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United Security Bancshares reports 1st quarter net income of $4.0 million

FRESNO, Calif., April 17, 2019 /PRNewswire/ -- United Security Bancshares (UBFO) today announced its unaudited financial results for the three months ended March 31, 2019. The Company recognized net income of $4,007,000 for the three months ended March 31, 2019, an increase of 27% compared to the net income of $3,157,000 recognized for the three months ended March 31, 2018. Basic and diluted earnings per share increased to $0.24 for the three months ended March 31, 2019, as compared to basic and diluted earnings per share of $0.19 for the three months ended March 31, 2018.

First Quarter 2019 Highlights (at or for the quarter ended March 31, 2019, except where noted)

  • Net interest income after provision for credit losses increased to $9,454,000 compared to $8,515,000 for the quarter ended March 31, 2018, and increased from $9,010,000 in the preceding quarter.
  • Net interest margin decreased to 4.45% from 4.56% for the quarter ended March 31, 2018.
  • Net recoveries totaled $16,000, compared to net recoveries of $38,000 for the quarter ended March 31, 2018.
  • Capital positions remain strong with a 12.30% Tier 1 Leverage Ratio, a 15.08% Common Equity Tier 1 Ratio; a 16.5% Tier 1 Risk-Based Capital Ratio; and a 17.75% Total Risk-Based Capital Ratio.
  • Annualized return on average assets ("ROAA") was 1.74%, compared to 1.57% for the quarter ended March 31, 2018.
  • Annualized return on average equity ("ROAE") was 14.80%, compared to 12.43% for the quarter ended March 31, 2018.
  • Total loans, net of unearned fees, decreased to $579,617,000, compared to $587,814,000 at December 31, 2018.
  • Other real estate owned balances remained at $5,745,000 at March 31, 2019 when compared to $5,745,000, at December 31, 2018.
  • The allowance for credit losses as a percentage of gross loans increased to 1.45%, compared to 1.43% at December 31, 2018.
  • Total deposits increased to $831,577,000, compared to $805,643,000 at December 31, 2018.
  • Book value per share increased to $6.56, compared to $6.45 at December 31, 2018.

Dennis Woods, President and Chief Executive Officer, stated: "2019 continues to produce strong financial results for the Company as we are once again pleased to report an increase in earnings. Our growth is a reflection of the confidence our customers have in us, as we saw total deposits increase $25.9 million in the quarter. Our unfunded loan commitments increased by $26.3 million during the first quarter related to new construction projects that had been delayed due to substantial rain in the winter months. It is our mission to carry this success throughout the year."

Results of Operations

ROAE for the three months ended March 31, 2019 was 14.80%, compared to 12.43% for the three months ended March 31, 2018.  ROAA was 1.74% for the three months ended March 31, 2019, compared to 1.57% for the three months ended March 31, 2018.  The annualized average cost of deposits was 0.41% for the quarter ended March 31, 2019, and 0.22% for the quarter ended March 31, 2018. The increase in the cost of deposits is attributed to increases in balances and rates paid on time deposits and money market accounts. Interest-bearing deposits increased 31.91% between March 31, 2018 and 2019 to $522,457,000.

Net interest income after the provision for credit losses for the three months ended March 31, 2019 totaled $9,454,000, an increase of $939,000, or 11.03%, from $8,515,000 for the same period ended March 31, 2018. The Company's net interest margin decreased from 4.56% for the three months ended March 31, 2018 to 4.45% for the three months ended March 31, 2019.  The decrease was the result of the increasing costs of deposits, partially offset by increases in loan yields, investment yields, and yields on overnight funds.  The yield on loans increased from 5.57% for the three months ended March 31, 2018 to 6.06% for the three months ended March 31, 2019. 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 and a decline in loan balances.

