Press Release

United Security Bancshares Q1 2018 earnings increase 78% from Q1 2017

Company Release - 4/18/2018 6:18 PM ET

FRESNO, Calif., April 18, 2018 /PRNewswire/ -- United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter ended March 31, 2018. The Company recognized net income of $3,157,000 for the three months ended March 31, 2018, an increase of 78% compared to the net income of $1,771,000 recognized for the three months ended March 31, 2017.  Basic and diluted earnings per share increased to $0.19 for the three months ended March 31, 2018, as compared to $0.10 for the three months ended March 31, 2017.

First Quarter 2018 Highlights (at or for the quarter ended March 31, 2018, except where noted)

  • Net interest income after provision for credit losses increased to $8,515,000 compared to $7,207,000 for the quarter ended March 31, 2017, and increased from $8,096,000 in the preceding quarter.
  • Net interest margin increased to 4.56% from 4.10% for the quarter ended March 31, 2017.
  • Net recoveries totaled $38,000, compared to net recoveries of $25,000 for the quarter ended March 31, 2017.
  • Total loans decreased to $596,850,000, compared to $602,390,000 at December 31, 2017.
  • Nonperforming assets as a percentage of total assets decreased to 1.81%, compared to 2.19% at December 31, 2017.
  • Nonperforming assets decreased approximately $2,162,000 between December 31, 2017 and March 31, 2018.
  • Other real estate owned balances remained at $5,745,000 at March 31, 2018 when compared to $5,745,000, at December 31, 2017.
  • The allowance for credit losses as a percentage of gross loans decreased to 1.53%, compared to 1.54% at December 31, 2017.
  • Total deposits increased to $734,616,000, compared to $687,693,000 at December 31, 2017.
  • Book value per share increased to $6.13, compared to $6.00 at December 31, 2017.

Dennis Woods, President and Chief Executive Officer, stated: "We are pleased to report our highest earning quarter in recent history.  Although this quarter included a loss on fair value of our trust preferred securities partially offset by a recovery of provision for credit loss, we expect the growth in core earnings and benefit from the lower tax rate will be reflected in our results throughout 2018."

In an attempt to remain consistent with prior periods, provided at the end of this Press Release is a reconciliation of Core Income, as a non-GAAP measure to Net Income. This reconciliation continues to exclude Non-Core items such as the Fair Value Adjustment for Trust Preferred Securities ("TRUPS") and recovery of provision for credit loss. As such net income would have been $3,349,000 for the three months ended March 31, 2018, an increase of approximately 67% compared to net income of $2,010,000 for the same period in 2017. Management believes that our financial results are more comparative excluding the impact of such non-core items.

Results of Operations

Annualized return on average equity (ROAE) for the three months ended March 31, 2018 was 12.16%, compared to 7.34% for the three months ended March 31, 2017.  Annualized return on average assets (ROAA) was 1.53% for the three months ended March 31, 2018, compared to 0.92% for the three months ended March 31, 2017. The average cost of deposits was 0.22% for the quarter ended March 31, 2018, up from 0.20% for the quarter ended March 31, 2017.

Net interest income after the provision for credit losses for the three months ended March 31, 2018 totaled $8,515,000, an increase of $1,308,000, or 18.15%, from $7,207,000 for the same period ended March 31, 2017. The Company's net interest margin increased from 4.10% for the three months ended March 31, 2017 to 4.56% for the three months ended March 31, 2018.  The 46 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 increasing cost of deposits.  The yield on loans increased from 5.18% for the three months ended March 31, 2017 to 5.57% for the three months ended March 31, 2018. The 39 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.

