Third Quarter Results

Interest income totaled $9.3 million in the third quarter of 2012, compared with $10.7 million in the third quarter of 2011. The decline in interest income was due in large part to lower earning assets, primarily loans, compared with the third quarter of 2011.

Net loans totaled $344.7 million in the third quarter of 2012, compared with $382.4 million at September 30, 2011. The decrease in net loans was due to loan payoffs and write-downs outpacing new loan demand. An overall weak economy, primarily centered in the real estate sector, has been a significant factor in lower loan demand over the past year.

Interest expense declined 40.3% to $1.0 million in the third quarter of 2012, compared with $1.7 million in the third quarter of 2011. The decrease resulted primarily from a decline in interest rates paid on deposits compared with the third quarter of 2011.

Net interest income was $8.3 million in the third quarter of 2012, compared with $9.0 million in the third quarter of 2011. Net interest margin was 6.0% in the third quarter of 2012, compared with 6.2% in the third quarter of 2011.

Provision for loan losses declined to $492,000 in the third quarter of 2012, or 0.5% of annualized average loans, compared with $2.3 million, or 2.2% of annualized average loans, in the third quarter of 2011. Net charge-offs declined to $0.8 million in the third quarter of 2012, compared with $6.0 million in the third quarter of 2011.

Total non-interest income was $1.5 million in the third quarter of 2012, compared with $1.6 million in the third quarter of 2011. The decrease in non-interest income was primarily due to lower service charges and other income compared with the third quarter of 2011.

Total non-interest expense declined 28.6% to $7.6 million in the third quarter of 2012, compared with $10.6 million in the third quarter of 2011. Non-interest expense declined in every major category in the third quarter of 2012 compared with the prior year’s third quarter, with the exception of loss on sale of OREO, which rose $244,000 but was more than offset by a $2.6 million reduction in impairment of OREO. In addition, salary, occupancy and furniture expenses also declined $430,000 compared with the third quarter of 2011.

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