United Security Bancshares - Continued Improvement in Credit Quality and Additions to Loan Loss Reserves

FRESNO, Calif., Aug. 3, 2011 /PRNewswire/ -- United Security Bancshares (http://www.unitedsecuritybank.com/) (Nasdaq Global Select: UBFO) reported today an unaudited consolidated net loss of $3.0 million or ($0.23) per basic and diluted common share for the three months ended June 30, 2011, as compared to net income of $515,000 or $0.04 per basic and diluted common shares for the three months ended June 30, 2010. On a year-to-date basis, the Company reported an unaudited consolidated net loss of $2.7 million or ($0.20) per basic and diluted common share, as compared to net income of $957,000 or $0.07 per basic and diluted common shares for the six months ended June 30, 2010.

Annualized return on average equity (ROE) for the three months ended June 30, 2011 was (15.12%), compared to 2.65% for the same period in 2010, and was (6.98%) for the six months ended June 30, 2011 compared to 2.49% for the same six-month period in 2010. Annualized return on average assets (ROA) was (1.83%) for the three months ended June 30, 2011 compared to 0.29% for the same three-month period in 2010, and was (0.81%) for the six months ended June 30, 2011 compared to 0.27% to the same six-month period in 2010.

Earnings for the second quarter of 2011 were adversely impacted by provisions for loan losses totaling $3.5 million and a goodwill impairment loss of $1.5 million recorded during the quarter. Dennis R. Woods, President and Chief Executive Officer of the Company, notes with respect to the Goodwill impairment expense of $1.5 million reflected in this quarter's earnings, "This is a noncash accounting adjustment related to a prior branch purchase that does not impact the Bank's regulatory capital ratios."

Shareholders' equity at June 30, 2011 was $70.1 million, down $3.1 million from the $73.3 million in shareholder's equity reported at December 31, 2010.  

Net interest income before provision for credit loss totaled $6.3 million for the three months ended June 30, 2011 and $12.5 million for the six months ended June 30, 2011, down $1.1 million from $7.4 million reported during the three months ended June 30, 2010 and down $2.0 million from the $14.5 million reported during the six months ended June 30, 2010, respectively. The net interest margin was 4.52% for the three months ended June 30, 2011, and 4.47% for the six months ended June 30, 2011 as compared to 4.87% for the three months ended June 30, 2010 and 4.81% for the six months ended June 30, 2010. On a six-month comparative basis, the Company continues to benefit from reduced costs on interest-bearing liabilities, which partially offset declines in yields on interest-earning assets between the two six-month periods.

Noninterest income for the three months ended June 30, 2011 totaled $1.2 million, reflecting a decrease of $1.5 million from $2.7 million in noninterest income reported for the three months ended June 30, 2010. Noninterest income of $2.3 million reported for the six months ended June 30, 2011 decreased of $1.7 million from $4.0 million in noninterest income reported for the six months ended June 30, 2010. Customer service fees continue to provide the majority of the Company's noninterest income, totaling $894,000 for the three months ended June 30, 2011, as compared to $1.0 million for the three months ended June 30, 2010, and $1.8 million for the six months ended June 30, 2011, as compared to $2.0 million for the six months ended June 30, 2010. Changes in noninterest income on a quarter-to-quarter comparative basis are largely the result of decreases of $511,000 in gains realized on the sale of loans, $488,000 in gains realized on the sale of other real estate owned, and $245,000 in fair value gains recorded on the Company's junior subordinated debt, between the two three-month periods. On a six-month comparative basis, changes in noninterest income are largely the result of decreases of $511,000 in gains realized on the sale of loans, as well as decreases of $769,000 in fair value gains recorded on the Company's junior subordinated debt.

Noninterest expense totaled $8.2 million for the three months ended June 30, 2011, up $192,000 from $8.0 million reported for the three months ended June 30, 2010, while noninterest expense totaled $14.3 million for the six months ended June 30, 2011, down $76,000 from $14.4 million reported for the six months ended June 30, 2010. Between the three-month quarterly comparative periods, increases in professional fees and OREO expenses totaling $582,000 were offset in part by a decrease in impairment losses on investment securities. On a six-month comparative basis, increases in salaries, professional fees, regulatory assessments, and impairment losses on OREO and intangible assets, were offset by a decrease in impairment losses on investment securities.

For the three months ended June 30, 2011 the provision for loan loss was $3.5 million, compared to $519,000 for the three months ended June 30, 2010 representing an increase of $3.0 million between the three-month comparative periods. The provision for loan losses totaled $4.4 million for the six months ended June 30, 2011 compared to $2.2 million for the six months ended June 2010, reflecting an increase of $2.3 million between the two six-month periods. Net loan charge-offs totaled $6.6 million for the six months ended June 30, 2011 as compared to $5.1 million for the six months ended June 30, 2010. At June 30, 2011, the allowance for loan losses represented 3.33% of total loans, compared to 3.75% of total loans at December 31, 2010. 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 June 30, 2011 to be adequate.

Dennis R. Woods, President and Chief Executive Officer of the Company, explains, "The addition to the Allowance for Loan Loss during the quarter will help us to accelerate the work-out or disposition of troubled bank assets. With upgrades in certain credits within the loan portfolio made during the current year, as well as additional loan charge-offs taken during 2011 and continued sales of other real estate owned through foreclosure (OREO), a number of which are currently in escrow, we are successfully realizing reductions in our overall level of problem assets including impaired and nonaccrual loans, as well as OREO."

Non-performing assets comprised of nonaccrual loans, OREO, and loans more than 90 days past days and still accruing interest, decreased approximately $10.8 million between December 31, 2010 and June 30, 2011, and decreased $6.1 million during the quarter ended June 30, 2011. Nonperforming assets decreased as a percentage of total assets from 10.40% of total assets at December 31, 2010 to 9.07% of total assets at June 30, 2011 as the Company continues to successfully work out, or dispose of, problem assets. Nonaccrual loans decreased $7.6 million between December 31, 2010 and June 30, 2011, and decreased $2.6 million during the quarter ended June 30, 2011, while OREO decreased $3.5 million and $3.1 million during the same periods, respectively. Impaired loans totaled $43.0 million at June 30, 2011, decreasing $8.0 million from the balance of $50.9 million at December 31, 2010 and decreasing $5.8 million from the balance of $48.9 million at March 31, 2011.

The Board of Directors of United Security Bancshares declared a second quarter 2011 stock dividend of one percent (1%) on June 28, 2011. The stock dividend was payable to shareholders of record on July 15, 2011, and the shares were issued on July 27, 2011.

United Security Bancshares is a $650+ 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, (9) failure to comply with the regulatory agreement under which the Company is subject and (10) 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, 2010, 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").

SOURCE United Security Bancshares