Non-interest income for the three months ended March 31, 2018 totaled $922,000, reflecting an increase of $13,000 from $909,000 in non-interest income reported for the three months ended March 31, 2017.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $951,000 and $941,000 for the years ended March 31, 2018 and 2017, respectively.  On a year-over-year comparative basis, non-interest income increased primarily due to gains on the death benefit proceeds of bank-owned life insurance of $171,000, which was offset by the change in the fair value of financial liability caused by fluctuations in the LIBOR yield curve.  The Company recorded a $470,000 loss on the fair value of financial liability for the three months ended March 31, 2018, compared to a $336,000 loss for the same period ended March 31, 2017. On January 1, 2018, the Company adopted ASU 2016-01, requiring the Company to present separately in other comprehensive income the portion of change in fair value of the financial liability resulting from a change in the instrument-specific credit risk. At March 31, 2018, the Company recognized a change of $97,000 on the fair value of financial liability, of which a $470,000 loss is attributed to fluctuations in the LIBOR yield curve which was recorded in earnings and a $567,000 gain is attributed to changes in credit risk and presented in other comprehensive income.

For the three months ended March 31, 2018, non-interest expense totaled $5,000,000, a decrease of $190,000 compared to $5,190,000 for the three months ended March 31, 2017.  On a year-over-year comparative basis, non-interest expense decreased primarily due to decreases of $103,000 in the loss recorded for a California tax credit partnership, and $53,000 in regulatory assessments, partially offset by an increase of $80,000 in professional fees. The change in other non-interest expenses of 148,000 reflects a $121,000 decrease in the cost of workman's compensation insurance expense.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017, was signed into law, reducing the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective January 1, 2018. As a result, The Company's effective tax rate has decreased to 29.6% for the period ended March 31, 2018, from 41.2% as of December 31, 2017.

Balance Sheet Review

Total assets increased $49,057,000, or 6.09%, for the three months ended March 31, 2018 due primarily to increases of $68,042,000 in overnight funds held at the Federal Reserve. This increase is partially the reflection of an increase of $46,923,000 in deposits during the first quarter.  Loan balances decreased by $5,469,000 during the first quarter and investment securities decreased by $2,716,000.

Total deposits increased $46,923,000, or 6.82%, to $734,616,000 during the three months ended March 31, 2018.  This increase was represented by an increase of $31,861,000 in NOW, money market, and savings accounts, an increase of $12,139,000 in noninterest bearing deposits, and an increase of $2,923,000 in time deposits.  Interest bearing deposits and savings accounts increased 10.10% to $347,423,000 at March 31, 2018, compared to $315,562,000 at December 31, 2017.  Noninterest bearing deposits increased 3.95% to $319,438,000 at March 31, 2018, compared to $307,299,000 at December 31, 2017. As a result of the increases in demand deposits, NOW, money market, and saving accounts, net core deposits increased $44,000,000.

Shareholders' equity at March 31, 2018 was $103,599,000, up $2,247,000 from shareholders' equity of $101,352,000 at December 31, 2017. The increase in equity was a result of net earnings for the period.

The Board of Directors of United Security Bancshares declared a cash dividend on common stock of $0.09 per share on March 27, 2018.  The dividend is payable on April 19, 2018, to shareholders of record as of April 9, 2018  No assurances can be provided that future dividends 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 $189,000 for the three months ended March 31, 2018, compared to a provision of $21,000 for the three months ended March 31, 2017.  Net loan recoveries totaled $38,000 for the three months ended March 31, 2018, as compared to net recoveries of $25,000 for the three months ended March 31, 2017.

The Company's allowance for loan loss totaled 1.53% of the loan portfolio at March 31, 2018, compared to 1.54% at December 31, 2017. 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, 2018 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 $2,162,000 between December 31, 2017 and March 31, 2018 to $15,448,000.  Nonperforming assets as a percentage of total assets decreased from 2.19% at December 31, 2017 to 1.81% at March 31, 2018.  The decrease in nonperforming assets is mainly attributed to decreases in troubled debt restructurings.  Nonaccrual loans increased $46,000 between December 31, 2017 and March 31, 2018 to $5,342,000.  Impaired loans totaled $13,570,000 at March 31, 2018, a decrease of $1,220,000 from the balance of $14,790,000 at December 31, 2017. OREO totaled $5,745,000 at March 31, 2018 and December 31, 2017.

