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United Security Bancshares Reports Operating Results (10-Q)

May 10, 2010 | About:
10qk

10qk

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United Security Bancshares (UBFO) filed Quarterly Report for the period ended 2010-03-31.

United Security Bancshares has a market cap of $59.83 million; its shares were traded at around $4.7401 with and P/S ratio of 1.43.

Highlight of Business Operations:

With market rates of interest remaining at historically low levels for more than a year, the Company continues to experience compressed net interest margins, although margins have increased to some degree during the first quarter of 2010. The Company s net interest margin was 4.78% for the three months ended March 31, 2010, as compared to 4.51% for the year ended December 31, 2009, and 4.48% for the three months ended March 31, 2009. With approximately 58% of the loan portfolio in floating rate instruments at March 31, 2010, the effects of low market rates continue to impact loan yields. The Company has sought to mitigate the low-interest rate environment with loan floors applied to new and renewed loans over the past year. Loans yielded 6.01% during the three months ended March 31, 2010, as compared to 5.83% for the year ended December 31, 2009, and 6.03% for the three months ended March 31, 2009. The Company s cost of funds has continued to decline over the past year and is largely responsible for the increase in net interest margin experienced during the quarter ended March 31, 2010. The cost of interest-bearing liabilities was 1.04% for the three months ended March 31, 2010, as compared to 1.43% for the year ended December 31, 2009, and 1.68% for the three months ended March 31, 2009. Wholesale borrowing and brokered deposit rates have remained low since late 2008, resulting in overnight and short-term borrowing rates of less than 0.50% during much of the past year. The Company has benefited from these rate declines, as it has continued to utilize overnight and short-term borrowing lines through the Federal Reserve and Federal Home Loan Bank. The company will continue to utilize these funding sources as required to maintain prudent liquidity levels, while seeking to increase core deposits when possible.

Total noninterest income of $1.3 million reported for the three months ended March 31, 2010 increased $172,000 or 15.1% as compared to the three months ended March 31, 2009. The increase in noninterest income between the two quarterly periods is primarily the result of the fair value gain adjustments on the Company s junior subordinated debt which included fair value gains of $157,000 recognized during the three months ended March 31, 2010, as compared to fair value losses of 59,000 recognized during the three months ended March 31, 2009, an increase of $216,000 between the two periods. Noninterest income continues to be driven by customer service fees, which totaled $948,000 for the three months ended March 31, 2010, representing a decrease of $41,000 or 4.2% over the $989,000 in customer service fees reported for the three months ended March 31, 2009. Customer service fees represented 72.2% and 86.7% of total noninterest income for the three-month periods ended March 31, 2010 and 2009, respectively.

Nonperforming assets, which are primarily related to the real estate loan and property portfolio, have declined slightly during the first quarter of 2010 but remain high as real estate markets continue to suffer from the mortgage crisis which began during mid-2007. Nonaccrual loans totaling $32.7 million at March 31, 2010, decreased $2.0 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 $1.9 million during the three months ended March 31, 2010 to a balance of $51.9 million at March 31, 2010. Other real estate owned through foreclosure increased $1.9 million between December 31, 2009 and March 31, 2010, as transfers of $5.2 million in loans to other real estate owned during the quarter more than offset write-downs and sales of those assets during the period. As a result of these events, nonperforming assets as a percentage of total assets decreased from 12.56% at December 31, 2009 to 12.22% at March 31, 2010.

Although balances have declined during the most recent quarter, the Company continues to utilize overnight borrowings and other term credit lines, with borrowings totaling $37.0 million at March 31, 2010 as compared to $40.0 million at December 31, 2009. The average rate of those term borrowings was 0.19% at March 31, 2010, as compared to 0.86% at December 31, 2009. Although the Company continues to realize significant interest expense reductions by utilizing these overnight and term borrowings lines, the use of such lines are monitored closely to ensure sound balance sheet management in light of the current economic and credit environment.

The Company s return on average assets was 0.25% for the three months ended March 31, 2010 as compared to 0.50% for the three months ended March 31, 2009. The Bank s return on average equity was 2.33% for the three months ended March 31, 2010 as compared to 4.46% for the same three-month period of 2009.

The Company s net interest margin, as shown in Table 1, increased to 4.78% at March 31, 2010 from 4.48% at March 31, 2009, an increase of 30 basis points (100 basis points = 1%) between the two periods. While average market rates of interest have remained level between the three-month periods ended March 31, 2009 and 2010 (the Prime rate averaged 3.2% during both periods), significant declines in the Company s cost of funds enhanced the net margin between the two quarters.

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