,877,000 at September 30, 2017, compared to $262,697,000 at December 31, 2016. As a result of the increases in demand deposits, NOW, money market, and saving accounts, net core deposits increased $85,654,000.

Shareholders' equity at September 30, 2017 was $101,108,000, up $4,454,000 from shareholders' equity of $96,654,000 at December 31, 2016. 

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, and on September 26, 2017, for $0.07 per share.  The dividends were payable May 17, 2017, to shareholders of record as of  May 8, 2017, and were payable on July 21, 2017, to shareholders of record as of July 7, 2017.  The current dividend is payable October 19, 2017, to shareholders of record as of October 10, 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.

Credit Quality

The Company recorded a recovery of provision for credit losses of $24,000 for the nine months ended September 30, 2017, compared to a recovery of provision of $7,000 for the nine months ended September 30, 2016.  Net loan recoveries totaled $280,000 for the nine months ended September 30, 2017, as compared to net charge-offs of $788,000 for the nine months ended September 30, 2016.  The Company recorded a provision for credit loss of $7,000 for the quarter ended September 30, 2017, compared to a provision for credit losses of $4,000 for the quarter ended September 30, 2016. Net loan recoveries totaled $145,000 for the quarter ended September 30, 2017, as compared to net loan recoveries of $6,000 for the quarter ended September 30, 2016.

The Company has maintained an adequate allowance for loan losses which totaled 1.57% of total loans at September 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 September 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 $965,000 between December 31, 2016 and September 30, 2017 to $17,916,000.  Nonperforming assets as a percentage of total assets decreased from 2.40% at December 31, 2016 to 2.12% at September 30, 2017.  The decrease in nonperforming assets is mainly attributed to decreases in nonaccrual loans, impaired loans and OREO.  Nonaccrual loans decreased $2,119,000 between December 31, 2016 and September 30, 2017 to $5,145,000.  Impaired loans totaled $15,338,000 at September 30, 2017, a decrease of $841,000 from the balance of $16,179,000 at December 31, 2016. OREO totaled $5,745,000 at September 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)





September 30, 2017


December 31, 2016

Assets




Cash and non-interest-bearing deposits in other banks

$

22,688



$

25,781


Cash and due from Federal Reserve Bank

137,204



87,251


Cash and cash equivalents

159,892



113,032


Interest-bearing deposits in other banks

654



650


Investment securities available for sale (at fair value)

48,356



57,491


Loans and leases, net of unearned fees

583,601



570,834


Less: Allowance for credit losses

(9,158)



(8,902)


Net loans

574,443



561,932


Premises and equipment - net

10,469



10,445


Other real estate owned

5,745



6,471


Goodwill and intangible assets

4,488



4,488


Cash surrender value of life insurance

19,447



19,047


Deferred income tax asset - net

3,423



3,298


Accrued interest receivable

5,846



3,895


Other assets

10,744



7,223


Total assets

$

843,507



$

787,972






Liabilities and Shareholders' Equity




Deposits




Non-interest bearing demand deposits

$

315,877



$

262,697


Money market, NOW, and savings

343,415



310,941


Time

66,006



102,991


Total deposits

725,298



676,629


Accrued interest payable

41



76


Other liabilities

7,526



5,781


Junior subordinated debentures (at fair value)

9,534



8,832


Total liabilities

742,399



691,318


Shareholders' equity








Common stock, no par value 20,000,000 shares authorized, 16,885,615 issued and outstanding at September 30, 2017, and 16,705,594 at December 31, 2016

57,861



56,557


Retained earnings

43,615



40,701


Accumulated other comprehensive loss

(368)



(604)


Total shareholders' equity

101,108



96,654


Total liabilities and shareholders' equity

$

843,507



$

787,972


 

United Security Bancshares






Consolidated Statements of Income
(unaudited)






(in thousands)







Three Months Ended September 30,


 

Nine months ended September 30,


2017

2016


2017

2016

Interest income:






Interest and fees on loans

$

7,978

$

7,435


$

22,782

$

20,722

Interest on investment securities

238

244


691

618

Interest on deposits in FRB

375

72


858

348

Interest on deposits in other banks

1

2


4

6

Total interest income

8,592

7,753


24,335

21,694

Interest expense:






Interest on deposits

355

289


1,055

837

Interest on other borrowed funds

80

60


223

176

Total interest expense

435

349


1,278

1,013

Net interest income

8,157

7,404


23,057

20,681

Provision (recovery) for Credit Losses

7

4


(24)

(7)

Net interest income after provision (recovery)
for credit losses

8,150

7,400


23,081

20,688

Non-interest income:






Customer service fees

959

924


2,897

2,867

Increase in cash surrender value of bank-owned
life insurance

134

131


401

394

(Loss) gain on Fair Value of Financial Liability

(88)

(423)


(688)

48

Loss on sale of other investment

3


3

Other non-interest income

168

154


538

464

Total non-interest income

1,176

786


3,151

3,773

Non-interest expense:






Salaries and employee benefits

2,578

2,533


8,149

7,592

Occupancy expense

1,087

1,097


3,144

3,212

Data processing

29

23


81

108

Professional fees

311

327


912

1,116

Regulatory assessments

43

131


313

632

Director fees

72

75


215

218

Correspondent bank service charges

18

20


55

59

(Gain) loss on California tax credit partnership

(1)

49


118

122

Net loss (gain) on operation and sale of OREO

21

39


(257)