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, 2017, 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, 2018


December 31, 2017

Assets




Cash and non-interest-bearing deposits in other banks

$

24,608


$

35,237

Cash and due from Federal Reserve Bank

140,739


72,697

Cash and cash equivalents

165,347


107,934

Investment securities available for sale (at fair value)

43,006


45,722

Loans and leases, net of unearned fees

596,850


602,390

Less: Allowance for credit losses

(9,116)


(9,267)

Net loans

587,734


593,123

Premises and equipment - net

10,123


10,165

Other real estate owned

5,745


5,745

Goodwill and intangible assets

4,488


4,488

Cash surrender value of life insurance

19,671


19,752

Deferred income tax asset - net

2,521


2,389

Accrued interest receivable

7,413


6,526

Investment in limited partnerships

1,596


1,601

Other assets

7,249


8,391

Total assets

$

854,893


$

805,836





Liabilities and Shareholders' Equity




Deposits




Non-interest bearing demand deposits

$

319,438


$

307,299

Money market, NOW, and savings

347,423


315,562

Time

67,755


64,832

Total deposits

734,616


687,693

Accrued interest payable

47


44

Other liabilities

6,990


7,017

Junior subordinated debentures (at fair value)

9,641


9,730

Total liabilities

751,294


704,484





Shareholders' equity




Common stock, no par value 20,000,000 shares authorized, 16,898,615 issued and outstanding at March 31, 2018, and 16,885,615 at December 31, 2017

58,171


57,880

Retained earnings

43,453


44,182

Accumulated other comprehensive income (loss)

1975


(710)

Total shareholders' equity

103,599


101,352

Total liabilities and shareholders' equity

$

854,893


$

805,836

 

United Security Bancshares

Consolidated Statements of Income (unaudited)

(in thousands)


Three months ended March 31,


2018


2017

Interest income:




Interest and fees on loans

$

8,226


$

7,225

Interest on investment securities

193


224

Interest on deposits in FRB

384


183

Interest on deposits in other banks


1

Total interest income

8,803


7,633





Interest expense:




Interest on deposits

387


336

Interest on other borrowed funds

90


69

Total interest expense

477


405

Net interest income

8,326


7,228

(Recovery) provision for Credit Losses

(189)


21

Net interest income after (recovery) provision for credit losses

8,515


7,207





Non-interest income:




Customer service fees

951


941

Increase in cash surrender value of bank-owned life insurance

125


132

Loss on fair value of financial liability

(470)


(336)

Gain on death benefit proceeds from bank-owned life insurance

171


Loss on sale of securities

(60)


Other non-interest income

205


172

Total non-interest income

922


909





Non-interest expense:




Salaries and employee benefits

2,961


2,985

Occupancy expense

1,018


1,015

Data processing

52


27

Professional fees

335


255

Regulatory assessments

83


136

Director fees

80


68

Correspondent bank service charges

17


18

Loss on California tax credit partnership

5


108

Net loss on operation and sale of OREO

51


32

Other non-interest expense

398


546

Total non-interest expense

5,000


5,190





Income before income tax provision

4,437


2,926

Provision for income taxes

1,280


1,155

Net income

$

3,157


$

1,771





Basic earnings per common share

$

0.19


$

0.10

Diluted earnings per common share

$

0.19


$

0.10

Weighted average basic shares for EPS

16,898,615


16,898,503

Weighted average diluted shares for EPS

16,925,971


16,912,299

 

United Security Bancshares




Average Balances and Rates (unaudited)




(in thousands)

Three months ended March 31,


2018


2017

Average Balances:




Loans (1)

$

598,891



$

566,075


Investment securities – taxable

44,431



56,589


Interest-bearing deposits in other banks



651


Interest-bearing deposits in FRB

98,070



91,692


Total interest-earning assets

741,392



715,007


Allowance for credit losses

(9,335)



(8,924)


