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Section 1: 8-K (8-K EARNINGS 1231208 UBFO)

Document


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

January 23, 2019
Date of Report (Date of earliest event reported)

UNITED SECURITY BANCSHARES
(Exact Name of Registrant as Specified in its Charter)

California
(State or Other Jurisdiction of Incorporation)
000-32987
 
91-2112732
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
 
 
2126 Inyo Street, Fresno, California
 
93721
(Address of principal executive offices)
 
(Zip Code)

559-248-4943
(Registrant's Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 








ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On January 23, 2019, the Company issued a press release announcing results for the quarter ended December 31, 2018 (the "Press Release"). A copy of the Press Release is furnished as Exhibit 99.1 and incorporated herein by reference. The Press Release contains the non-GAAP measure Core Net Income. The Company believes that the presentation of that non-GAAP measure provides useful information for the understanding of its ongoing operations and, thereby, enhances an investor’s overall understanding of the Company's current financial performance relative to past performance and provides, along with the nearest GAAP measures, a baseline for modeling future expectations. The non-GAAP measure is reconciled to the comparable GAAP financial measure in the financial tables within the Press Release. The Company cautions that the non-GAAP measure should be considered in addition to, but not as a substitute for, the Company’s reported GAAP results. Additionally, the Company notes that there can be no assurance that the above referenced non-GAAP financial measure is comparable to similarly titled financial measures used by other companies.

The information in Item 2.02 of this Current Report on Form 8-K and the Press Release attached hereto as Exhibit 99.1 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.


ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(d)    Exhibits.

EXHIBIT #
99.1 Press release of United Security Bancshares dated January 23, 2019


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
United Security Bancshares
 
 
 
 
Date:
January 23, 2019
 
By: /s/ Bhavneet Gill
 
 
 
Bhavneet Gill
 
 
 
Senior Vice President & Chief Financial Officer






(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 UBFO 122018 EARNINGS)

Exhibit


United Security Bancshares reports 2018 net income of $14.0 million

FRESNO, CA - January 23, 2019. United Security Bancshares (Nasdaq: UBFO), today announced its unaudited financial results for the quarter and year ended December 31, 2018. The Company reported consolidated net income of $3,948,000, or $0.23 per basic and diluted common share, for the quarter ended December 31, 2018, as compared to $1,637,000, or $0.10 per basic and diluted common share, for the quarter ended December 31, 2017. The Company recognized net income of $14,017,000 for the year ended December 31, 2018, an increase of 62% compared to the net income of $8,640,000 recognized for the year ended December 31, 2017. Basic and diluted earnings per share increased to $0.83 for the year ended December 31, 2018, as compared to basic and diluted earnings per share of $0.51 for the year ended December 31, 2017.

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

Net interest income after provision for credit losses increased to $9,010,000 compared to $8,096,000 for the quarter ended December 31, 2017, and decreased from $9,236,000 in the preceding quarter.
Net interest margin decreased to 4.13% from 4.38% for the quarter ended December 31, 2017.
Net charge-offs totaled $338,000, compared to net recoveries of $61,000 for the quarter ended December 31, 2017.
Capital positions remain strong with a 12.15% Tier 1 Leverage Ratio, a 15.15% Common Equity Tier 1 Ratio; a 16.55% Tier 1 Risk-Based Capital Ratio; and a 17.8% Total Risk-Based Capital Ratio.
Annualized return on average assets ("ROAA") was 1.66%, compared to 0.79% for the quarter ended December 31, 2017.
Annualized return on average equity ("ROAE") was 14.28%, compared to 6.34% for the quarter ended December 31, 2017.
Total loans, net of unearned fees, decreased to $587,814,000, compared to $602,390,000 at December 31, 2017. However total loans increased $10,216,000 during the quarter when compared to $577,598,000 reported at September 30, 2018.
Other real estate owned balances remained at $5,745,000 at December 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 1.43%, compared to 1.54% at December 31, 2017.
Total deposits increased to $805,643,000, compared to $687,693,000 at December 31, 2017.
Book value per share increased to $6.45, compared to $6.00 at December 31, 2017.

Dennis Woods, President and Chief Executive Officer, stated: "We are pleased to report record earnings for the year ended December 31, 2018. As a result of this success, the Board of Directors of the Company increased its cash dividend again during the fourth quarter. Credit quality remains strong and we look to continue our growth and momentum into 2019."