Non-interest income for the three months ended March 31, 2019 totaled $1,523,000, reflecting an increase of $601,000 from the $922,000 in non-interest income reported for the three months ended March 31, 2018.  Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $809,000 and $951,000 for the three months ended March 31, 2019 and 2018, respectively.  The decrease in customer service fees was attributed to the closure of the Financial Services department during the third quarter of 2018.  On a year-over-year comparative basis, non-interest income increased primarily due to a $414,000 gain on the fair value of junior subordinated debentures (TRUPs) for the three months ended March 31, 2019, compared to a $470,000 loss for the same period ended March 31, 2018.  Non-interest income for the three months ended March 31, 2019 also includes a $109,000 loss on investment resulting from the dissolution of the USB Real Estate Investment Trust (REIT).  The change in the fair value of TRUPs reflected in non-interest income was caused by fluctuations in the LIBOR yield curve.  Non-interest income for the three months ended March 31, 2018 includes a $171,000 gain recorded on the death benefit proceeds of bank-owned life insurance.

For the three months ended March 31, 2019, non-interest expense totaled $5,347,000, an increase of $347,000 compared to $5,000,000 for the three months ended March 31, 2018.  On a year-over-year comparative basis, non-interest expense increased primarily due to increases of $225,000 in professional fees, partially offset by a decrease of $189,000 in salaries and employee benefits. The increase in professional fees is mainly attributed to an increase in legal fees, while the decrease in salary and employee benefits is attributed to lower equity award expense. Non-interest expense for the three months ended March 31, 2018 includes a $121,000 recovery of workman's compensation insurance expense.

The Company recorded an income tax provision of $1,623,000 for the three months ended March 31, 2019, compared to $1,280,000 for the same period in 2018. The effective tax rate for the three months ended March 31, 2019 was 28.83%, compared to 28.85% for the three months ended March 31, 2018.

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 excludes Non-Core items such as the Fair Value Adjustment for TRUPs, recovery of provision for credit losses, and gain on sale of other real estate owned (OREO). As such, Core Net Income would have been $3,713,000 for the three months ended March 31, 2019, an increase of approximately 11% compared to net income of $3,349,000 for the same period in 2018. Management believes that financial results are more comparative excluding the impact of such non-core items.

Balance Sheet Review

Total assets increased $30,982,000, or 3.32%, for the three months ended March 31, 2019, due primarily to increases of $39,915,000 in overnight funds held at the Federal Reserve. This increase is partially reflective of the increase of $25,934,000 in deposits during the first quarter of 2019.  Loan balances decreased by $8,033,000 for the three months ended March 31, 2019 and investment securities decreased by $3,481,000.  The Company continues to review multiple loan purchase opportunities, on a flow basis, and executed a $30,000,000 letter of intent to purchase SBA loans during 2018.

Total deposits increased $25,934,000, or 3.22%, to $831,577,000 during the three months ended March 31, 2019.  This increase was due to an increase of $27,333,000 in NOW, money market, and savings accounts and an increase of $7,756,000 in noninterest bearing deposits, partially offset by a a decrease of $9,155,000 in time deposits.  Total money market and savings accounts increased 6.35% to $457,824,000 at March 31, 2019, compared to $430,491,000 at December 31, 2018.  Noninterest bearing deposits increased 2.65% to $300,476,000 at March 31, 2019, compared to $292,720,000 at December 31, 2018. As a result of the net increase, 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 $35,089,000.

Shareholders' equity at March 31, 2019 was $111,193,000, up $1,953,000 from shareholders' equity of $109,240,000 at December 31, 2018. 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 $0.11 per share on March 26, 2019.  The dividend was payable on April 17, 2019, to shareholders of record as of April 8, 2019. 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 provision for credit losses of $6,000 for the three months ended March 31, 2019, compared to a recovery of provision of $189,000 for the three months ended March 31, 2018.  Net loan recoveries totaled $16,000 for the three months ended March 31, 2019, as compared to net recoveries of $38,000 for the three months ended March 31, 2018.

