United Security Bancshares Reports 3rd Quarter Net Income of $4.2 Million

United Security Bancshares UBFO today announced its unaudited financial results for the three and nine months ended September 30, 2019. The Company reported consolidated net income of $4,173,000, or $0.25 per basic and diluted common share, for the quarter ended September 30, 2019, as compared to $3,518,000, or $0.21 per basic and diluted common share, for the quarter ended September 30, 2018. The Company recognized net income of $12,276,000 for the nine months ended September 30, 2019, an increase of 22% compared to the net income of $10,068,000 recognized for the nine months ended September 30, 2018. Basic and diluted earnings per share increased to $0.72 for the nine months ended September 30, 2019, as compared to basic earnings per share of $0.60 and diluted earnings per share of $0.59 for the nine months ended September 30, 2018.

Third Quarter 2019 Highlights (at or for the quarter ended September 30, 2019, except where noted)

• Net interest income after provision for credit losses increased to $9,351,000, compared to $9,236,000 for the quarter ended September 30, 2018, and increased from $9,299,000 in the preceding quarter.
• Net interest margin decreased to 4.17% from 4.43% for the quarter ended September 30, 2018, and decreased from 4.28% in the preceding quarter.
• Net charge-offs totaled $226,000, compared to net recoveries of $746,000 for the quarter ended September 30, 2018, and net recoveries of $31,000 in the preceding quarter.
• Capital positions remain strong with a 12.47% Tier 1 Leverage Ratio, a 15.67% Common Equity Tier 1 Ratio; a 17.13% Tier 1 Risk-Based Capital Ratio; and a 18.38% Total Risk-Based Capital Ratio.
• Annualized return on average assets ("ROAA") was 1.69%, compared to 1.59% for the quarter ended September 30, 2018, and 1.71% in the preceding quarter.
• Annualized return on average equity ("ROAE") was 14.36%, compared to 13.04% for the quarter ended September 30, 2018, and 14.53% in the preceding quarter.
• Total loans, net of unearned fees, decreased to $569,500,000, compared to $587,814,000 at December 31, 2018.
• Other real estate owned balances remained at $5,745,000 at September 30, 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 $820,223,000, compared to $805,643,000 at December 31, 2018.
• Book value per share increased to $6.80, compared to $6.45 at December 31, 2018.

Dennis Woods, President and Chief Executive Officer, stated: "During the third quarter, we added Interactive Teller Machines (ITMs) in four of our branches, replacing existing drive-up windows, to provide extended banking hours for our customers. Our third quarter net interest margin reflects the impact of the Federal Reserve rate cut, however, core net income, capital, and liquidity remain strong. We expect to carry this momentum through the fourth quarter of 2019."

Results of Operations

Annualized ROE for the nine months ended September 30, 2019 was 14.50%, compared to 12.81% for the nine months ended September 30, 2018. Annualized ROA was 1.70% for the nine months ended September 30, 2019, compared to 1.58% for the nine months ended September 30, 2018. Annualized ROE for the quarter ended September 30, 2019 was 14.36% compared to 13.04% for the same period in 2018. Annualized ROA was 1.69% for the quarter ended September 30, 2019, compared to 1.59% for the same period in 2018.

The annualized average cost of deposits was 0.45% for the quarter ended September 30, 2019 and 0.31% for the quarter ended September 30, 2018. The increase in the cost of deposits is attributed to increases in average balances of interest-bearing deposits and rates paid on time deposits and money market accounts. Interest-bearing deposits increased 9.81% between the quarters ended September 30, 2018 and 2019 to an average balance of $524,437,000.

Net interest income after the provision for credit losses for the nine months ended September 30, 2019 totaled $28,103,000, an increase of $1,439,000, or 5.40%, from $26,664,000 for the same period ended September 30, 2018. Included within the balance of net interest income after the provision for credit losses for the nine months ended September 30, 2018 was a $1,710,000 recovery of provision. The recovery of provision was due to one-time recoveries on previously charged-off loans. There were no such recoveries recognized during the nine months ended September 30, 2019. The Company's net interest margin decreased from 4.31% for the nine months ended September 30, 2018 to 4.30% for the nine months ended September 30, 2019. The decrease was the result of increases in the cost of deposits, partially offset by increases in loan yields, and investment yields. The yield on loans increased from 5.52% for the nine months ended September 30, 2018 to 5.98% for the nine months ended September 30, 2019. The yield on loans for the nine months ended September 30, 2018 includes $550,000 in write-downs of unamortized insurance premiums on the student loan portfolio, which was a result of the dissolution of the insurance carrier. The increase in net interest income on a year-over-year comparison is the result of higher interest rates on loans and investment securities, partially offset by increasing costs of deposits and a decline in loan balances. Net interest income after the provision for credit losses for the quarter ended September 30, 2019 totaled $9,351,000, an increase of $115,000, or 1.25%, from the net interest income of $9,236,000 for the same period ended September 30, 2018.

Non-interest income for the nine months ended September 30, 2019 totaled $5,105,000, reflecting an increase of $2,165,000 from the $2,940,000 in non-interest income reported for the nine months ended September 30, 2018. Customer service fees, which represent the largest portion of the Company's non-interest income, totaled $2,479,000 and $2,787,000 for the nine months ended September 30, 2019 and 2018, respectively. On a year-over-year comparative basis, non-interest income increased primarily due to a $1,571,000 gain on the fair value of junior subordinated debentures (TRUPs) for the nine months ended September 30, 2019, compared to a $923,000 loss for the same period ended September 30, 2018. 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 nine months ended September 30, 2019 also includes a $115,000 loss resulting from the dissolution of the USB Real Estate Investment Trust (REIT) which was completed in February 2019. Non-interest income for the nine months ended September 30, 2018 includes a $171,000 gain recorded on the death benefit proceeds of bank-owned life insurance.

