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United Security Bancshares Reports Operating Results (10-Q)

November 15, 2010 | About:
10qk

10qk

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United Security Bancshares (UBFO) filed Quarterly Report for the period ended 2010-09-30.

United Security Bancshares has a market cap of $61.41 million; its shares were traded at around $4.77 with a P/E ratio of 59.85 and P/S ratio of 1.46.

Highlight of Business Operations:

The Company s overall operations are impacted by a number of factors, including not only interest rates and margin spreads, but also the composition of the Company s balance sheet. One of the primary strategic goals of the Company is to maintain a mix of assets that will generate a reasonable rate of return without undue risk, and to finance those assets with a low-cost and stable source of funds. Liquidity and capital resources must also be considered in the planning process to mitigate risk and allow for growth. Net interest income increased between the two nine-month periods ended September 31, 2010 and 2009 totaling $21.4 million and $21.1 million for the nine months ended September 30, 2010 and 2009, respectively. During the quarters ended September 30, 2010 and 2009 net interest income decreased approximately $334,000 totaling $6.8 million and $7.2 million for the three-month periods ended September 30, 2010 and 2009, respectively. The change in net interest income between 2009 and 2010 was the result of declines in the average balances of both earning assets and interest-bearing liabilities which were offset by continued declines in rates earned on earning assets and rates paid for interest-bearing liabilities. Average interest-earning assets decreased approximately $20.0 million between the nine month ended September 30, 2009 and September 30, 2010 as the Company reduced the size of the balance sheet and focused on managing the level of problem assets. Of the $20.0 million decrease, $38.9 million was in loans, and $21.5 million was in investment securities, offset by increases of $45.0 million in federal funds sold and interest bearing deposits with the Federal Reserve between the nine months ended September 30, 2009 and September 30, 2010. Between the nine-month periods ended September 30, 2009 and 2010, the Company s cost of interest-bearing liabilities has declined significantly as market rates of interest declined, with the average cost of interest-bearing liabilities dropping from 1.47% during the nine months ended September 30, 2009, to 0.95% during the nine months ended September 30, 2010. Between the two nine-month periods, the mix of average interest-bearing liabilities changed, with average interest-bearing deposits increasing by $62.0 million between the nine months ended September 30, 2009 and 2010, and average borrowings decreasing $83.0 million between the same nine-month periods, as the Company has sought to reduce its dependence on wholesale funding sources.

As a result of the economic downturn over the past several years, particularly in real estate market, the Company has experienced decreases in the loan portfolio. The greatest decreases have been experienced in real estate construction and development loans and commercial and industrial loans, as the Company has reduced its exposure to real estate markets which have been significantly impacted throughout much of the country. Loans decreased $36.4 million between December 31, 2009 and September 30, 2010, and decreased $61.9 million between September 30, 2009 and September 30, 2010. Real estate construction and development loans declined the most over the past year, decreasing $28.8 million between December 31, 2009 and September 30, 2010, and decreasing $38.4 million between September 30, 2009 and September 30, 2010.This is consistent with the real estate construction which has declined in the San Joaquin Valley and California overall. The Company has not made any significant additions to the real estate construction and development loan portfolio over the past several years as a result of the depressed real estate markets, and has focused its attention on working out existing construction and development loans in the portfolio. Real estate construction and development loans amounted to 16.2%, 20.7%, and 21.5% of the total loan portfolio at September 30, 2010, December 31, 2009, and September 30, 2009, respectively. Additionally, commercial real estate loans (a component of real estate mortgage loans) amounted to 26.6%, 23.0%, and 21.2% of the total loan portfolio at September 30, 2010, December 31, 2009, and September 30, 2009, respectively. Residential mortgage loans are not generally a large part of the Company s loan portfolio, but some residential mortgage loans have been made over the past several years to facilitate take-out loans for construction borrowers when they were not able to obtain permanent financing elsewhere. These loans are generally 30-year amortizing loans with maturities of between three and five years. In addition, the Company had two purchased real estate mortgage pools which totaled $18.4 million and $18.7 million at December 31, 2009 and September 30, 2009, respectively. These real estate mortgage pools were subsequently sold during the second quarter of 2010. Residential mortgages totaled $24.9 million or 5.3% of the portfolio at September 30, 2010, $45.8 million or 9.0% of the portfolio at December 31, 2009, and $42.6 million or 8.0% of the portfolio at September 30, 2009. Loan participations, both sold and purchased, have declined over the past three years as lending originations have slowed significantly and the loan participation market with it. As a result, loan participations purchased have declined from $25.3 million or 4.7% of the portfolio at September 30, 2009 to $23.8 million or 4.7% of the portfolio at December 31, 2009, to $17.6 million or 3.7% of the portfolio at September 30, 2010. In addition, loan participations sold have declined from $19.4 million or 3.6% of the portfolio at September 30, 2009 to $15.6 million or 3.1% of the portfolio at December 31, 2009, then to $9.5 million or 2.0% of the portfolio at September 30, 2010.

Total noninterest income of $5.5 million reported for the nine months ended September 30, 2010 increased $2.1 million or 58.8% as compared to the nine months ended September 30, 2009. The increase in noninterest income between the two nine-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 $845,000 recognized during the nine months ended September 30, 2010 ($221,000 of which was recognized during the third quarter of 2010), as compared to fair value gains of $290,000 recognized during the nine months ended September 30, 2009, an increase of $555,000 between the two nine-month periods. In addition, during the nine months ended September 30, 2010, the Company recognized gains of $509,000 on the sale of two $17.1 million purchased real estate mortgage portfolios, 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 $2.9 million for the nine months ended September 30, 2010, representing a decrease of $55,000 or 1.2% over the $3.0 million reported for the nine months ended September 30, 2009. While customer service fees remained level, other sources of noninterest income increased during 2010, thus customer service fees represented 53.2% and 86.1% of total noninterest income for the nine-month periods ended September 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 nine months ended September 30, 2010. Total assets increased approximately $17.6 million during the nine months ended September 30, 2010, with a decrease of $36.4 million in loans, a decrease of $14.8 million in investment securities, and $2.0 million in other real estate owned through foreclosure. Offsetting these decreases was an increase of $75.1 million in cash and cash equivalents. During the second quarter of 2010, the Company completed the sale of two purchased real estate mortgage loan portfolios totaling $17.1 million, recognizing a gain of $509,000 on the transaction. The sale of the mortgage loan portfolios has provided additional liquidity and was part of the reason for the decrease in loans during the nine months ended September 30, 2010. Decreases of $8.0 million in FHLB term borrowings between December 31, 2009 and September 30, 2010 were more than offset by increases in deposits including NOW and money market accounts. Net increases of $25.3 million in deposits experienced during the nine months ended September 30, 2010, were utilized to enhance liquidity. Average loans comprised approximately 82% of overall average earning assets during the nine months ended September 30, 2010, a percentage that has declined only slightly over the past several years.

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. As the real estate market declined through 2008, and that accelerated throughout much of 2009, the level of problem assets increased, and the estimated real estate values on many of those assets decreased resulting in increased charge-offs or write-downs of those assets. Greater focus has been placed on monitoring 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. As a result of these efforts, restructured loans increased from a single loan totaling $378,000 at December 31, 2008 to approximately 50 loans totaling $26.1 million at December 31, 2009 and 55 loans totaling $29.5 million at September 30, 2010. Provisions made to the allowance for credit losses, totaled $3.5 million during the nine months ended September 30, 2010 and $1.2 million during the quarter ended September 30, 2010, as compared to $13.4 million for the year ended December 31, 2009, and $8.6 millionRead the The complete Report

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10qk
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