The Company's allowance for loan loss totaled 1.45% of the loan portfolio at March 31, 2019, compared to 1.43% at December 31, 2018. 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 March 31, 2019 to be adequate.

Non-performing assets, comprised of nonaccrual loans, troubled debt restructures (TDR), other real estate owned through foreclosure (OREO), and loans more than 90 days past due and still accruing interest, decreased approximately $1,070,000 between December 31, 2018 and March 31, 2019 to $21,044,000.  Nonperforming assets as a percentage of total assets decreased from 2.37% at December 31, 2018 to 2.18% at March 31, 2019.  The decrease in nonperforming assets is mainly attributed to decreases in nonaccrual loans and restructured loans. Nonaccrual loans decreased $423,000 between December 31, 2018 and March 31, 2019 to $11,629,000. Restructured loans decreased $719,000 between December 31, 2018 and March 31, 2019. OREO totaled $5,745,000 at March 31, 2019 and December 31, 2018.

About United Security Bancshares

United Security Bancshares (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 may contain 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 can be identified by the fact that they do not relate strictly to historical or current facts and often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are based on management's knowledge and belief as of today and are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements are subject to risks and uncertainties and actual results may differ materially from those presented.   Factors that might cause such differences, some of which are beyond the Company's ability to control or predict, include, but are not limited to: (1) changes in general economic and financial market conditions, either nationally or locally, (2) changes in interest rates, (3) changes in banking laws or regulations, (4) increased competition in the Company's market, impacting the ability to execute its business plans, (5) loss of key personnel, (6) unanticipated credit losses, (7) earthquakes or other natural disasters impacting the local economy and/or the condition of real estate collateral, (8) the impact of technological changes and the ability to develop and maintain secure and reliable electronic systems, and (9) changes in accounting policies or procedures.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.  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, 2018, 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.

United Security Bancshares

Consolidated Balance Sheets (unaudited)

(in thousands)


March 31, 2019


December 31, 2018

Assets




Cash and non-interest-bearing deposits in other banks

$

29,398



$

28,949


Due from Federal Reserve Bank ("FRB")

231,303



191,388


Cash and cash equivalents

260,701



220,337


Investment securities (at fair value)




Available for sale ("AFS") securities

62,888



66,426


Marketable equity securities

3,716



3,659


   Total investment securities

66,604



70,085


Loans

579,900



587,933


Unearned fees and unamortized loan origination fees, net

(283)



(119)


Allowance for credit losses

(8,417)



(8,395)


   Net loans

571,200



579,419


Premises and equipment - net

9,593



9,837


Accrued interest receivable

9,485



8,341


Other real estate owned

5,745



5,745


Goodwill

4,488



4,488


Deferred tax assets - net

3,171



3,174


Cash surrender value of life insurance

20,388



20,244


Other assets

12,665



11,388


Total assets

$

964,040



$

933,058






Liabilities and Shareholders' Equity




Deposits




Non-interest-bearing

$

300,476



$

292,720


Interest-bearing

531,101



512,923


   Total deposits

831,577



805,643






Accrued interest payable

81



57


Other liabilities

10,735



7,963


Junior subordinated debentures (at fair value)

10,454



10,155


Total liabilities

852,847



823,818






Shareholders' Equity




Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 16,949,122 at March 31, 2019 and 16,946,622 at December 31, 2018

58,723



58,624


Retained earnings

52,080



49,942


Accumulated other comprehensive income

390



674


Total shareholders' equity

111,193



109,240


Total liabilities and shareholders' equity

$

964,040



$

933,058


 

United Security Bancshares

Consolidated Statements of Income (unaudited)

(in thousands)


Three Months Ended March 31,


2019


2018

Interest Income:




Interest and fees on loans

$

8,642


$

8,226

Interest on investment securities

477


193

Interest on deposits in FRB

1,298


384

Total interest income

10,417


8,803





Interest Expense:




Interest on deposits

834


387

Interest on other borrowed funds

123


90

Total interest expense

957


477

Net Interest Income

9,460


8,326

Provision (Recovery of Provision) for Credit Losses

6


(189)

Net Interest Income after Provision (Recovery of Provision) for Credit Losses

9,454


8,515





Noninterest Income:




Customer service fees

809


951

Increase in cash surrender value of bank-owned life insurance

145


125

Gain (loss) on fair value of marketable equity securities

57


(60)

Gain on proceeds from bank-owned life insurance


171

Gain (loss) on fair value of junior subordinated debentures

414


(470)

Loss on dissolution of real estate investment trust

(109)


Other

207


205

Total noninterest income

1,523


922





Noninterest Expense:




Salaries and employee benefits

2,772


2,961

Occupancy expense

813


1,018

Data processing

107


52

Professional fees

813


335

Regulatory assessments

93


83

Director fees

91


80

Correspondent bank service charges

14


17

Loss on California tax credit partnership


5

Net cost on operation and sale of OREO

65


51

Other

579


398

Total noninterest expense

5,347


5,000





Income Before Provision for Taxes

5,630


4,437

Provision for Taxes on Income

1,623


1,280

Net Income

$

4,007


$

3,157





Basic earnings per common share

$

0.24


$

0.19

Diluted earnings per common share

$

0.24


$

0.19

Weighted average basic shares for EPS


16,947,040



16,890,243

Weighted average diluted shares for EPS


16,972,630



16,917,599

 

United Security Bancshares

Average Balances and Rates (unaudited)

(in thousands)

Three Months Ended March 31,


2019


2018

Average Balances:




Loans (1)

$

578,326



$

598,891


Investment securities – taxable

68,293



44,431


Interest-bearing deposits in FRB

215,644



98,070


Total interest-earning assets

862,263



741,392


Allowance for credit losses

(8,458)



(9,335)


Cash and due from banks

28,349



26,442


Other real estate owned

5,745



5,745


Other non-earning assets

59,685



53,166


Total average assets

$

947,584



$

817,410






Interest-bearing deposits

$

522,457



$

396,068


Junior subordinated debentures

10,090



9,685


Total interest-bearing liabilities

532,547



405,753


Non-interest-bearing deposits

294,801



301,787


Other liabilities

9,025



6,858


Total liabilities

836,373



714,398


Total equity

111,211



103,012


Total liabilities and equity

$

947,584



$

817,410






Average Rates:




Loans (1)

6.06

%


5.57

%

Investment securities- taxable

2.83

%


1.76

%

Interest-bearing deposits in FRB

2.44

%


1.59

%

Earning assets

4.90

%


4.82

%

Interest bearing deposits

0.65

%


0.40

%

Junior subordinated debentures

4.94

%


3.77

%

Total interest-bearing liabilities

0.73

%


0.48

%

Net interest margin (2)

4.45

%


4.56

%



(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.



(2)

Net interest margin is computed by dividing annualized net interest income by average interest-earning assets.

 

United Security Bancshares

Condensed - Consolidated Balance Sheets (unaudited)

(in thousands)


March 31, 2019


December 31, 2018


September 30, 2018


June 30, 2018


March 31, 2018

Cash and cash equivalents

$

260,701



$

220,337



$

207,300



$

191,128



$

165,347


Investment securities

66,604



70,085



65,727



60,383



43,006


Loans

579,617



587,814



577,598



574,351



596,850


Allowance for credit losses

(8,417)



(8,395)



(8,798)



(8,425)



(9,116)


Net loans

571,200



579,419



568,800



565,926



587,734


Other assets

65,535



63,217



62,201



62,031



58,717


Total assets

$

964,040



$

933,058



$

904,028



$

879,468



$

854,804












Non-interest-bearing

$

300,476



$

292,720



$

315,213



$

281,686



$

319,438


Interest-bearing

531,101



512,923



463,670



475,277



415,178


Total deposits

831,577



805,643



778,883



756,963



734,616


Other liabilities

21,270



18,175



18,099



17,289



16,679


Total liabilities

852,847



823,818



796,982



774,252



751,295


Total shareholders' equity

111,193



109,240



107,046



105,216



103,509


Total liabilities and shareholder's equity

$

964,040



$

933,058



$

904,028



$

879,468



$

854,804


 

