Core Viewpoint - Zacks Investment Research has initiated coverage of United Security Bancshares (UBFO) with a Neutral recommendation, highlighting a balance between the bank's strong capital profile and stable dividend policy against pressures from weakening earnings and rising costs [1] Financial Performance - United Security Bancshares maintains a consistent dividend of 12 cents per share, payable quarterly, demonstrating financial discipline in a challenging environment where many smaller banks have cut or suspended payouts [2] - The bank's net income nearly halved year over year to $2.2 million in the second quarter of 2025, primarily due to sharply higher credit loss provisions and a 50% drop in non-interest income, raising concerns about the durability of core earnings [5] Credit Quality and Risk Management - The company's credit profile has improved, with non-performing assets declining, which reduces downside risk and reflects cautious underwriting standards [3] - The bank's diversified loan book, primarily tied to small- and mid-sized businesses in Central California, positions it as a lower-risk option compared to more cyclical sectors [3] Capital and Liquidity - Liquidity and capital strength are key pillars of resilience, with a Tier 1 capital ratio above regulatory thresholds and a high proportion of core, non-brokered deposits providing stability [4] - The bank's funding base reduces reliance on more expensive wholesale channels, indicating preparedness to weather external shocks [4] Operating Expenses and Market Position - Operating expenses rose 10.9% in the same period, adding pressure to margins amid deposit mix deterioration and rising funding costs [6] - Despite modest gains over the past year, the stock has lagged as investors weigh stability against earnings volatility, trading at a discount to broader peers [6] Overall Assessment - Strong capital and credit quality offer stability, but earnings volatility, rising costs, and margin pressure limit near-term upside potential [7]

PART I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in shareholders' equity, and cash flow statements, along with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $49,091 | $56,211 | | Total investment securities | $150,423 | $160,708 | | Net loans | $931,364 | $912,416 | | Other real estate owned | $7,852 | $4,582 | | Total assets | $1,214,137 | $1,211,718 | | **Liabilities & Shareholders' Equity** | | | | Total deposits | $1,055,669 | $1,057,622 | | Total liabilities | $1,079,883 | $1,081,356 | | Total shareholders' equity | $134,254 | $130,362 | | Total liabilities and shareholders' equity | $1,214,137 | $1,211,718 | - **Net loans** increased by **$18.9 million** from December 31, 2024, to June 30, 2025, reflecting organic growth[8](index=8&type=chunk)[161](index=161&type=chunk) - **Other real estate owned (OREO)** increased by **$3.3 million** from December 31, 2024, to June 30, 2025, primarily due to the transfer of nonaccrual loans[8](index=8&type=chunk)[132](index=132&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This statement details the company's revenues, expenses, and net income over specified reporting periods | (In thousands, except shares and EPS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total interest income | $15,004 | $14,972 | $30,286 | $29,850 | | Total interest expense | $3,141 | $3,450 | $6,130 | $6,617 | | Net Interest Income | $11,863 | $11,522 | $24,156 | $23,233 | | Provision for credit losses | $1,858 | $19 | $4,158 | $192 | | Total noninterest income | $758 | $1,517 | $2,122 | $2,571 | | Total noninterest expense | $7,739 | $6,973 | $15,344 | $13,708 | | Net income | $2,169 | $4,297 | $4,851 | $8,458 | | Basic EPS | $0.13 | $0.25 | $0.28 | $0.49 | | Diluted EPS | $0.13 | $0.25 | $0.25 | $0.49 | - **Net income for the quarter ended June 30, 2025, decreased by 49.52% to $2.2 million**, compared to **$4.3 million** for the same period in 2024, primarily due to a significant increase in the **provision for credit losses**[9](index=9&type=chunk)[132](index=132&type=chunk) - The **provision for credit losses** increased substantially to **$1.9 million** for the three months ended June 30, 2025, from **$19k** in the prior year, and to **$4.2 million** for the six months ended June 30, 2025, from **$192k** in the prior year[9](index=9&type=chunk)[132](index=132&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components, reflecting changes in equity not from net income | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,169 | $4,297 | $4,851 | $8,458 | | Unrealized gain (loss) on available-for-sale securities | $1,571 | $1,008 | $4,159 | $(61) | | Total other comprehensive income | $1,047 | $802 | $2,776 | $165 | | Comprehensive income | $3,216 | $5,099 | $7,627 | $8,623 | - **Comprehensive income decreased by 37.0%** for the three months ended June 30, 2025, and by **11.55%** for the six months ended June 30, 2025, compared to the respective prior-year periods[10](index=10&type=chunk) - **Unrealized gains on available-for-sale securities** significantly increased to **$4.2 million** for the six months ended June 30, 2025, from a loss of **$(61)k** in the prior year[10](index=10&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This statement tracks the changes in each component of shareholders' equity over