Press Release

United Security Bancshares reports 3rd quarter profits of $3.5 million

Company Release - 10/17/2018 4:15 PM ET

FRESNO, Calif., Oct. 17, 2018 /PRNewswire/ -- United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter and nine months ended September 30, 2018. The Company reported consolidated net income of $3,518,000, or $0.21 per basic and diluted common share, for the quarter ended September 30, 2018, as compared to $2,740,000, or $0.16 per basic and diluted common share, for the quarter ended September 30, 2017.  The Company recognized net income of $10,068,000 for the nine months ended September 30, 2018, an increase of 44% compared to the net income of $7,004,000 recognized for the nine months ended September 30, 2017. Basic earnings per share increased to $0.60 with diluted earnings per share increasing to $0.59 for the nine months ended September 30, 2018, as compared to basic and diluted shares of $0.42 for the nine months ended September 30, 2017.

Third Quarter 2018 Highlights (at or for the quarter ended September 30, 2018, except where noted)

  • Net interest income after provision for credit losses increased to $9,236,000 compared to $8,150,000 for the quarter ended September 30, 2017, and increased from $8,914,000 in the preceding quarter.
  • Net interest margin increased to 4.43% from 4.35% for the quarter ended September 30, 2017.
  • Net recoveries totaled $746,000, compared to net recoveries of $145,000 for the quarter ended September 30, 2017.
  • Capital positions remain strong with a 12.96% Tier 1 Leverage Ratio, a 15.46% Common Equity Tier 1 Ratio; a 16.94% Tier 1 Risk-Based Capital Ratio; and a 18.19% Total Risk-Based Capital Ratio.
  • Annualized return on average assets ("ROAA") was 1.59%, compared to 1.33% for the quarter ended September 30, 2017.
  • Annualized return on average equity ("ROAE") was 13.06%, compared to 10.77% for the quarter ended September 30, 2017.
  • Total loans decreased to $577,598,000, compared to $602,390,000 at December 31, 2017.
  • Other real estate owned balances remained at $5,745,000 at September 30, 2018 when compared to $5,745,000, at December 31, 2017.
  • The allowance for credit losses as a percentage of gross loans decreased to 1.52%, compared to 1.54% at December 31, 2017.
  • Total deposits increased to $778,883,000, compared to $687,693,000 at December 31, 2017.
  • Book value per share increased to $6.33, compared to $6.00 at December 31, 2017.

Dennis Woods, President and Chief Executive Officer, stated: "We are pleased to announce the Company continues to report strong earnings and balance sheet growth. As a result of this success, the Board of Directors of the Company increased its cash dividend during the third quarter. We continue to look for additional growth opportunities and look forward to carrying this momentum through the fourth quarter."

Results of Operations

Annualized ROAE for the nine months ended September 30, 2018 was 12.82%, compared to 9.42% for the nine months ended September 30, 2017.  ROAA was 1.58% for the nine months ended September 30, 2018, compared to 1.17% for the nine months ended September 30, 2017. ROAE for the quarter ended September 30, 2018 was 13.06% compared to 10.77% for the same period in 2017. ROAA was 1.59% for the quarter ended September 30, 2018, compared to 1.33% for the same period in 2017. The average cost of deposits was 0.31% for the quarter ended September 30, 2018, and 0.20% for the quarter ended September 30, 2017. The increase in the cost of deposits is attributed to increases in rates paid on time deposits and money market accounts.

Net interest income after the provision for credit losses for the nine months ended September 30, 2018 totaled $26,664,000, an increase of $3,583,000, or 15.52%, from $23,081,000 for the same period ended September 30, 2017. The Company's net interest margin increased from 4.24% for the nine months ended September 30, 2017 to 4.31% for the nine months ended September 30, 2018.  The 7 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 5.39% for the nine months ended September 30, 2017 to 5.52% for the nine months ended September 30, 2018. The increase in net interest income on a year-over-year comparison is the result of higher interest rates on loans and an increase in overnight funds and investment securities, partially offset by increasing cost of deposits. Net interest income after the provision for credit losses for the quarter ended September 30, 2018 totaled $9,236,000, an increase of $1,086,000 or 13.33% from the net interest income of $8,150,000 for the same period ended September 30, 2017.

