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United Security Bancshares Reports Operating Results (10-Q)

August 16, 2010 | About:
10qk

10qk

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United Security Bancshares (UBFO) filed Quarterly Report for the period ended 2010-06-30.

United Security Bancshares has a market cap of $53.66 million; its shares were traded at around $4.21 with a P/E ratio of 38.83 and P/S ratio of 1.28.

Highlight of Business Operations:

Total noninterest income of $4.0 million reported for the six months ended June 30, 2010 increased $1.6 million or 65.1% as compared to the six months ended June 30, 2009. The increase in noninterest income between the two six-month periods is in part the result of the fair value gain adjustments on the Company s junior subordinated debt which included fair value gains of $624,000 recognized during the six months ended June 30, 2010 ($467,000 of which was recognized during the second quarter of 2010), as compared to fair value losses of $109,000 recognized during the six months ended June 30, 2009, an increase of $729,000 between the two six-month periods. In addition, during the quarter ended and six months ended June 30, 2010, the Company recognized gains of $511,000 on the sale of a $17.5 million purchased real estate mortgage portfolio, as well as $174,000 from insurance proceeds on an insurance policy held as collateral on a previously charged-off loan. Noninterest income continues to be driven by customer service fees, which totaled $2.0 million for the six months ended June 30, 2010, representing a decrease of $44,000 or 2.2% over the $2.0 million in customer service fees reported for the six months ended June 30, 2009. While customer service fees remained level, other sources of noninterest income increased during 2010, thus customer service fess represented 49.2% and 83.0% of total noninterest income for the six-month periods ended June 30, 2010 and 2009, respectively.

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, 2010. Total assets increased approximately $19.0 million during the six months ended June 30, 2010, with a decrease of $13.4 million in loans, a decrease of $11.6 million in investment securities, and $3.4 million in other real estate owned through foreclosure. Offsetting these decreases was an increase of $50.3 million in cash and cash equivalents. On June 30, 2010, the Company completed the sale of two purchased real estate mortgage loan portfolios totaling $17.1 million, recognizing a gain of $511,000 on the transaction. The sale of the mortgage loan portfolios provided additional liquidity at June 30, 2010 and was the primary reason for the decrease in loans during the six months ended June 30, 2010. Decreases of $3.0 million in FHLB term borrowings were more than offset by increases in deposits including NOW and money market accounts, and time deposits of $100,000 or more. Net increases of $22.1 million in deposits experienced during the six months ended June 30, 2010, were utilized to enhance liquidity. Average loans comprised approximately 84% of overall average earning assets during the six months ended June 30, 2010, a percentage that has remained stable over the past three years.

Nonperforming assets, which are primarily related to the real estate loan and property portfolio, have declined slightly during the first half of 2010 but remain high as real estate markets continue to suffer from the mortgage crisis which began during mid-2007. Nonaccrual loans totaling $31.5 million at June 30, 2010, decreased $3.2 million from the balance reported at December 31, 2009. 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. Impaired loans decreased $7.1 million during the six months ended June 30, 2010 to a balance of $46.7 million at June 30, 2010. Other real estate owned through foreclosure decreased $3.4 million between December 31, 2009 and June 30, 2010, as sales and write-downs more than offset the transfer of $7.3 million in loans to other real estate owned during the six month ended June 30, 2010. As a result of these events, nonperforming assets as a percentage of total assets decreased from 12.56% at December 31, 2009 to 11.19% at June 30, 2010.

Management continues to monitor economic conditions in the real estate market for signs of further deterioration or improvement which may impact the level of the allowance for loan losses required to cover identified losses in the loan portfolio. Greater focus has been placed on identifying and reducing the level of problem assets, while working with borrowers to find more options, including loan restructures, to work through these difficult economic times. Provisions made to the allowance for credit losses, totaled $2.2 million during the six months ended June 30, 2010 and $519,000 during the quarter ended June 30, 2010, as compared to $13.4 million for the year ended December 31, 2009, and $8.2 million and $6.8 million for the six months and quarter ended June 30, 2009, respectively. Net loan and lease charge-offs during the six months ended June 30, 2010 totaled $5.1 million, as compared to $9.9 million and $3.8 million for the year ended December 31, 2009 and six months ended June 30, 2009, respectively.

Deposits increased by $22.1 million during the six months ended June 30, 2010, with increases experienced in all interest-bearing deposit accounts except time deposits of less than $100,000. Increases in time deposits experienced during the six months ended June 30, 2010 were primarily the result of increases in non-brokered wholesale deposits, allowing the Company to continue to reduce its reliance on borrowed funds, while enhancing liquidity. Brokered deposits have provided the Company a relatively inexpensive funding source over the past several years totaling $112.9 million or 19.4% of total deposits at June 30, 2010, as compared to $129.4 million or 23.0% of total deposits at December 31, 2009, and $99.3 million or 19.4% of total deposits at June 30, 2009. As part of its liquidity position improvement plan, the Company will reduce its reliance on brokered deposits over the next two years to levels more comparable with peers. The Company will seek to replace maturing brokered deposits with core deposits, but may also control loan growth to help achieve that objective.

For the six months ended June 30, 2010, the Company reported net income of $957,000 or $0.08 per share ($0.08 diluted) as compared to a net loss of $4.8 million or $0.38 per share ($0.38 diluted) for the six months ended June 30, 2009. For the quarter ended June 30, 2010, the Company reported net income of $515,000 or $0.04 per share ($0.04 diluted) as compared to a net loss of $5.7 million or $0.45 per share ($0.45 diluted) for the quarter ended June 30, 2009. The increase in earnings between the two six month and quarterly periods ended June 30, 2009 and 2010 is primarily the result of decreases in provisions for loan losses and goodwill impairment losses taken during 2010.

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10qk
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