Cash and due from banks

26,442



20,916


Other real estate owned

5,745



6,471


Other non-earning assets

53,166



50,251


Total average assets

817,410



783,721






Interest bearing deposits

396,068



405,445


Junior subordinated debentures

9,685



8,797


Total interest-bearing liabilities

405,753



414,242


Non-interest-bearing deposits

301,787



263,923


Other liabilities

6,858



7,762


Total liabilities

714,398



685,927


Total equity

103,012



97,794


Total liabilities and equity

$

817,410



$

783,721






Average Rates:




Loans (1)

5.57

%


5.18

%

Investment securities- taxable

1.76

%


1.61

%

Interest-bearing deposits in other banks

%


0.62

%

Interest-bearing deposits in FRB

1.59

%


0.81

%

Earning assets

4.82

%


4.33

%

Interest bearing deposits

0.40

%


0.34

%

Junior subordinated debentures

3.77

%


3.18

%

Total interest-bearing liabilities

0.48

%


0.40

%

Net interest margin

4.56

%


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)





March 31, 2018


December 31, 2017

Commercial and industrial

$



$

212


Real estate - mortgage

736



742


RE construction & development

4,606



4,342


Installment/other




Total Nonaccrual Loans

$

5,342



$

5,296






Loans past due 90 days and still accruing



485


Restructured Loans

4,361



6,084


Total nonperforming loans

$

9,703



$

11,865


Other real estate owned

5,745



5,745


Total nonperforming assets

$

15,448



$

17,610






Nonperforming assets to total gross loans

2.59

%


2.92

%

Nonperforming assets to total assets

1.81

%


2.19

%

Allowance for loan losses to nonperforming loans

93.95

%


78.10

%

 

United Security Bancshares




Selected Financial Data (unaudited)




(dollars in thousands, except per share amounts)






Three Months Ended March 31,


2018


2017





Return on average assets

1.53

%


0.92

%

Return on average equity

12.16

%


7.34

%

Net (recoveries) charge-offs to average loans

(0.03)

%


(0.02)

%










March 31, 2018


December 31, 2017

Shares outstanding - period end

16,898,615



16,885,615


Book value per share

$6.13



$6.00


Efficiency ratio (1)

50.93

%


54.83

%

Total impaired loans

$13,570



$14,790


Net loan to deposit ratio

80.01

%


86.25

%

Allowance for credit losses to total loans

1.53

%


1.54

%

Total capital to risk weighted assets




Company

17.71

%


17.54

%

Bank

17.87

%


17.31

%

Tier 1 capital to risk-weighted assets




Company

16.45

%


16.29

%

Bank

16.62

%


16.06

%

Common equity tier 1 capital to risk-weighted assets




Company

15.03

%


14.81

%

Bank

16.62

%


16.06

%

Tier 1 capital to adjusted average assets (leverage)




Company

13.01

%


13.01

%

Bank

13.27

%


12.90

%


(1) 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

Net Income before Non-Core Reconciliation

Non-GAAP Information (dollars in thousands)

(unaudited)











Three months ended March 31,







2018


2017


Change $


Change %

Net income


$

3,157


$

1,771


$

1,386


78.26

%










TRUPs (1) fair value adjustment loss pretax


(470)


(336)





Reversal of provision for credit losses (2)


200















Income tax effect (29%)


(78)


(97)





Non-core items net of taxes


(192)


(239)














Non-GAAP core net income


$

3,349


$

2,010


$

1,339


66.62

%



(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 Non-GAAP Core Income change.



(2)

A reversal of provision for credit losses is not part of Non-GAAP Core Income. This reversal from the allowance for credit losses was in excess of the required reserve. The recovery of provision for credit losses of $189,000 for the three months ended March 31, 2018, within the Consolidated Statements of Income, includes this reversal of provision for credit losses of $200,000, partially offset by a provision for overdrafts and unfunded loan commitments of $11,000.

 

Cision View original content:http://www.prnewswire.com/news-releases/united-security-bancshares-q1-2018-earnings-increase-78-from-q1-2017-300632617.html

SOURCE United Security Bancshares