Non-interest income for the nine months ended September 30, 2018 totaled $2,940,000, reflecting a decrease of $211,000 from $3,151,000 in non-interest income reported for the nine months ended September 30, 2017.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $2,787,000 and $2,897,000 for the years ended September 30, 2018 and 2017, respectively.  On a year-over-year comparative basis, non-interest income decreased primarily due to a $923,000 loss on the fair value of junior subordinated debentures ("TRUPs") for the nine months ended September 30, 2018, compared to a $688,000 loss for the same period ended September 30, 2017.  The change in the fair value of TRUPs reflected in non-interest income was caused by fluctuations in the LIBOR yield curve.  The decrease in non-interest income was partially offset by a gain recorded on the death benefit proceeds of bank-owned life insurance of $171,000.

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 TRUPs resulting from a change in the instrument-specific credit risk. In contrast, prior to January 1, 2018 the entire change in the fair value of TRUPs was recorded in earnings. For the nine months ended September 30, 2018, the Company has recognized a change of $643,000 on the fair value of TRUPs, of which a $923,000 loss was attributed to fluctuations in the LIBOR yield curve, and recorded in earnings, and a $280,000 gain was attributed to changes in credit risk and presented in other comprehensive income.

Non-interest income for the quarter ended September 30, 2018 totaled $849,000, reflecting a decrease of $327,000 from the $1,176,000 in non-interest income reported for the quarter ended September 30, 2017.  The decrease during the period was primarily due to recording a $262,000 loss on the fair value of TRUPs for the quarter ended September 30, 2018, as compared to a $88,000 loss for the same period ended 2017. The change in the fair value of TRUPs reflected in non-interest income was primarily caused by fluctuations in the LIBOR yield curve. Customer service fees totaled $815,000 for the quarter ended September 30, 2018, as compared to $959,000 for the quarter ended September 30, 2017.

For the nine months ended September 30, 2018, non-interest expense totaled $15,459,000, an increase of $916,000 compared to $14,543,000 for the nine months ended September 30, 2017.  On a year-over-year comparative basis, non-interest expense increased primarily due to increases of $649,000 in salary and employee benefits, $386,000 in OREO expenses, and $222,000 in professional fees, partially offset by a decrease of $65,000 in regulatory fees and a decrease of $104,000 in the loss on a tax credit partnership. The increase in salary and employee benefits is attributed to additional compensation expense related to equity awards. OREO expense for the nine months ended September 30, 2017 includes a $336,000 gain related to the sale of OREO. The decrease in other non-interest expenses of $324,000 includes a $121,000 recovery of workman's compensation insurance expense.

Non-interest expense totaled $5,143,000 for the quarter ended September 30, 2018, an increase of $397,000 as compared to $4,746,000 reported for the quarter ended September 30, 2017. On a quarter-over-quarter comparative basis, non-interest expense increased primarily due to increases in salary and employee benefits, occupancy expense, and net cost on operation of OREO. The increase in salary and employee benefits was primarily due to increases in employee salaries and additional compensation expense related to equity awards.

The Company recorded an income tax provision of $4,077,000 for the nine months ended September 30, 2018, compared to $4,685,000 for the same period in 2017. The effective tax rate for the nine months ended September 30, 2018 was 28.82%, compared to 40.08% for the nine months ended September 30, 2017. For the quarter ended September 30, 2018, the Company recorded a tax provision of $1,424,000, compared to a provision of $1,840,000 for the same period in 2017. The signing of the Tax Cuts and Jobs Act on December 22, 2017 reduced the Company's federal income tax rate from 35% to 21% effective as of the beginning of 2018.

In an attempt to remain consistent with prior periods, provided at the end of this Press Release is a reconciliation of Core Net Income, as a non-GAAP measure, to Net Income. This reconciliation continues to exclude Non-Core items such as the Fair Value Adjustment for TRUPs, recovery of provision for credit loss, and gain on sale of other real estate owned ("OREO"). As such core net income would have been $9,577,000 for the nine months ended September 30, 2018, an increase of approximately 33% compared to net income of $7,212,000 for the same period in 2017. Management believes that our financial results are more comparative excluding the impact of such non-core items.

Balance Sheet Review

Total assets increased $98,192,000, or 12.19%, for the nine months ended September 30, 2018, due primarily to increases of $105,651,000 in overnight funds held at the Federal Reserve. This increase is partially the reflection of an increase of $91,190,000 in deposits.  Loan balances decreased by $24,236,000 during 2018 and investment securities increased by $20,005,000. The reduction in loan balances is primarily attributed to the payoff of a large relationship during the second quarter of 2018. The Company continues to review multiple loan purchase opportunities, on a flow basis, and recently executed a $30,000,000 letter of intent to purchase SBA loans.

