United Security Bancshares, Inc. Reports Third Quarter Results

• Press Release
• Source: United Security Bancshares, Inc.
• On 3:50 pm EST, Tuesday November 3, 2009

THOMASVILLE, Ala., Nov. 3 /PRNewswire-FirstCall/ -- United Security Bancshares, Inc. (Nasdaq: USBI - News) today reported net income of $1.0 million, or $0.17 per diluted share, for the third quarter ended September 30, 2009, compared with $1.4 million, or $0.23 per diluted share, for the same period of 2008.

"We are pleased to report that United Security maintained its solid profitability in the third quarter despite the weak economy," stated R. Terry Phillips, President and Chief Executive Officer of United Security Bancshares, Inc. "We remain focused on improving our operating results but expect that the continuation of soft real estate markets and higher unemployment in our core markets will result in lower loan demand and will put additional pressure on our loan quality metrics."

"United Security and First United Security Bank continue to be rated as 'well-capitalized,' the highest regulatory rating. We believe that our strong capital base provides us with an important buffer to the soft economy. We remain diligent in monitoring our loan quality metrics and working through our non-performing assets to minimize future losses and to protect our capital base," continued Mr. Phillips.

Third Quarter Results

United Security's net income was down from 2008 due to lower net interest income, lower non-interest income and higher non-interest expenses. Net interest income was reduced by lower loan demand and lower interest rates. Non-interest expenses were up from 2008 due to higher costs for FDIC insurance premiums and increased expenses for other real estate owned (OREO).

Interest income totaled $11.8 million in the third quarter of 2009, compared with $12.8 million in the third quarter of 2008. The decrease in interest income was due to a decline in yield and a change in the mix of earning assets.

Interest expense declined 17.5% to $3.3 million in the third quarter of 2009, compared with $4.0 million in the third quarter of 2008. The decline in interest expense was due primarily to lower rates, offset partially by an increase in interest-bearing liabilities. Average deposits increased 3.1% to $499.3 million, compared with $484.1 million in the third quarter of 2008.

Net interest income decreased 3.8% to $8.5 million in the third quarter of 2009, compared with $8.8 million in the third quarter of the prior year. Net interest margin was 5.46% in the third quarter of 2009, compared with 5.91% in the third quarter of 2008. The decline in net interest income was due to a decrease in average loans, combined with the decline in net interest margin.

"Our net interest margin has been under pressure due to our asset yields declining at a faster rate than our funding costs since last year," noted Mr. Phillips. "The overall decline in our loans has also resulted in our excess liquidity being invested in short-term investments that have a much lower yield than our loan portfolio. In addition, the increase in non-accrual loans since last year has reduced our interest income, further affecting our margin."

Provision for loan losses was $1.5 million in the third quarter of 2009, or 1.5% annualized of average loans, compared with $1.9 million, or 1.9% annualized of average loans, in the third quarter of 2008. Net interest income after provision for loan losses rose to $7.0 million in the third quarter of 2009, compared with $6.9 million in the third quarter of 2008.

"Our provision for loan losses was up slightly from the second quarter of 2009, reflecting an increase in our non-performing loans," stated Mr. Phillips. "We have experienced an increase in our non-performing loans since last year as a result of the soft economy. We remain focused on working through our non-performing loans and foreclosed real estate to improve our credit quality and to improve our future earnings potential."

Total non-interest income decreased 21.7% to $1.2 million in the third quarter of 2009, compared with $1.5 million in the third quarter of the prior year. The decline in non-interest income was due to lower service charges, credit life insurance income and other income.

Non-interest expense increased 8.5% to $7.0 million in the third quarter of 2009, compared with $6.4 million in the third quarter of 2008. Salary and employee benefit costs were up 8% to $3.5 million due, in part, to higher health insurance costs. Other expenses rose 14.8% to $2.6 million due to higher FDIC insurance premiums and costs related to OREO, offset partially by lower legal expenses compared with the third quarter of 2008.