Results of Operations

ROAE for the year ended December 31, 2018 was 13.23%, compared to 8.63% for the year ended December 31, 2017. ROAA was 1.61% for the year ended December 31, 2018, compared to 1.07% for the year ended December 31, 2017. Annualized ROAE for the quarter ended December 31, 2018 was 14.28% compared to 6.34% for the same period in 2017. Annualized ROAA was 1.66% for the quarter ended December 31, 2018, compared to 0.79% for the same period in 2017. The annualized average cost of deposits was 0.37% for the quarter ended December 31, 2018, and 0.21% for the quarter ended December 31, 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 year ended December 31, 2018 totaled $35,676,000, an increase of $4,500,000, or 14.43%, from $31,176,000 for the same period ended December 31, 2017. The Company's net interest margin increased from 4.27% for the year ended December 31, 2017 to 4.28% for the year ended December 31, 2018. The increase in net interest margin in the period-to-period comparison was the result of higher rates on overnight funds and higher loan yields, partially offset by increasing costs of deposits. The yield on loans increased from 5.42% for the year ended December 31, 2017 to 5.57% for the year ended December 31, 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 December 31, 2018





totaled $9,010,000, an increase of $914,000 or 11.29% from the net interest income of $8,096,000 for the same period ended December 31, 2017.

Non-interest income for the year ended December 31, 2018 totaled $4,605,000, reflecting an increase of $299,000 from $4,306,000 in non-interest income reported for the year ended December 31, 2017. Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $3,544,000 and $3,851,000 for the years ended December 31, 2018 and 2017, respectively. The decrease in customer service fees was partially the result of the closure of the Financial Services department and resultant decrease in non-interest income. On a year-over-year comparative basis, non-interest income increased primarily due to a $424,000 loss on the fair value of junior subordinated debentures ("TRUPs") for the year ended December 31, 2018, compared to a $882,000 loss for the same period ended December 31, 2017, offset by the decrease in customer service fees. 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 year ended December 31, 2018 also includes a $171,000 gain recorded on the death benefit proceeds of bank-owned life insurance.

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, for the year ended December 31, 2017, the entire change in the fair value of TRUPs of $882,000 was recorded in earnings. For the year ended December 31, 2018, the Company has recognized a change of $392,000 on the fair value of TRUPs, of which a $424,000 loss was attributed to fluctuations in the LIBOR yield curve, and recorded in earnings, and a $32,000 gain was attributed to changes in credit risk and presented in other comprehensive income.

Non-interest income for the quarter ended December 31, 2018 totaled $1,665,000, reflecting an increase of $510,000 from the $1,155,000 in non-interest income reported for the quarter ended December 31, 2017. The increase during the period was primarily due to recording a $499,000 gain on the fair value of TRUPs for the quarter ended December 31, 2018, as compared to a $194,000 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 $757,000 for the quarter ended December 31, 2018, as compared to $954,000 for the quarter ended December 31, 2017. The decrease is partially attributed to the closing of the Financial Services department.

For the year ended December 31, 2018, non-interest expense totaled $20,932,000, an increase of $1,129,000 compared to $19,803,000 for the year ended December 31, 2017. On a year-over-year comparative basis, non-interest expense increased primarily due to increases of $900,000 in salary and employee benefits, $295,000 in OREO expenses, and $184,000 in professional fees, partially offset by a decrease of $61,000 in regulatory fees and a decrease of $84,000 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 year ended December 31, 2017 includes a $336,000 gain related to the sale of OREO. The decrease in other non-interest expenses of $299,000 includes a $121,000 recovery of workman's compensation insurance expense.

Non-interest expense totaled $5,473,000 for the quarter ended December 31, 2018, an increase of $213,000 as compared to $5,260,000 reported for the quarter ended December 31, 2017. On a quarter-over-quarter comparative basis, non-interest expense increased primarily due to increases in salary and employee benefits, partially offset by decreases in the net cost of OREO and professional fees. The increase in salary and employee benefits was primarily due to increases in employee salaries and additional compensation expense related to equity awards, partially offset by a reduction in employee incentives.

The Company recorded an income tax provision of $5,332,000 for the year ended December 31, 2018, compared to $7,039,000 for the same period in 2017. The effective tax rate for the year ended December 31, 2018 was 27.56%, compared to 44.89% for the year ended December 31, 2017. For the quarter ended December 31, 2018, the Company recorded a tax provision of $1,254,000, compared to a provision of $2,354,000 for the same period in 2017. Included in the income tax provision for 2017 is $986,000 related to the DTA revaluation as a result of the change in the corporate tax rate. The signing of the Tax Cuts and Jobs Act on December 22, 2017, reduced the Company’s federal income tax rate from 34% to 21% effective January 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 $13,171,000 for the year ended December 31, 2018, an increase of approximately 32% compared to net income of $9,948,000 for the same period in 2017. Management believes that financial results are more comparative excluding the impact of such non-core items.