Total deposits increased $91,190,000, or 13.26%, to $778,883,000 during the nine months ended September 30, 2018.  This increase was due to increases of $75,190,000 in NOW, money market, and savings accounts, $8,086,000 in time deposits, and $7,914,000 in noninterest bearing deposits.  Interest bearing deposits and savings accounts increased 23.83% to $390,752,000 at September 30, 2018, compared to $315,562,000 at December 31, 2017.  Noninterest bearing deposits increased 2.58% to $315,213,000 at September 30, 2018, compared to $307,299,000 at December 31, 2017. As a result of these large increases, net core deposits, which is made up of the balance of noninterest bearing deposits, NOW, money market, savings, and time deposits accounts less than $250,000, increased $83,104,000.

Shareholders' equity at September 30, 2018 was $107,046,000, up $5,694,000 from shareholders' equity of $101,352,000 at December 31, 2017. The increase in equity was a result of net earnings for the period, partially offset by cash dividends.

The Board of Directors of United Security Bancshares declared a cash dividend on common stock of $0.10 per share on September 25, 2018.  The dividend is payable on October 19, 2018, to shareholders of record as of October 9, 2018.  The Board of Directors of United Security Bancshares declared a cash dividend on common stock of $0.09 per share on June 26, 2018.  The dividend was payable on July 19, 2018, to shareholders of record as of July 9, 2018.  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 was 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 has recorded a recovery of provision for credit losses of $1,699,000 for the nine months ended September 30, 2018, compared to a recovery of provision of $24,000 for the nine months ended September 30, 2017.  Net loan recoveries totaled $1,230,000 for the nine months ended September 30, 2018, as compared to net recoveries of $280,000 for the nine months ended September 30, 2017. The Company recorded a recovery of provision for credit loss of $373,000 for the quarter ended September 30, 2018, compared to a provision for credit losses of $7,000 for the quarter ended September 30, 2017. The recovery of provision for the quarter ended September 30, 2018 is the result of loan recoveries and improvement in historical loss factors, partially offset by additional reserves required due to adjustments in qualitative factors. Net loan recoveries totaled $746,000 for the quarter ended September 30, 2018, as compared to net loan recoveries of $145,000 for the quarter ended September 30, 2017.

The Company's allowance for loan loss totaled 1.52% of the loan portfolio at September 30, 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. Management considers the allowance for credit losses at September 30, 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, increased approximately $4,779,000 between December 31, 2017 and September 30, 2018 to $22,389,000.  Nonperforming assets as a percentage of total assets increased from 2.19% at December 31, 2017 to 2.48% at September 30, 2018.  The increase in nonperforming assets is mainly attributed to increases in nonaccrual loans, partially offset by paydowns on restructured loans.  Nonaccrual loans increased $6,810,000 between December 31, 2017 and September 30, 2018 to $12,106,000. The increase in nonaccrual loans is isolated to one borrower, which is well-secured by real estate collateral. OREO totaled $5,745,000 at September 30, 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, and Consumer Lending 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)





September 30, 2018


December 31, 2017

Assets




Cash and non-interest-bearing deposits in other banks

$

28,952



$

35,237


Due from Federal Reserve Bank ("FRB")

178,348



72,697


Cash and cash equivalents

207,300



107,934


Investment securities available for sale (at fair value)

62,103



41,985


Marketable equity securities (at fair value)

3,624



3,737


    Investment securities

65,727



45,722


Loans and leases, net of unearned fees

577,598



602,390


Less: Allowance for credit losses

(8,798)



(9,267)


Net loans

568,800



593,123


Premises and equipment - net

9,875



10,165


Other real estate owned

5,745



5,745


Goodwill and intangible assets

4,488



4,488


Cash surrender value of life insurance

19,935



19,752


Deferred income tax asset - net

2,760



2,389


Accrued interest receivable

9,412



6,526


Investment in limited partnerships

1,588



1,601


Other assets

8,398



8,391


Total assets

$

904,028



$

805,836






Liabilities and Shareholders' Equity




Deposits




Non-interest bearing demand deposits

$

315,213



$

307,299


Money market, NOW, and savings

390,752



315,562


Time

72,918



64,832


Total deposits

778,883



687,693


Accrued interest payable

57



44


Other liabilities

7,639



7,017


Junior subordinated debentures (at fair value)