Nine Month Results

For the first nine months of 2009, net income increased 8.0% to $5.2 million, or $0.86 per diluted share, compared with $4.8 million, or $0.79 per diluted share, for the first nine months of 2008. The 2009 results include $2.7 million, or $0.30 per share, of non-interest income related to the settlement of a lawsuit.

For the 2009 nine-month period, net interest income declined 3.6% to $25.4 million, compared with $26.4 million for the same period last year. The decrease in net interest income was due primarily to a decline in interest earned on loans related to lower volume and yields.

Provision for loan losses declined to $4.9 million in the first nine months of 2009, or 1.5% annualized of average loans, compared with $5.5 million, or 1.7% annualized of average loans, for the same period in 2008.

Non-interest income rose 40.2% to $6.4 million for the first nine months of 2009, compared with $4.6 million for the same period in 2008. The increase in non-interest income resulted primarily from proceeds of $2.7 million from the settlement of a lawsuit.

Non-interest expense was up 6.0% for the first nine months of 2009 to $19.6 million, compared with $18.5 million in the same period of 2008. The increase was due to higher salary and benefits, FDIC insurance and assessment costs, offset partially by lower legal expenses.

Shareholders' equity totaled $82.7 million, or book value of $13.75 per share, at the end of the third quarter of 2009. Return on average assets for the first nine months of 2009 was 1.01%, and return on average equity was 8.64%. Regular dividends were $0.11 per share in the third quarter of 2009.

About United Security Bancshares, Inc.

United Security Bancshares, Inc. is a bank holding company that operates nineteen banking offices in Alabama through First United Security Bank. In addition, the Company's operations include Acceptance Loan Company, Inc., a consumer loan company, and FUSB Reinsurance, Inc., an underwriter of credit life and credit accident and health insurance policies sold to the bank's and ALC's consumer loan customers. The Company's stock is traded on the Nasdaq Capital Market under the symbol "USBI."

Forward-Looking Statements

This press release contains forward-looking statements as defined by federal securities laws. Statements contained in this press release that are not historical facts are forward-looking statements. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. USBI undertakes no obligation to update these statements following the date of this press release, except as required by law. In addition, USBI, through its senior management, may make from time to time forward-looking public statements concerning the matters described herein. Such forward-looking statements are necessarily estimates reflecting the best judgment of USBI's senior management based upon current information and involve a number of risks and uncertainties. Certain factors that could affect the accuracy of such forward-looking statements are identified in the public filings made by USBI with the Securities and Exchange Commission, and forward-looking statements contained in this press release or in other public statements of USBI or its senior management should be considered in light of those factors. With respect to the adequacy of the allowance for loan losses for USBI, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and collateral values. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

                  UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   (Dollars in Thousands, Except Per Share Data)

                                                    September 30, December 31,
                                                         2009        2008
                                                         ----        ----
                                                     (Unaudited)
           ASSETS

    Cash and Due from Banks                             $11,641     $13,246
    Interest-Bearing Deposits in Banks                      128         126
                                                            ---         ---
         Total Cash and Cash Equivalents                 11,769      13,372
    Federal Funds Sold                                   19,875       1,105
    Investment Securities Available-for-Sale, at
     fair market value                                  192,852     184,213
    Investment Securities Held-to-Maturity, at
     cost                                                 1,250           0
    Federal Home Loan Bank Stock, at cost                 5,700       5,236
    Loans, net of allowance for loan losses of
     $7,992 and $8,532, respectively                    397,746     399,483
    Premises and Equipment, net                          17,542      17,495
    Cash Surrender Value of Bank-Owned Life
     Insurance                                           12,039      11,724
    Accrued Interest Receivable                           4,608       4,843
    Goodwill                                              4,098       4,098
    Investment in Limited Partnerships                    1,879       1,993
    Other Assets                                         25,868      24,440
                                                         ------      ------
         Total Assets                                  $695,226    $668,002
                                                       ========    ========