Balance Sheet Review

Total assets increased $127,222,000, or 15.79%, for the year ended December 31, 2018, due primarily to increases of $118,691,000 in overnight funds held at the Federal Reserve. This increase is reflective of the increase of $117,950,000 in deposits during 2018. Loan balances decreased by $13,418,000 during 2018 and investment securities increased by $24,363,000. 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 the year.

Total deposits increased $117,950,000, or 17.15%, to $805,643,000 during the year ended December 31, 2018. This increase was due to an increase of $114,929,000 in NOW, money market, and savings accounts and an increase of $17,600,000 in time deposits, partially offset by a decrease of $14,579,000 in noninterest bearing deposits. Total money market and savings accounts increased 36.42% to $430,491,000 at December 31, 2018, compared to $315,562,000 at December 31, 2017. Noninterest bearing deposits decreased 4.74% to $292,720,000 at December 31, 2018, compared to $307,299,000 at December 31, 2017. 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 $100,350,000.

Shareholders’ equity at December 31, 2018 was $109,240,000, up $7,888,000 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 $0.11 per share on December 18, 2018. The dividend is payable on January 15, 2019, to shareholders of record as of January 3, 2019. 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 was 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 $1,764,000 for the year ended December 31, 2018, compared to a provision of $24,000 for the year ended December 31, 2017. Net loan recoveries totaled $892,000 for the year ended December 31, 2018, as compared to net recoveries of $341,000 for the year ended December 31, 2017. The Company recorded a recovery of provision for credit loss of $65,000 for the quarter ended December 31, 2018, compared to a provision for credit losses of $48,000 for the quarter ended December 31, 2017. The recovery of provision for the quarter ended December 31, 2018 is the result of improvement in historical loss factors, partially offset by loan charge-offs. Net loan charge-offs totaled $338,000 for the quarter ended December 31, 2018, as compared to net loan recoveries of $61,000 for the quarter ended December 31, 2017.

The Company's allowance for loan loss totaled 1.43% of the loan portfolio at December 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. Management considers the allowance for credit losses at December 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, increased approximately $4,019,000 between December 31, 2017 and December 31, 2018 to $21,629,000. Nonperforming assets as a percentage of total assets increased from 2.19% at December 31, 2017 to 2.32% at December 31, 2018. The increase in nonperforming assets is mainly attributed to increases in nonaccrual loans, partially offset by paydowns on restructured loans. Nonaccrual loans increased $6,756,000 between December 31, 2017 and December 31, 2018 to $12,052,000. The increase in nonaccrual loans is isolated to one borrower, which is well-secured by real estate collateral. OREO totaled $5,745,000 at December 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, 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, as amended, 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.






United Security Bancshares
 
 
 
Consolidated Balance Sheets (unaudited)
 
 
 
(in thousands)
 
 
 
 
December 31, 2018
 
December 31, 2017
Assets
 
 
 
Cash and non-interest-bearing deposits in other banks
$
28,949

 
$
35,237

Due from Federal Reserve Bank ("FRB")
191,388

 
72,697

Cash and cash equivalents
220,337

 
107,934

Investment securities (at fair value)
 
 
 
Available for sale ("AFS") securities
66,426

 
41,985

Marketable equity securities
3,659

 
3,737

Total investment securities
70,085

 
45,722

Loans
587,933

 
601,351

Unearned fees and unamortized loan origination (fees) costs, net
(119
)
 
1,039

Allowance for credit losses
(8,395
)
 
(9,267
)
Net loans
579,419

 
593,123

Premises and equipment - net
9,837

 
10,165

Accrued interest receivable
8,341

 
6,526

Other real estate owned
5,745

 
5,745

Goodwill
4,488

 
4,488

Deferred tax assets - net
3,174

 
2,389

Cash surrender value of life insurance
20,244

 
19,752

Investment in limited partnerships
1,911

 
1,601

Other assets
9,477

 
8,391

Total assets
$
933,058

 
$
805,836

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Deposits
 

 
 

Non-interest-bearing
$
292,720

 
$
307,299

Interest-bearing
512,923

 
380,394

Total deposits
805,643

 
687,693

 
 
 
 