10,403



9,730


Total liabilities

796,982



704,484






Shareholders' equity




Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 16,903,290 at September 30, 2018 and 16,885,615 at December 31, 2017

58,472



57,880


Retained earnings

47,852



44,182


Accumulated other comprehensive income (loss)

722



(710)


Total shareholders' equity

107,046



101,352


Total liabilities and shareholders' equity

$

904,028



$

805,836


 

United Security Bancshares







Consolidated Statements of Income (unaudited)





(in thousands)








Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Interest income:








Interest and fees on loans

$

8,397


$

7,978


$

24,114


$

22,782

Interest on investment securities

351


238


809


691

Interest on deposits in FRB

806


375


1,870


858

Interest on deposits in other banks


1



4

Total interest income

9,554


8,592


26,793


24,335









Interest expense:








Interest on deposits

579


355


1,517


1,055

Interest on other borrowed funds

112


80


311


223

Total interest expense

691


435


1,828


1,278

Net interest income

8,863


8,157


24,965


23,057

(Recovery of provision) Provision for Credit Losses

(373)


7


(1,699)


(24)

Net interest income after (recovery of provision) provision for credit losses

9,236


8,150


26,664


23,081









Non-interest income:








Customer service fees

815


959


2,787


2,897

Increase in cash surrender value of bank-owned life insurance

132


134


389



400

Loss on marketable equity securities

(35)




(114)



Loss on fair value of junior subordinated debentures

(262)


(88)


(923)


(688)

Gain on death benefit proceeds from bank-owned life insurance



171


Gain on sale of investment in limited partnership


3



3

Gain on sale of assets



29


Other non-interest income

199


168


601


539

Total non-interest income

849


1,176


2,940


3,151









Non-interest expense:








Salaries and employee benefits

2,826


2,578


8,798


8,149

Occupancy expense

1,121


1,087


3,256


3,144

Data processing

13


29


104


81

Professional fees

408


312


1,134


912

Regulatory assessments

87


43


248


313

Director fees

78


72


239


215

Correspondent bank service charges

15


18


48


55

Loss (gain) on California tax credit partnership

5


(1)


14


118

Net cost (gain) on operation and sale of OREO

30


21


129


(257)

Other non-interest expense

560


587


1,489


1,813

Total non-interest expense

5,143


4,746


15,459


14,543









Income before income tax provision

4,942


4,580


14,145


11,689

Provision for income taxes

1,424


1,840


4,077


4,685

Net income

$

3,518


$

2,740


$

10,068


$

7,004









Basic earnings per common share

$

0.21


$

0.16


$

0.60


$

0.42

Diluted earnings per common share

$

0.21


$

0.16


$

0.59


$

0.42

Weighted average basic shares for EPS

16,902,218


16,879,868


16,897,524


16,821,667

Weighted average diluted shares for EPS

16,954,053


16,901,520


16,933,477


16,840,152

 

United Security Bancshares






Average Balances and Rates (unaudited)





(in thousands)

Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Average Balances:








Loans (1)

$

571,673



$

574,484



$

584,424



$

565,068


Investment securities – taxable

59,571



51,811



51,489



54,284


Interest-bearing deposits in other banks



654





652


Interest-bearing deposits in FRB

163,572



117,803



137,478



107,921


Total interest-earning assets

794,816



744,752



773,391



727,925


Allowance for credit losses

(8,931)



(9,104)



(9,218)



(9,017)


Cash and due from banks

27,514



22,375



27,111



21,393


Other real estate owned

5,745



5,745



5,745



6,083


Other non-earning assets

56,227



52,856



54,653



51,687


Total average assets

$

875,371



$

816,624



$

851,682



$

798,071










Interest bearing deposits

$

449,041



$

391,353



$

431,118



$

398,963


Junior subordinated debentures

10,062



9,399



9,783



9,114


Total interest-bearing liabilities

459,103



400,752



440,901



408,077


Non-interest-bearing deposits

303,718



308,480



299,736



283,783


Other liabilities

5,650



6,390



6,013



6,818


Total liabilities

768,471



715,622



746,650



698,678


Total equity

106,900



101,002



105,032



99,393


Total liabilities and equity

$

875,371



$

816,624



$

851,682



$

798,071










Average Rates:








Loans (1)

