United Security Bancshares - Continued Balance Sheet Deleveraging and Additional Loan Loss Provisions During 2010

Mar 03, 2011, 13:03 ET from United Security Bancshares

FRESNO, Calif., March 3, 2011 /PRNewswire/ -- Dennis R. Woods, President and Chief Executive Officer of United Security Bancshares http://www.unitedsecuritybank.com/ (Nasdaq: UBFO) reported today unaudited results for the year-to-date and quarterly periods ended December 31, 2010. Consolidated net loss was $2,890,000, or $(0.22) per basic and diluted common share for the year ended December 31, 2010, compared to a consolidated net loss of $4,537,000, or $(0.35) per basic and diluted common share for the year ended December 31, 2009. Net loss was $4,258,000, or $(0.33) per basic and diluted common share, for the quarter ended December 31, 2010, compared to a loss of $425,000, or $(0.03) per basic and diluted common share for the quarter ended December 31, 2009.

Annualized return on average equity (ROE) for the year ended December 31, 2010 was -3.69%, compared to -5.77% for the same period in 2009. Annualized return on average assets (ROA) was -0.41% for year ended December 31, 2010 compared to -0.62% for the same period in 2009. Annualized return on average equity (ROE) for the quarter ended December 31, 2010 was -21.27%, compared to -2.18% for the same quarterly period in 2009. Annualized return on average assets (ROA) was -2.41% for quarter ended December 31, 2010 compared to -0.23% for the same quarterly period in 2009.

The Board of Directors of United Security Bancshares declared a first quarter 2011 stock dividend of one percent (1%). The stock dividend was payable to shareholders of record on January 7, 2011, and the shares were issued on January 19, 2011.

Woods added, "While we reported a net loss for 2010, operating results were improved over the previous year and we continue to see improvements in levels of allowance for loan losses, liquidity, and capital ratios. At December 31, 2010, the Company had cash and cash equivalents of more than $98,400,000 as compared to $29,200,000 at December 31, 2009. Total risk-based capital was 16.61% at December 31, 2010 and 14.30% at December 31, 2009. Goodwill impairment charges were half of those reported during 2009, and accounted for almost one-half of the $2,890,000 net loss reported during the year ended December 31, 2010. During 2010, we continued to deleverage the balance sheet, reducing our reliance on wholesale funding while improving liquidity and continuing our efforts to reduce problem assets."

"Our ongoing efforts to reduce problem assets are not necessarily reflected in the balance sheet at December 31, 2010. During 2010, we sold or wrote-down more than $15,650,000 in OREO properties, but transferred $14,200,000 in foreclosed properties from loans to OREO during the year. The first quarter of 2011 has been active for OREO sales with one sale already completed and several other sales expected to be completed by the end of the first quarter of 2011. While we have had success in reducing nonaccrual loans through restructuring loans with borrowers or through foreclosure when required, a single large lending relationship that went to nonaccrual status late during the fourth quarter of 2010 increased nonaccrual loans at December 31, 2010 to levels similar to those reported at December 31, 2009."

"While reporting net losses is not good from a business and shareholder perspective, the net losses reported during 2009 and 2010 will allow us to recapture some of our income taxes paid in previous years. The Worker, Homeownership and Business Assistance Act of 2009 enacted in November 2009 allows taxpayers to elect up to a five-year carryback  for net operating losses (NOL) generated during 2008 or 2009 to offset taxable income in those preceding taxable years. We have amended our 2009 tax return and anticipate recovering nearly $4,900,000 in past taxes paid under the NOL five-year carryback option. We will utilize the standard two-year NOL carryback option allowed under the current tax provisions for 2010 and future reporting periods as appropriate."

Shareholders' equity at December 31, 2010 was $74,819,000 and Shareholders' equity at December 31, 2009 was $75,821,000.  

Net interest income before provision for credit loss for the year ended December 31, 2010 was $27,901,000, down from $28,349,000 reported during the year ended December 31, 2009 and was $6,538,000 for the quarter ended December 31, 2010, down from $7,247,000 reported during the quarter ended December 31, 2009. The net interest margin was 4.58% for the year ended December 31, 2010 and 4.49% for the year ended December 31, 2009. The net interest margin was 4.33% for the quarter ended December 31, 2010 compared to 4.65% for the quarter ended December 31, 2009. On a year-over-year basis, the Company has continued to benefit from decreasing costs on interest-bearing liabilities, which has more than outweighed the decline in yield on interest-earning assets.