Accrued interest payable
57

 
44

Other liabilities
7,963

 
7,017

Junior subordinated debentures (at fair value)
10,155

 
9,730

Total liabilities
823,818

 
704,484

 
 
 
 
Shareholders' Equity
 
 
 
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 16,946,622 at December 31, 2018 and 16,885,615 at December 31, 2017
58,624

 
57,880

Retained earnings
49,942

 
44,182

Accumulated other comprehensive income (loss)
674

 
(710)

Total shareholders' equity
109,240

 
101,352

Total liabilities and shareholders' equity
$
933,058

 
$
805,836















United Security Bancshares
 
 
 
 
 
 
 
Consolidated Statements of Income (unaudited)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Interest Income:
 
 
 
 
 
 
 
Interest and fees on loans
$
8,269

 
$
8,035

 
$
32,383

 
$
30,817

Interest on investment securities
337

 
210

 
1,146

 
901

Interest on deposits in FRB
1,215

 
349

 
3,086

 
1,207

Interest on deposits in other banks

 
1

 

 
5

Total interest income
9,821

 
8,595

 
36,615

 
32,930

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
Interest on deposits
762

 
370

 
2,278

 
1,426

Interest on other borrowed funds
114

 
81

 
425

 
304

Total interest expense
876

 
451

 
2,703

 
1,730

Net Interest Income
8,945

 
8,144

 
33,912

 
31,200

(Recovery of Provision) Provision for Credit Losses
(65)

 
48

 
(1,764)

 
24

Net Interest Income after (Recovery of Provision) Provision for Credit Losses
9,010

 
8,096

 
35,676

 
31,176

 
 
 
 
 
 
 
 
Noninterest Income:
 
 
 
 
 
 
 
Customer service fees
757

 
954

 
3,544

 
3,851

Increase in cash surrender value of bank-owned life insurance
131

 
133

 
520

 
534

Gain (loss) on fair value of marketable equity securities
35

 

 
(78)

 

Gain on proceeds from bank-owned life insurance

 

 
171

 

Gain (loss) on fair value of junior subordinated debentures
499

 
(194)

 
(424)

 
(882)

Gain on sale of investment in limited partnership

 

 

 
3

Gain on sale of assets

 
73

 
29

 
73

Other
243

 
189

 
843

 
727

Total noninterest income
1,665

 
1,155

 
4,605

 
4,306

 
 
 
 
 
 
 
 
Noninterest Expense:
 
 
 
 
 
 
 
Salaries and employee benefits
2,924

 
2,672

 
11,721

 
10,821

Occupancy expense
1,116

 
1,110

 
4,372

 
4,254

Data processing
67

 
38

 
171

 
119

Professional fees
482

 
521

 
1,617

 
1,433

Regulatory assessments
82

 
78

 
330

 
391

Director fees
82

 
74

 
321

 
289

Correspondent bank service charges
14

 
16

 
63

 
71

Loss (gain) on California tax credit partnership
11

 
(9)

 
25

 
109

Net cost (gain) on operation and sale of OREO
16

 
107

 
145

 
(150)

Other
679

 
653

 
2,167

 
2,466

Total noninterest expense
5,473

 
5,260

 
20,932

 
19,803

 
 
 
 
 
 
 
 
Income Before Provision for Taxes
5,202

 
3,991

 
19,349

 
15,679

Provision for Taxes on Income
1,254

 
2,354

 
5,332

 
7,039

Net Income
$
3,948

 
$
1,637

 
$
14,017

 
$
8,640

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.23

 
$
0.10

 
$
0.83

 
$
0.51

Diluted earnings per common share
$
0.23

 
$
0.10

 
$
0.83

 
$
0.51

Weighted average basic shares for EPS
16,907,202

 
16,885,615

 
16,899,690

 
16,885,587

Weighted average diluted shares for EPS
16,963,797

 
16,906,665

 
16,938,772

 
16,904,915






United Security Bancshares
 
 
 
 
 
 
 
Average Balances and Rates (unaudited)
 
 
 
 
 
 
 
(in thousands)
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Average Balances:
 
 
 
 
 
 
 
Loans (1)
$
577,985

 
$
580,981

 
$
581,221

 
$
569,079

Investment securities – taxable
65,317

 
47,258

 
54,838

 
52,513

Interest-bearing deposits in other banks

 
620

 

 
644

Interest-bearing deposits in FRB
217,424

 
109,099

 
157,222

 
108,218

Total interest-earning assets
860,726


737,958


793,281


730,454

Allowance for credit losses
(8,919
)
 