5.83

%


5.51

%


5.52

%


5.39

%

Investment securities- taxable

2.34

%


1.82

%


2.10

%


1.70

%

Interest-bearing deposits in other banks

%


0.61

%


%


0.82

%

Interest-bearing deposits in FRB

1.95

%


1.26

%


1.82

%


1.06

%

Earning assets

4.77

%


4.58

%


4.63

%


4.47

%

Interest bearing deposits

0.51

%


0.36

%


0.47

%


0.35

%

Junior subordinated debentures

4.42

%


3.38

%


4.25

%


3.27

%

Total interest-bearing liabilities

0.60

%


0.43

%


0.55

%


0.42

%

Net interest margin

4.43

%


4.35

%


4.31

%


4.24

%


(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





Nonperforming Assets (unaudited)




(dollars in thousands)







September 30, 2018


December 31, 2017


September 30, 2017

Commercial and industrial

$



$

212



$

271


Real estate - mortgage

393



742



466


RE construction & development

11,713



4,342



4,408


Total nonaccrual loans

$

12,106



$

5,296



$

5,145








Loans past due 90 days and still accruing

417



485




Restructured loans

4,121



6,084



7,026


Total nonperforming loans

$

16,644



$

11,865



$

12,171


Other real estate owned

5,745



5,745



5,745


Total nonperforming assets

$

22,389



$

17,610



$

17,916








Nonperforming assets to total gross loans

3.88

%


2.92

%


3.07

%

Nonperforming assets to total assets

2.48

%


2.19

%


2.12

%

Allowance for loan losses to nonperforming loans

52.86

%


78.10

%


75.24

%

 

United Security Bancshares






Selected Financial Data (unaudited)







(dollars in thousands, except per share amounts)







Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018

2017










Return on average assets

1.59

%


1.33

%


1.58

%

1.17

%

Return on average equity

13.06

%


10.77

%


12.82

%

9.42

%

Net recoveries to average loans

(0.52)

%


(0.10)

%


(0.28)

%

(0.07)

%











September 30, 2018


December 31, 2017






Shares outstanding - period end

16,903,290



16,885,615







Book value per share

$6.33



$6.00







Efficiency ratio (1)

53.55

%


54.83

%






Total impaired loans

$19,212



$14,790







Net loan to deposit ratio

73.03

%


86.25

%






Allowance for credit losses to total loans

1.52

%


1.54

%






Total capital to risk weighted assets









Company

18.19

%


17.54

%






Bank

18.02

%


17.31

%






Tier 1 capital to risk-weighted assets









Company

16.94

%


16.29

%






Bank

16.77

%


16.06

%






Common equity tier 1 capital to risk-weighted assets









Company

15.46

%


14.81

%






Bank

16.77

%


16.06

%






Tier 1 capital to adjusted average assets (leverage)









Company

12.96

%


13.01

%






Bank

12.89

%


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 TRUPs.

 

United Security Bancshares






Net Income before Non-Core Reconciliation






Non-GAAP Information (dollars in thousands)





(unaudited)











Nine Months Ended September 30,







2018


2017


Change $


Change %

Net income


$

10,068



$

7,004



$

3,064



43.75

%










TRUPs (1) fair value adjustment loss pretax


(923)



(688)






Reversal of provision for credit losses (2)


1,615








Gain on sale of Other Real Estate Owned (OREO) (3)




336








692



(352)















Income tax effect (29% in 2018, 41% in 2017)


201



(144)






Non-core items net of taxes


491



(208)















Non-GAAP core net income


$

9,577



$

7,212



$

2,365



32.79

%



(1)

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. The adoption of ASU 2016-01 on January 1, 2018, requires the Company to present separately in other comprehensive income the portion of change in fair value of the TRUPs resulting from a change in the instrument-specific credit risk. In 2018, the Company recognized a change of $643,000 on the fair value of the TRUPs, of which a $923,000 loss was attributed to fluctuations in the LIBOR yield curve, and recorded in earnings, and a $280,000 gain was attributed to changes in credit risk and presented in other comprehensive income. Prior to 2018, the entire change in fair value of TRUPs was recorded in earnings.



(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 for $1,699,000 for the nine months ended September 30, 2018, within the Consolidated Statements of Income, includes this reversal of provision for credit losses of $1,615,000 and a recovery of provision for overdrafts and unfunded loan commitments of $84,000.



(3)

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

 

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SOURCE United Security Bancshares