Noninterest income for the year ended December 31, 2010 was $5,939,000, down $366,000 from $6,305,000 reported for the year ended December 31, 2009. As with the fourth quarter discussed below, changes in noninterest income on a year-to-year comparative basis are partly the result of decreases of $829,000 in fair value gains recorded on the Company's junior subordinated debt, and decreases of $694,000 in other noninterest income between the two year-to-date periods resulting from $863,000 in gains taken during the fourth quarter of 2009 on the sale of loan-related farm equipment that were not again realized in 2010. On a year-to-date basis, the Company benefited from a reduction of $708,000 in net losses on sales of OREO with net losses of $85,000 reported for the year ended December 31, 2010 compared to net losses of $793,000 reported for the year ended December 31, 2009. In addition, the Company realized gains of $509,000 on the sale of a real estate loan portfolio during the year ended December 31, 2010.

Noninterest income for the quarter ended December 31, 2010 was $481,000, reflecting a decrease of $2,387,000 from $2,868,000 in noninterest income reported during the quarter ended December 31, 2009. During the fourth quarter of 2010, the Company realized losses related to fair value adjustments on its junior subordinated debt of $529,000, reflecting a decrease of $1,384,000 from the $855,000 gain recorded during the fourth quarter of 2009. Other noninterest income decreased $843,000 between the quarters ended December 31, 2009 and December 31, 2010 as a result of $840,000 in gains taken during the fourth quarter of 2009 on the sale of loan-related farm equipment. Net losses on the sale of other real estate owned through foreclosure (OREO) sales totaled $182,000 during the quarter ended December 31, 2010, representing an increase of $145,000 when compared to net losses totaling $37,000 realized during the quarter ended December 31, 2009.

For the year ended December 31, 2010, noninterest expense totaled $29,020,000, up $1,054,000 from $27,966,000, reported for the year ended December 31, 2009. Noninterest expense for the quarter ended December 31, 2010 totaled $8,067,000 compared with $6,353,000 for the quarter ended December 31, 2009, an increase of $1,714,000 or 27.0% between the two quarterly periods. On a year-to-date basis, impairment losses and other expenses related to OREO increased $1,427,000 from $2,936,000 during the year ended December 31, 2009 to $4,363,000 for the year ended December 31, 2010, while regulatory insurance assessments increased $1,343,000 between the 2009 and 2010, from $1,203,000 for the year ended December 31, 2009 to $2,546,000 for the year ended December 31, 2010. Impairment losses on goodwill and intangible assets decreased $1,636,000 between the years ended December 31, 2010 and 2009, respectively, with goodwill impairment losses of $1,414,000 reported during 2010 compared to $3,026,000 reported during 2009. The Company does not recognize any tax benefit related to these goodwill impairment losses, and as a result, the losses impact the Company's net income dollar-for-dollar. As a result, the goodwill impairment losses represent approximately 49.0% and 67.0% of the net loss reported by the Company for the years ended December 2010 and December 31, 2009, respectively.

For the year ended December 31, 2010 the provision for loan loss was $9,843,000 compared to $13,375,000 for the year ended December 31, 2009, representing a decrease of $3,532,000 between the two year-to-date periods. The provision for loan loss was $6,467,000 for the quarter ended December 31, 2010 compared to $4,782,000 for quarter ended December 31, 2009, representing an increase of $1,685,000 between the two quarterly periods. While the Company has experienced some improvement on average in 2010 as compared to 2009 in the overall level of problem assets, the Company may experience additional losses related to problem assets due to a continued weak economy and weak real estate markets in our service area.  There can be no assurance that we will not experience future increases in nonperforming assets or that the disposition of such nonperforming assets will not adversely affect our profitability. As a result of continued weakness in the economy and specifically weak real estate markets in our service area, we continue to build the allowance for loan losses which totaled 3.15% of total loans at December 31, 2010 compared to 2.96% of total loans at December 31, 2009. In determining the adequacy of the allowance for loan losses, Management's judgment is the primary determining factor for establishing the amount of the provision for loan losses and management considers the allowance for loan and lease losses at December 31, 2010 to be adequate.