the reporting period | (Dollars in thousands) | Balance June 30, 2025 | Balance June 30, 2024 | Balance December 31, 2024 | | :--- | :--- | :--- | :--- | | Common Stock (Amount) | $61,727 | $60,938 | $61,267 | | Retained Earnings | $84,103 | $81,285 | $83,447 | | Accumulated Other Comprehensive (Loss) Income | $(11,576) | $(14,873) | $(14,352) | | Total Shareholders' Equity | $134,254 | $127,350 | $130,362 | - **Total shareholders' equity** increased to **$134.3 million** at June 30, 2025, from **$130.4 million** at December 31, 2024, driven by **net income** and **other comprehensive income**, partially offset by dividends[11](index=11&type=chunk)[12](index=12&type=chunk) - **Accumulated other comprehensive loss** improved to **$(11.6) million** at June 30, 2025, from **$(14.4) million** at December 31, 2024[11](index=11&type=chunk)[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows from operating, investing, and financing activities | (In thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net Income | $4,851 | $8,458 | | Net cash provided by operating activities | $11,720 | $9,752 | | Net cash used in investing activities | $(12,692) | $(10,748) | | Net cash used in financing activities | $(6,148) | $(1,031) | | Net change in cash and cash equivalents | $(7,120) | $(2,027) | | Cash and cash equivalents at end of period | $49,091 | $38,757 | - **Net cash provided by operating activities** increased by **$2.0 million** to **$11.7 million** for the six months ended June 30, 2025, compared to the same period in 2024[13](index=13&type=chunk) - **Net cash used in financing activities** significantly increased to **$(6.1) million** for the six months ended June 30, 2025, from **$(1.0) million** in the prior year, primarily due to higher dividends on common stock[13](index=13&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures that are integral to understanding the condensed consolidated financial statements [1. Organization and Summary of Significant Accounting and Reporting Policies](index=8&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20and%20Reporting%20Policies) This note describes the company's corporate structure and outlines the significant accounting policies applied in preparing the financial statements - **United Security Bancshares (Company)** is a bank holding company with wholly-owned subsidiaries **United Security Bank (Bank)** and **York Monterey Properties, Inc. (YMP)**[14](index=14&type=chunk) - The unaudited interim financial statements are prepared in accordance with **GAAP**, consistent with the accounting policies in the **2024 Annual Report on Form 10-K**[15](index=15&type=chunk) [2. Investment Securities](index=8&type=section&id=2.%20Investment%20Securities) This note details the composition, classification, and fair value of the company's investment securities portfolio | (In thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :--- | :--- | :--- | | U.S. Government agencies | $1,769 | $2,644 | | U.S. Government-sponsored entities and agencies collateralized by mortgage obligations | $76,285 | $78,881 | | Municipal bonds | $43,946 | $42,367 | | Corporate bonds | $25,041 | $33,490 | | Total securities available-for-sale | $147,041 | $157,382 | - **Total available-for-sale (AFS) securities** decreased by **$10.3 million** from December 31, 2024, to June 30, 2025[16](index=16&type=chunk) - The decline in fair value of **AFS securities** is attributed to changes in interest rates, not credit quality, and no allowance for credit losses was deemed necessary[20](index=20&type=chunk) - Proceeds from sales or calls of **AFS securities** for the six months ended June 30, 2025, totaled **$9.0 million**[17](index=17&type=chunk) [3. Loans](index=11&type=section&id=3.%20Loans) This note provides a comprehensive breakdown of the loan portfolio, including categories, credit quality, and allowance for credit losses | (In thousands) | June 30, 2025 | % of Loans | December 31, 2024 | % of Loans | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $52,479 | 5.54% | $63,715 | 6.86% | | Real estate mortgage | $670,917 | 70.82% | $666,694 | 71.81% | | Real estate construction and development | $126,300 | 13.33% | $111,145 | 11.97% | | Agricultural | $64,838 | 6.84% | $49,462 | 5.33% | | Installment and student loans | $32,795 | 3.47% | $37,446 | 4.04% | | Total loans | $947,329 | 100.00% | $928,462 | 100.00% | - **Total loans**, net of unearned fees, increased by **2.03%** to **$947.3 million** at June 30, 2025, from **$928.5 million** at December 31, 2024[30](index=30&type=chunk)[163](index=163&type=chunk) - **Agricultural loans** increased by **$15.4 million (31.09%)** and **real estate construction and development loans** increased by **$15.2 million (13.64%)** from December 31, 2024, to June 30, 2025[164](index=164&type=chunk) - **Total past due loans** decreased to **$7.3 million** at June 30, 2025, from **$15.8 million** at December 31, 2024[37](index=37&type=chunk)[38](index=38&type=chunk) - **Nonaccrual loans** decreased to **$5.7 million** at June 30, 2025, from **$12.2 million** at December 31, 2024, due to a loan payoff and transfer to **OREO**[39](index=39&type=chunk)[190](index=190&type=chunk) | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Provision for credit losses (1) | $1,847 | $224 | $3,915 | $306 | | Charge-offs | $(1,317) | $(397) | $(4,146) | $(812) | | Recoveries | $79 | $45 | $150 | $171 | | Ending balance (Allowance for credit losses) | $15,965 | $15,323 | $15,965 | $15,323 | [4. Student Loans](index=22&type=section&id=4.