Non-interest income for the quarter ended September 30, 2019 totaled $1,853,000, reflecting an increase of $1,004,000 from the $849,000 in non-interest income reported for the quarter ended September 30, 2018. The increase during the period was primarily due to the recording of a $660,000 gain on the fair value of TRUPs for the quarter ended September 30, 2019, as compared to a $262,000 loss for the quarter ended September 30, 2018. 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 $839,000 for the quarter ended September 30, 2019, as compared to $815,000 for the quarter ended September 30, 2018.

For the nine months ended September 30, 2019, non-interest expense totaled $15,943,000, an increase of $484,000 compared to $15,459,000 for the nine months ended September 30, 2018. On a year-over-year comparative basis, non-interest expense increased primarily due to increases of $663,000 in professional fees, $188,000 in other expenses, and $116,000 in data processing, partially offset by a decreases of $491,000 in salaries and employee benefits and $110,000 in regulatory assessments. The increase in professional fees is mainly attributed to an increase in legal fees. The increase in data processing is primarily due to additional service fees, and the increase in other expenses is attributed to workman's compensation insurance expense. The decrease in salary and employee benefits is attributed to lower equity award expense. Non-interest expense for the nine months ended September 30, 2018 includes a $121,000 recovery of workman's compensation insurance expense.

Non-interest expense totaled $5,335,000 for the quarter ended September 30, 2019, an increase of $192,000 as compared to $5,143,000 reported for the quarter ended September 30, 2018. On a quarter-over-quarter comparative basis, non-interest expense increased primarily due to increases in data processing expenses and professional fees, partially offset by decreases in regulatory assessments as well as salary and employee benefits as a result of lower equity award expenses. The decrease in regulatory assessments is attributed to the utilization of FDIC assessment credits.

The Company recorded an income tax provision of $4,989,000 for the nine months ended September 30, 2019, compared to $4,077,000 for the same period in 2018. The effective tax rate for the nine months ended September 30, 2019 was 28.90%, compared to 28.82% for the nine months ended September 30, 2018. For the quarter ended September 30, 2019, the Company recorded a tax provision of $1,696,000, compared to a provision of $1,424,000 for the same period in 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). Management believes that financial results are more comparative excluding the impact of such non-core items.

Balance Sheet Review

Total assets increased $24,340,000, or 2.61%, for the nine months ended September 30, 2019, due primarily to increases of $23,482,000 in overnight funds held at the Federal Reserve. Loan balances decreased by $17,805,000 for the nine months ended September 30, 2019 and investment securities increased by $11,566,000. Unfunded loan commitments increased $35,231,000 to $211,584,000 during the first nine months of 2019. With the adoption of ASU 2016-02, effective January 1, 2019, the Company began to recognize an operating lease right-of-use asset and operating lease liability. At September 30, 2019, the operating lease right-of-use asset was $3,610,000 and the operating lease liability was $3,714,000.

Total deposits increased $14,580,000, or 1.81%, to $820,223,000 during the nine months ended September 30, 2019. This increase was due to an increase of $40,436,000 in noninterest bearing deposits, partially offset by a decrease of $14,279,000 in time deposits and a decrease of $11,577,000 in NOW, money market, and savings accounts. Total money market and savings accounts decreased 2.69% to $418,914,000 at September 30, 2019, compared to $430,491,000 at December 31, 2018. Noninterest bearing deposits increased 13.81% to $333,156,000 at September 30, 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 $28,859,000.

Shareholders' equity at September 30, 2019 was $115,210,000, up $5,970,000 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 September 24, 2019. The dividend will be payable on October 18, 2019, to shareholders of record as of October 8, 2019. The Board of Directors of United Security Bancshares declared a cash dividend on common stock of $0.11 per share on June 25, 2019. The dividend was payable on July 18, 2019, to shareholders of record as of July 8, 2019. 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 $15,000 for the nine months ended September 30, 2019, compared to a recovery of provision of $1,699,000 for the nine months ended September 30, 2018. Net loan charge-offs totaled $180,000 for the nine months ended September 30, 2019, as compared to net recoveries of $1,230,000 for the nine months ended September 30, 2018. The Company recorded a provision for credit loss of $5,000 for the quarter ended September 30, 2019, compared to a recovery of provision for credit losses of $373,000 for the quarter ended September 30, 2018. Net loan charge-offs totaled $226,000 for the quarter ended September 30, 2019, as compared to net loan recoveries of $746,000 for the quarter ended September 30, 2018.

The Company's allowance for loan loss totaled 1.45% of the loan portfolio at September 30, 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 September 30, 2019 to be adequate.

Non-performing assets, comprised of nonaccrual loans, troubled debt restructures (TDRs), other real estate owned through foreclosure (OREO), and loans more than 90 days past due and still accruing interest, decreased approximately $354,000 between December 31, 2018 and September 30, 2019 to $21,275,000. Nonperforming assets as a percentage of total assets decreased from 2.32% at December 31, 2018 to 2.22% at September 30, 2019. The decrease in nonperforming assets is mainly attributed to decreases in restructured loans. Nonaccrual loans increased $704,000 between December 31, 2018 and September 30, 2019 to $12,756,000. Restructured loans decreased $1,763,000 between December 31, 2018 and September 30, 2019. OREO totaled $5,745,000 at September 30, 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.

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