Non-performing assets decreased approximately $937,000 between December 31, 2009 and December 31, 2010, but increased as a percentage of total assets to 10.37% of total assets at December 31, 2010 up from 10.31% of total assets on December 31, 2009, as a result of declines in total assets between the two periods. OREO, a component of nonperforming assets, decreased $637,000 between December 31, 2009 and December 31, 2010, but increased $1,326,000 between September 30, 2010 and December 31, 2010 as the result of the transfer of approximately $4,420,000 in impaired loans to OREO during the fourth quarter of 2010. Impaired loans totaled $50,881,000 at December 31, 2010, decreasing $2,913,000 from the balance of $53,794,000 at December 31, 2009, but increasing $5,079,000 from the balance of $45,802,000 at September 30, 2010. Similarly, nonaccrual loans of $34,394,000 at December 31, 2010, decreased $362,000 from the balance of $34,756,000 at December 31, 2009 but increased $3,891,000 from the balance of $30,503,000 at September 30, 2010. The increase in both impaired loans and nonaccrual loans during the fourth quarter of 2010 is largely the result of a single large lending relationship totaling approximately $10,550,000 which went to nonaccrual status during December 2010. Annualized net loan charge-off's totaled 4.81% and 3.19% of average loans during the quarters ended December 31, 2010 and December 31, 2009, respectively, and totaled 2.24% and 1.85% of average loans during the years ended December 31, 2010 and December 31, 2009, respectively.

United Security Bancshares is a $675+ million bank holding company. United Security Bank, its principal subsidiary is a state chartered bank and member of the Federal Reserve Bank of San Francisco.

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, including California tax legislation and the subsequent Dec. 31, 2003, announcement by the Franchise Tax Board regarding the taxation of REITs and RICs; (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, and (9) unknown economic impacts caused by the State of California's budget issues. Management cannot predict at this time the severity or duration of the effects of the recent business slowdown on our specific business activities and profitability. Weaker or a further decline in capital and consumer spending, and related recessionary trends could adversely affect our 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, 2009, and particularly the section of Management's Discussion and Analysis.  Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission ("SEC").

United Security Bancshares

Consolidated Balance Sheets - (unaudited)

(dollars in thousands)

December 31,

December 31,

2010

2009

Assets

  Cash and noninterest-bearing deposits in other banks

$13,259

$15,006

  Cash and due from Federal Reserve Bank

85,171

2,638

  Federal funds sold

0

11,585

     Cash and cash equivalents

98,430

29,229

  Interest-bearing deposits in other banks

4,396

3,313

 Investment securities (AFS at market value)

51,503

71,411

  Loans and leases, net of unearned fees

441,046

507,708

    Less: Allowance for credit losses

(13,888)

(15,016)

  Net loans

427,158

492,692

  Premises and equipment - net

12,909

13,296

  Bank owned life insurance

15,493

14,972

  Intangible assets

7,186

9,425

  Other real estate owned

35,580

36,217

  Other assets

27,104

22,680

Total assets

$679,759

$693,235

  Deposits:

    Noninterest bearing demand and NOW

$199,675

$187,754

    Money market and savings

158,253

144,911

    Time

199,538

228,995

     Total deposits

557,466

561,660

  Borrowed funds

32,000

40,000

  Other liabilities

4,828

5,038

  Junior subordinated debentures (at fair value)

10,646

10,716

Total liabilities

604,940

617,414

Shareholders' equity:

  Common shares outstanding:

     13,003,849 at December 31, 2010

     12,496,499 at December 31, 2009

39,869

37,575

  Retained earnings

35,356

40,499

  Accumulated other comprehensive income

(406)

(2,253)

Total shareholders' equity

74,819

75,821

Total liabilities and shareholders' equity

$679,759

$693,235

United Security Bancshares

Consolidated Statements of Income (Unaudited)

Periods Ended December 31, 2010 and 2009

(dollars in 000's, except per share amounts)

Quarter Ended

Quarter Ended

Year Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2010

2009

2010

2009

Interest income:

  Interest and fees on loans

$6,910

$7,857

$29,502

$31,197

  Interest on investment securities

611

972

2,852

4,356

  Interest on Federal funds sold and

     deposits in other banks

59

23

136

123

     Total interest income

7,580

8,852

32,490

35,676

Interest expense:

  Interest on deposits

951

1,447

4,217

6,192

  Interest on other borrowed funds

91

158

372

1,135

     Total interest expense

1,042

1,605

4,589

7,327

Net interest income before provision for credit losses

6,538

7,247

27,901

28,349

  Provision for credit losses

6,467

4,782

9,843

13,375

Net interest income

71

2,465

18,058

14,974

Noninterest income:

  Customer service fees

908

923

3,812

3,882

  Increase in cash surrender value of

     bank owned life insurance

140

140

554

544

 Gain on sale of loans

0

0

509

0

 Loss on sale of other real estate owned

(182)

(37)

(85)

(793)

 (Loss) gain on Fair Value Option of Financial Assets

(529)

855

316

1,145

 Other noninterest income

144

987

833

1,527

Total noninterest income

481

2,868

5,939

6,305

Noninterest expense:

 Salaries and employee benefits

2,320

2,149

8,949

8,551

 Occupancy expense

966

877

3,789

3,692

 Professional fees

464

702

2,081

2,201

 Regulatory insurance assessments

1,081

331

2,546

1,203

 Impairment losses and other expenses on OREO

1,690

920

4,363

2,936

 Impairment losses on goodwill and intangible assets

0

24

1,471

3,107

 Impairment losses on investment securities

165

123

1,253

843

 Other noninterest expense

1,381

1,227

4,568

5,433

Total noninterest expense

8,067

6,353

29,020

27,966

Income before income tax provision

(7,515)

(1,020)

(5,023)

(6,687)

Provision for income taxes

(3,257)

(595)

(2,133)

(2,150)

Net Income

($4,258)

($425)

($2,890)

($4,537)

United Security Bancshares

Selected Financial Data (Unaudited)

(dollars in 000's, except per share amounts)

Quarter Ended

Quarter Ended

Year Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

2010

2009

2010

2009

Basic earnings per share

($0.33)

($0.03)

($0.22)

($0.35)

Diluted earnings per share

($0.33)

($0.03)

($0.22)

($0.35)

Weighted average basic shares for EPS

13,003,840

13,003,840

13,003,840

13,003,840

Weighted average diluted shares for EPS

13,003,840

13,003,840

13,003,840

13,003,840

Annualized return on:

  Average assets

-2.41%

-0.23%

-0.41%

-0.62%

  Average equity

-21.27%

-2.18%

-3.69%

-5.77%

Yield on interest-earning assets

5.02%

5.67%

5.33%

5.65%

Cost of interest-bearing liabilities

0.87%

1.28%

0.93%

1.43%

Net interest margin

4.33%

4.65%

4.58%

4.49%

Annualized net charge-offs to average loans

4.81%

3.19%

2.24%

1.85%

December 31,

December 31,

2010

2009

Shares outstanding - period end

13,003,849

12,496,499

Book value per share

$5.75

$6.07

Tangible book value per share

$5.20

$5.31

Efficiency ratio

85.76%

80.70%

Total nonperforming assets (1)

$70,521

$71,458

Nonperforming assets to total assets

10.37%

10.31%

Total Impaired loans (2)

$50,881

$53,794

Total nonaccrual loans

$34,394

$34,757

Allowance for loan losses to total loans

3.15%

2.96%

Tier 1 leverage - consolidated

11.87%

11.68%

Tier 1 leverage - Bank

11.40%

11.19%

Tier 1 risk-based capital - consolidated

15.35%

13.03%

Tier 1 risk-based capital - Bank

14.75%

12.47%

Total risk-based capital - consolidated

16.61%

14.30%

Total risk-based capital - Bank

16.00%

13.70%

(1) Other real estate owned through foreclosure, nonaccrual loans, and loans past due 90 days of more still accruing interest.

(2) Includes troubled debt restructures.

SOURCE United Security Bancshares



RELATED LINKS

http://www.unitedsecuritybank.com