(9,215
)
 
(9,118
)
 
(9,067
)
Cash and due from banks
29,365

 
24,694

 
27,605

 
22,225

Other real estate owned
5,745

 
5,746

 
5,745

 
5,998

Other non-earning assets
57,950

 
62,927

 
55,321

 
54,520

Total average assets
$
944,867


$
822,110


$
872,834


$
804,130

 
 
 
 
 
 
 
 
Interest-bearing deposits
$
510,891

 
$
397,340

 
$
450,012

 
$
398,554

Junior subordinated debentures
10,438

 
9,499

 
9,922

 
9,211

Total interest-bearing liabilities
521,329

 
406,839

 
459,934


407,765

Non-interest-bearing deposits
306,814

 
305,806

 
300,698

 
289,334

Other liabilities
7,027

 
7,028

 
6,253

 
6,871

Total liabilities
835,170


719,673


766,885


703,970

Total equity
109,697

 
102,437

 
105,949

 
100,160

Total liabilities and equity
$
944,867

 
$
822,110

 
$
872,834

 
$
804,130

 
 
 
 
 
 
 
 
Average Rates:
 
 
 
 
 
 
 
Loans (1)
5.68
%
 
5.49
%
 
5.57
%
 
5.42
%
Investment securities- taxable
2.05
%
 
1.76
%
 
2.09
%
 
1.72
%
Interest-bearing deposits in other banks
%
 
0.64
%
 
%
 
0.78
%
Interest-bearing deposits in FRB
2.22
%
 
1.27
%
 
1.96
%
 
1.12
%
Earning assets
4.53
%
 
4.62
%
 
4.62
%
 
4.51
%
Interest bearing deposits
0.59
%
 
0.37
%
 
0.51
%
 
0.36
%
Junior subordinated debentures
4.33
%
 
3.38
%
 
4.28
%
 
3.30
%
Total interest-bearing liabilities
0.67
%
 
0.44
%
 
0.59
%
 
0.42
%
Net interest margin
4.13
%
 
4.38
%
 
4.28
%
 
4.27
%

(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
 
 
 
 
 
 
 
 
Condensed - Consolidated Balance Sheets (unaudited)
 
 
 
 
 
 
(in thousands)
 
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
Cash and cash equivalents
$
220,337

 
$
207,300

 
$
191,128

 
$
165,347

 
$
107,934

Investment securities
70,085

 
65,727

 
60,383

 
43,006

 
45,722

Loans
587,814

 
577,598

 
574,351

 
596,850

 
602,390

Allowance for credit losses
(8,395
)
 
(8,798
)
 
(8,425
)
 
(9,116
)
 
(9,267
)
Net loans
579,419

 
568,800

 
565,926

 
587,734

 
593,123

Other assets
63,217

 
62,201

 
62,031

 
58,717

 
59,057

Total assets
$
933,058

 
$
904,028

 
$
879,468

 
$
854,804

 
$
805,836

 
 
 
 
 
 
 
 
 
 
Non-interest-bearing
$
292,720

 
$
315,213

 
$
281,686

 
$
319,438

 
$
307,299

Interest-bearing
512,923

 
463,670

 
475,277

 
415,178

 
380,394

Total deposits
805,643

 
778,883

 
756,963

 
734,616

 
687,693

Other liabilities
18,175

 
18,099

 
17,289

 
16,679

 
16,791

Total liabilities
823,818

 
796,982

 
774,252

 
751,295

 
704,484

Total shareholder's equity
109,240

 
107,046

 
105,216

 
103,509

 
101,352

Total liabilities and shareholder's equity
$
933,058

 
$
904,028

 
$
879,468

 
$
854,804

 
$
805,836

United Security Bancshares
 
 
 
 
 
 
 
 
Condensed - Consolidated Statements of Income (unaudited)
 
 
 
 
 
 
(in thousands)
For the Quarters Ended:
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
Total interest income
$
9,821

 
$
9,554

 
$
8,437

 
$
8,803

 
$
8,595

Total interest expense
876

 
691

 
659

 
477

 
451

Net interest income
8,945

 
8,863

 
7,778

 
8,326

 
8,144

(Recovery of Provision) Provision for Credit Losses
(65
)
 
(373
)
 
(1,136
)
 
(189
)
 
48

Net Interest Income after (Recovery of Provision) Provision for Credit Losses
9,010

 
9,236

 
8,914

 
8,515

 
8,096

 
 
 
 
 
 
 
 
 
 