           LIABILITIES AND SHAREHOLDERS' EQUITY
    Deposits                                           $500,014    $485,117
    Accrued Interest Expense                              3,037       3,402
    Short-Term Borrowings                                   718       2,294
    Long-Term Debt                                      100,000      90,000
    Other Liabilities                                     8,709       8,525
                                                          -----       -----
         Total Liabilities                              612,478     589,338
                                                        -------     -------
    Commitments and Contingencies
    Shareholders' Equity:
    Common Stock, par value $0.01 per share,
     10,000,000 shares authorized;  7,317,560
     shares issued; 6,017,649 and 6,018,154 shares
     outstanding, respectively                               73          73
    Surplus                                               9,233       9,233
    Accumulated Other Comprehensive Income, net
     of tax                                               4,356       2,476
    Retained Earnings                                    90,211      87,999
    Less Treasury Stock: 1,299,911 and 1,299,406
     shares at cost, respectively                       (21,125)    (21,117)
                                                        -------     -------

         Total Shareholders' Equity                      82,748      78,664
                                                         ------      ------

         Total Liabilities and Shareholders' Equity    $695,226    $668,002
                                                       ========    ========



                   UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (Dollars in Thousands, Except Per Share Data)

                                        Three Months Ended   Nine Months Ended
                                           September 30,       September 30,
                                            2009    2008       2009    2008
                                            ----    ----       ----    ----
                                            (Unaudited)        (Unaudited)

    INTEREST INCOME:
    Interest and Fees on Loans            $9,661 $10,535    $29,150 $32,860
    Interest on Investment Securities      2,143   2,299      6,568   6,541
                                           -----   -----      -----   -----
        Total Interest Income             11,804  12,834     35,718  39,401

    INTEREST EXPENSE:
    Interest on Deposits                   2,338   3,047      7,515  10,174
    Interest on Borrowings                   952     941      2,793   2,867
                                             ---     ---      -----   -----
        Total Interest Expense             3,290   3,988     10,308  13,041
                                           -----   -----     ------  ------

    NET INTEREST INCOME                    8,514   8,846     25,410  26,360

    PROVISION FOR LOAN LOSSES              1,489   1,927      4,857   5,467
                                           -----   -----      -----   -----

    NET INTEREST INCOME AFTER PROVISION
      FOR LOAN LOSSES                      7,025   6,919     20,553  20,893

    NON-INTEREST INCOME:
    Service and Other Charges
     on Deposit Accounts                     758     842      2,150   2,448
    Credit Life Insurance Income             231     295        646     554
    Other Income                             218     404      3,615   1,572
                                             ---     ---      -----   -----
        Total Non-Interest Income          1,207   1,541      6,411   4,574

    NON-INTEREST EXPENSE:
    Salaries and Employee Benefits         3,538   3,276     10,175   9,641
    Occupancy Expense                        498     503      1,412   1,403
    Furniture and Equipment Expense          316     361        926   1,064
    Other Expense                          2,598   2,263      7,117   6,414
                                           -----   -----      -----   -----
        Total Non-Interest Expense         6,950   6,403     19,630  18,522
                                           -----   -----     ------  ------

    INCOME BEFORE INCOME TAXES             1,282   2,057      7,334   6,945

    PROVISION FOR INCOME TAXES               255     655      2,166   2,159
                                             ---     ---      -----   -----

    NET INCOME                            $1,027  $1,402     $5,168  $4,786
                                          ======  ======     ======  ======

    BASIC AND DILUTED NET INCOME
      PER SHARE                            $0.17   $0.23      $0.86   $0.79
                                           =====   =====      =====   =====

    DIVIDENDS PER SHARE                    $0.11   $0.27      $0.49   $0.81
                                           =====   =====      =====   =====

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