216

Other non-interest expense

587

570


1,813

1,713

Total non-interest expense

4,745

4,864


14,543

14,988







Income before income tax provision

4,581

3,322


11,689

9,473

Provision for income taxes

1,840

1,282


4,685

3,643

Net income

$

2,741

$

2,040


$

7,004

$

5,830







Basic earnings per common share

$

0.16

$

0.12


$

0.41

$

0.35

Diluted earnings per common share

$

0.16

$

0.12


$

0.41

$

0.35

Weighted average basic shares for EPS

16,885,615

16,881,422


16,885,578

16,880,835

Weighted average diluted shares for EPS

16,907,267

16,891,066


16,904,063

16,887,078







 

United Security Bancshares








Average Balances and Rates (unaudited)








(in thousands)

Three Months Ended September 30,


Nine months ended September 30,


2017


2016


2017


2016

Average Balances:








Loans (1)

$

574,484



$

574,885



$

565,068



$

532,133


Investment securities – taxable

51,811



56,887



54,284



46,384


Interest-bearing deposits in other banks

654



1,533



652



1,531


Interest-bearing deposits in FRB

117,803



56,264



107,921



93,305


Total interest-earning assets

744,752



689,569



727,925



673,353


Allowance for credit losses

(9,104)



(8,913)



(9,017)



(9,439)


Cash and due from banks

22,375



21,857



21,393



22,126


Other real estate owned

5,745



7,407



6,083



9,797


Other non-earning assets

52,856



49,846



51,687



49,452


Total average assets

816,624



759,766



798,071



745,289










Interest bearing deposits

391,353



372,909



398,963



368,464


Junior subordinated debentures

9,399



7,805



9,114



7,995


Total interest-bearing liabilities

400,752



380,714



408,077



376,459


Non-interest-bearing deposits

308,480



275,878



283,783



268,820


Other liabilities

6,390



8,267



6,818



7,291


Total liabilities

715,622



664,859



698,678



652,570


Total equity

101,002



94,907



99,393



92,719


Total liabilities and equity

$

816,624



$

759,766



$

798,071



$

745,289










Average Rates:








Loans (1)

5.51

%


5.15

%


5.39

%


5.20

%

Investment securities- taxable

1.82

%


1.71

%


1.70

%


1.78

%

Interest-bearing deposits in other banks

0.61

%


0.52

%


0.82

%


0.52

%

Interest-bearing deposits in FRB

1.26

%


0.51

%


1.06

%


0.50

%

Earning assets

4.58

%


4.47

%


4.47

%


4.30

%

Interest bearing deposits

0.36

%


0.31

%


0.35

%


0.30

%

Junior subordinated debentures

3.38

%


3.06

%


3.27

%


2.94

%

Total interest-bearing liabilities

0.43

%


0.36

%


0.42

%


0.36

%

Net interest margin

4.35

%


4.27

%


4.24

%


4.10

%










(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)







September 30, 2017


December 31, 2016


September 30, 2016

Commercial and industrial

$

271



$

565



$

569


Real estate - mortgage

466



1,126



1,539


RE construction & development

4,408



4,608



4,674


Installment/other



965



965


Total Nonaccrual Loans

$

5,145



$

7,264



$

7,747








Loans past due 90 days and still accruing






Restructured Loans

7,026



5,146



3,826


Total nonperforming loans

$

12,171



$

12,410



$

11,573


Other real estate owned

5,745



6,471



7,065


Total nonperforming assets

$

17,916



$

18,881



$

18,638








Nonperforming assets to total gross loans

3.07

%


3.31

%


3.32

%

Nonperforming assets to total assets

2.12

%


2.40

%


2.38

%

Allowance for loan losses to nonperforming loans

75.24

%


71.73

%


77.06

%

 

United Security Bancshares








Selected Financial Data (unaudited)








(dollars in thousands, except per share amounts)








Three Months Ended September 30,


Nine months ended September 30,


2017


2016


2017


2016









Return on average assets

1.33

%


1.07

%


1.17%


1.04%

Return on average equity

10.77

%


8.53

%


9.42%


8.38%

Net (recoveries) charge-offs to average loans

(0.10)%



0.00

%


(0.07)%


0.20%


















September 30, 2017


December 31, 2016





Shares outstanding - period end

16,885,615



16,705,594






Book value per share

$5.99



$5.79






Tangible book value per share (1)

$5.72



$5.52






Efficiency ratio (2)

55.03

%


61.49

%





Total impaired loans

$15,338



$16,179






Net Loan to deposit ratio

79.20

%


83.05

%





Allowance for credit losses to total loans

1.57

%


1.56

%





Total capital to risk weighted assets








Company

17.97

%


17.26

%





Bank

17.85

%


17.19

%





Tier 1 capital to risk-weighted assets








Company

16.72

%


16.01

%





Bank

16.60

%


15.94

%





Common equity tier 1 capital to risk-weighted assets








Company

15.29

%


14.68

%





Bank

16.60

%


15.94

%





Tier 1 capital to adjusted average assets (leverage)








Company

12.96

%


12.97

%





Bank

12.95

%


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)











Nine Months Ended September 30







2017


2016


Change $


Change %

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


(688)



48






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


336



53






Total balance of Non-Core items


(352)



101















Income Tax Effect (40%)


(141)



40






Non-Core Items Net of Taxes


(211)



61















Net Income


$

7,004



5,830



1,174



20.14

%

Non-GAAP Core Net Income


7,215



5,769



1,446



25.07

%


(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