Total non-interest income
1,665

 
849

 
1,170

 
923

 
1,155

Total non-interest expense
5,473

 
5,143

 
5,318

 
5,000

 
5,260

Income Before Provision for Taxes
5,202

 
4,942

 
4,766

 
4,438

 
3,991

Provision for Taxes on Income
1,254

 
1,424

 
1,373

 
1,280

 
2,354

Net Income
$
3,948

 
$
3,518

 
$
3,393

 
$
3,158

 
$
1,637













United Security Bancshares
 
 
 
Nonperforming Assets (unaudited)
 
 
 
(dollars in thousands)
 
 
 
 
December 31, 2018
 
December 31, 2017
Commercial and industrial
$

 
$
212

Real estate - mortgage
389

 
742

RE construction & development
11,663

 
4,342

Total nonaccrual loans
$
12,052


$
5,296

 
 
 
 
Loans past due 90 days and still accruing

 
485

Restructured loans
3,832

 
6,084

Total nonperforming loans
$
15,884

 
$
11,865

Other real estate owned
5,745

 
5,745

Total nonperforming assets
$
21,629

 
$
17,610

 
 
 
 
Nonperforming assets to total gross loans
3.68
%
 
2.92
%
Nonperforming assets to total assets
2.32
%
 
2.19
%
Allowance for credit losses to nonperforming loans
52.85
%
 
78.10
%

United Security Bancshares
 
 
 
 
 
 
 
Selected Financial Data (unaudited)
 
 
 
 
 
 
 
(dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Return on average assets
1.66
%
 
0.79
 %
 
1.61%
 
1.07%
Return on average equity
14.28
%
 
6.34
 %
 
13.23%
 
8.63%
Net charge-offs (recoveries) to average loans
0.23
%
 
(0.04
)%
 
(0.15)%
 
(0.06)%
 
 
 
 
 
 
 
 
 
December 31, 2018
 
December 31, 2017
 
 
 
 
Shares outstanding - period end
16,946,622

 
16,885,615

 
 
 
 
Book value per share

$6.45

 

$6.00

 
 
 
 
Efficiency ratio (1)
53.55
%
 
54.94
 %
 
 
 
 
Total impaired loans

$18,684

 

$14,790

 
 
 
 
Net loan to deposit ratio
71.92
%
 
86.25
 %
 
 
 
 
Allowance for credit losses to total loans
1.43
%
 
1.54
 %
 
 
 
 
Total capital to risk weighted assets
 
 
 
 
 
 
 
Company
17.80
%
 
17.54
 %
 
 
 
 
Bank
17.70
%
 
17.31
 %
 
 
 
 
Tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
Company
16.55
%
 
16.29
 %
 
 
 
 
Bank
16.45
%
 
16.06
 %
 
 
 
 
Common equity tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
Company
15.15
%
 
14.81
 %
 
 
 
 
Bank
16.45
%
 
16.06
 %
 
 
 
 
Tier 1 capital to adjusted average assets (leverage)
 
 
 
 
 
 
 
Company
12.15
%
 
13.01
 %
 
 
 
 
Bank
12.16
%
 
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)
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
2018
 
2017
 
Change $
 
Change %
Net income
 
$
14,017

 
$
8,640

 
$
5,377

 
62.23
%
 
 
 
 
 
 
 
 
 
TRUPs (1) fair value adjustment loss pretax
 
(424
)
 
(882
)
 
 
 
 
Reversal of provision for credit losses (2)
 
1,615

 

 
 
 
 
Gain on sale of other real estate owned (OREO) (3)
 

 
336

 
 
 
 
 
 
1,191

 
(546
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax effect (29% in 2018, 41% in 2017)
 
345

 
(224
)
 
 
 
 
Non-core items net of taxes
 
846

 
(322
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of DTA revaluation (4)
 

 
986

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP core net income
 
$
13,171

 
$
9,948

 
$
3,223

 
32.40
%

(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 $392,000 on the fair value of the TRUPs, of which a $424,000 loss was attributed to fluctuations in the LIBOR yield curve, and recorded in earnings, and a $32,000 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 $1,764,000 for the year ended December 31, 2018, within the Consolidated Statements of Income, includes this reversal of provision for credit losses of $1,615,000 and a net recovery of provision for overdrafts and unfunded loan commitments of $149,000.

(3)
Gain on sale of Other Real Estate Owned (OREO) is not part of Core Income.

(4)
This write-down is the result of the change in the corporate tax rate effective December 31, 2017 and is not part of Core Income.



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