United Security Bancshares

Condensed - Consolidated Statements of Income (unaudited)

(in thousands)

For the Quarters Ended:


March 31, 2019


December 31, 2018


September 30, 2018


June 30, 2018


March 31, 2018

Total interest income

$

10,417



$

9,821



$

9,554



$

8,437



$

8,803


Total interest expense

957



876



691



659



477


Net interest income

9,460



8,945



8,863



7,778



8,326


Provision (recovery of provision) for credit losses

6



(65)



(373)



(1,136)



(189)


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

9,454



9,010



9,236



8,914



8,515












Total non-interest income

1,523



1,665



849



1,169



922


Total non-interest expense

5,347



5,473



5,143



5,318



5,000


Income before provision for taxes

5,630



5,202



4,942



4,765



4,437


Provision for taxes on income

1,623



1,254



1,424



1,373



1,280


Net income

$

4,007



$

3,948



$

3,518



$

3,392



$

3,157


 

United Security Bancshares

Nonperforming Assets (unaudited)

(dollars in thousands)


March 31, 2019


December 31, 2018

Real estate - mortgage



389


RE construction & development

11,629



11,663


Total nonaccrual loans

$

11,629



$

12,052






Loans past due 90 days and still accruing

134



485


Restructured loans

3,536



3,832


Total nonperforming loans

$

15,299



$

16,369


Other real estate owned

5,745



5,745


Total nonperforming assets

$

21,044



$

22,114






Nonperforming assets to total gross loans

3.63

%


3.76

%

Nonperforming assets to total assets

2.18

%


2.37

%

Allowance for credit losses to nonperforming loans

55.02

%


51.29

%

 

United Security Bancshares

Selected Financial Data (unaudited)

(dollars in thousands, except per share amounts)


Three Months Ended March 31,


2019


2018





Return on average assets

1.74

%


1.57

%

Return on average equity

14.80

%


12.43

%

Net recoveries to average loans

(0.01)

%


(0.03)

%






March 31, 2019


December 31, 2018

Shares outstanding - period end

16,949,122



16,946,622


Book value per share

$6.56



$6.45


Efficiency ratio (1)

50.25

%


53.55

%

Total impaired loans

$17,461



$18,683


Net loan to deposit ratio

68.69

%


71.92

%

Allowance for credit losses to total loans

1.45

%


1.43

%

Total capital to risk weighted assets




Company

17.75

%


17.80

%

Bank

17.77

%


17.70

%

Tier 1 capital to risk-weighted assets




Company

16.50

%


16.55

%

Bank

16.52

%


16.45

%

Common equity tier 1 capital to risk-weighted assets




Company

15.08

%


15.15

%

Bank

16.52

%


16.45

%

Tier 1 capital to adjusted average assets (leverage)




Company

12.30

%


12.15

%

Bank

12.33

%


12.16

%



(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)



Three Months Ended March 31,







2019


2018


Change $


Change %

Net income


$

4,007



$

3,157



$

850



26.92

%










TRUPs (1) fair value adjustment gain (loss)


414



(470)






Reversal of provision for credit losses (2)




200








414



(270)















Income tax effect


120



(78)






Non-core items net of taxes


294



(192)















Non-GAAP core net income


$

3,713



$

3,349



$

364



10.87

%



(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.



(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 calculated reserve for the period. 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 of $11,000.  For the three months ended March 31, 2019, there was no reversal from the allowance for credit losses in excess of the calculated reserve for the period. The provision for credit losses of $6,000, as reported within the Consolidated Statements of Income, represents the provision for overdrafts.

 

Cision

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