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United Security Bancshares Reports Operating Results (10-Q/A)
Posted by: gurufocus (IP Logged)
Date: November 25, 2011 03:14PM
United Security Bancshares (UBFO) filed Amended Quarterly Report for the period ended 2011-06-30. United Security Bancshares has a market cap of $27 million; its shares were traded at around $2.01 with and P/S ratio of 0.7.
Highlight of Business Operations:With market rates of interest remaining at historically low levels, the Company continues to experience compressed net interest margins. The Company s net interest margin was 4.47% for the six months ended June 30, 2011, as compared to 4.81% for the six months ended June 30, 2010. With approximately 54% of the loan portfolio in floating rate instruments at June 30, 2011, the effects of low market rates continue to impact loan yields. The net interest margin has also been impacted by a decline in loan volume, the Company s highest yielding asset, which has been partially offset by an increase in overnight investments with the Federal Reserve Bank, a much lower yielding asset. The Company has successfully sought to mitigate the low-interest rate environment with loan floors included in new and renewed loans over the past several years. Loans yielded 5.97% during the six months ended June 30, 2011, as compared to 6.03% for the six months ended June 30, 2010. The Company s cost of funds has continued to decrease over the past year and has mitigated to some degree, the impact of declining yields on earning assets. The Company s average cost of funds was 0.77% for the six months ended June 30, 2011 as compared to 0.98% for the six months ended June 30, 2010. Wholesale borrowing and brokered deposit rates have remained low, resulting in overnight and short-term borrowing rates of less than 0.50% during much of the past year. The Company has benefited from the low interest rate environment, and continues to utilize short-term borrowing lines through the Federal Home Loan Bank. Although the Company does not intend to increase its current level of brokered deposits, and in fact as a result of the 2010 Agreement with the Federal Reserve Bank and Order with the California Department of Financial Institutions, continues to systematically reduce brokered deposit levels as they mature in the future, the $54.2 million in brokered deposits at June 30, 2011 continues to provide the Company with a low-cost source of deposits. The Company will continue to utilize these funding sources when required to maintain prudent liquidity levels, while seeking to increase core deposits when possible.
The Company has sought to maintain a strong, yet conservative balance sheet while continuing to reduce the level of nonperforming assets and improve liquidity during the six months ended June 30, 2011. Total assets decreased approximately $22.6 million during the six months ended June 30, 2011, including a decrease of $17.8 million in loans, a decrease of $2.1 million in interest-bearing deposits in other banks, and a decrease of $3.5 million in OREO. Decreases of $7.0 million in FHLB term borrowings between December 31, 2010 and June 30, 2011 were compounded by decreases of $9.9 million in total net deposits. Increases of $38.0 million in noninterest-bearing deposits during the six months ended June 30, 2011 were more than offset by decreases of $40.2 million in time deposits, and decreases of $9.7 million in NOW and money market accounts. The decrease in time deposits during the six-month period was the result of Company s continued efforts to reduce the level of brokered time deposits. Average loans comprised approximately 77% of overall average earning assets during the six months ended June 30, 2011, as compared to 84% of average earning assets during the six months ended June 30, 2010.
Nonperforming assets, which are primarily related to the real estate loan and property portfolio, remained high during the six months ended June 30, 2011, but decreased $16.2 million from a balance of $82.5 million at December 31, 2010 to a balance of $66.3 million at June 30, 2011. Nonaccrual loans totaling $20.8 million at June 30, 2011, decreased $13.6 million from the balance of $34.4 million reported at December 31, 2010. In determining the adequacy of the underlying collateral related to these loans, management monitors trends within specific geographical areas, loan-to-value ratios, appraisals, and other credit issues related to the specific loans. Valuations on these loans and the underlying collateral continued to deteriorate during much of 2009, 2010, and 2011, resulting in increased charge-offs and levels of impaired loans. Impaired loans decreased $14.0 million during the six months ended June 30, 2011 to a balance of $37.0 million at June 30, 2011. Other real estate owned through foreclosure decreased $3.5 million between December 31, 2010 and June 30, 2011. During the six months ended June 30, 2011, write-downs on, and sales of, other real estate owned through foreclosure more than offset the $1.5 million in loans transferred to other real estate owned during the period. As a result of these events, nonperforming assets as a percentage of total assets decreased from 12.17% at December 31, 2010 to 10.11% at June 30, 2011.
For the six months ended June 30, 2011, the Company reported a net loss of $6.0 million or -$0.45 per share (-$0.45 diluted) as compared to net income of $957,000 or $0.07 per share ($0.07 diluted) for the six months ended June 30, 2010. For the quarter ended June 30, 2011, the Company reported a net loss of $6.3 million or -$0.48 per share (-$0.48 diluted) as compared to net income of $515,000 or $0.04 per share ($0.04 diluted) for the quarter ended June 30, 2010. The decrease in earnings between the two periods ended June 30, 2011 and 2010 is the result of a decrease in net interest income combined with increases in provisions for loan losses, and decreases in noninterest income.
The Company's primary business is that of acquiring deposits and making loans, with the loan portfolio representing the largest and most important component of its earning assets. Loans totaled $423.9 million at June 30, 2011, a decrease of $17.8 million or 4.04% when compared to the balance of $441.7 million at December 31, 2010, and a decrease of $71.3 million or 14.41% when compared to the balance of $495.2 million reported at June 30, 2010. Loans on average decreased $77.9 million or 15.21% between the six-month periods ended June 30, 2010 and June 30, 2011, with loans averaging $434.3 million for the six months ended June 30, 2011, as compared to $512.2 million for the same six-month period of 2010.
Stocks Discussed: UBFO,