%20Student%20Loans) This note specifically addresses the student loan portfolio, its principal amounts, reserves, and changes over time | (Dollars in thousands) | June 30, 2025 (Principal Amount) | December 31, 2024 (Principal Amount) | | :--- | :--- | :--- | | Student loans | $29,412 | $33,889 | | Reserves against student loan portfolio | $7,600 | $7,000 | | Substandard student loans | $274 | $421 | - The **student loan portfolio** decreased by **$4.477 million** from December 31, 2024, to June 30, 2025, due to paydowns, consolidations, and charge-offs[63](index=63&type=chunk)[169](index=169&type=chunk)[173](index=173&type=chunk) - Accrued interest receivable reversed due to charge-offs for the six months ended June 30, 2025, was **$292k**, compared to **$58k** in the prior year[70](index=70&type=chunk)[172](index=172&type=chunk) - **Student loans** have not been originated or purchased since 2019[63](index=63&type=chunk)[169](index=169&type=chunk) [5. Deposits](index=24&type=section&id=5.%20Deposits) This note details the composition of the company's deposit base, distinguishing between interest-bearing and noninterest-bearing accounts | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing deposits | $372,027 | $360,152 | | Interest-bearing deposits | $683,642 | $697,470 | | Total deposits | $1,055,669 | $1,057,622 | | Brokered demand deposit accounts | $100,300 | $100,300 | - **Total deposits** decreased slightly by **$2.0 million (0.18%)** from December 31, 2024, to June 30, 2025[72](index=72&type=chunk)[174](index=174&type=chunk) - **Noninterest-bearing deposits** increased by **$11.9 million**, while **interest-bearing deposits** decreased by **$13.8 million** during the six-month period[175](index=175&type=chunk) [6. Short-term Borrowings/Other Borrowings](index=24&type=section&id=6.%20Short-term%20Borrowings%2FOther%20Borrowings) This note outlines the company's short-term borrowing facilities, including available credit lines and outstanding balances | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unsecured credit lines (Credit limit) | $90,000 | $90,000 | | Federal Home Loan Bank (Credit limit) | $133,405 | $135,634 | | Federal Reserve Bank (Credit limit) | $503,607 | $499,069 | | Balance outstanding (all lines) | $0 | $0 | - The **Company** had no outstanding borrowings at June 30, 2025, or December 31, 2024[74](index=74&type=chunk)[161](index=161&type=chunk)[181](index=181&type=chunk) - **Total available lines of credit** amounted to **$727.0 million** at June 30, 2025[74](index=74&type=chunk)[181](index=181&type=chunk) [7. Leases](index=24&type=section&id=7.%20Leases) This note provides information on the company's operating and financing leases, including expenses and lease terms | (Dollars in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Operating cash flows from operating leases | $396 | $368 | | ROU assets obtained in exchange for new operating lease liabilities | $0 | $2,314 | | Weighted-average remaining lease term (years) | 8.82 | 8.71 | | Weighted-average discount rate | 5.06% | 5.06% | - **Operating lease expenses** for the six months ended June 30, 2025, totaled **$394k**, an increase from **$363k** in the prior year[77](index=77&type=chunk) - The **Company** had **14 operating leases** and no financing leases as of June 30, 2025[76](index=76&type=chunk) [8. Supplemental Cash Flow Disclosures](index=25&type=section&id=8.%20Supplemental%20Cash%20Flow%20Disclosures) This note offers additional details on cash flow activities, such as cash paid for interest and income taxes, and non-cash transactions | (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Cash paid for interest | $6,094 | $6,602 | | Cash paid for income taxes | $1,850 | $4,400 | | Unrealized gain (loss) on available-for-sale securities, net of tax | $2,930 | $(43) | | Unrealized (loss) gain on junior subordinated debentures, net of tax | $(166) | $194 | - **Cash paid for income taxes** decreased significantly to **$1.9 million** for the six months ended June 30, 2025, from **$4.4 million** in the prior year[79](index=79&type=chunk) - **Unrealized gain on available-for-sale securities, net of tax**, was **$2.9 million** for the six months ended June 30, 2025, a substantial improvement from a loss of **$(43)k** in the prior year[79](index=79&type=chunk) [9. Dividends on and Repurchase of Common Stock](index=25&type=section&id=9.%20Dividends%20on%20and%20Repurchase%20of%20Common%20Stock) This note reports on dividend declarations and any authorized or executed common stock repurchase programs - A **cash dividend of $0.12 per share** was declared on June 24, 2025, payable on July 22, 2025[80](index=80&type=chunk) - The **Company** has an **authorized stock repurchase program** of up to **$3.0 million**, representing **2.23%** of **total shareholders' equity** at June 30, 2025[81](index=81&type=chunk)[217](index=217&type=chunk) - No shares were repurchased during the three- and six-month periods ended June 30, 2025, and 2024[82](index=82&type=chunk) [10. Net Income per Common Share](index=26&type=section&id=10.%20Net%20Income%20per%20Common%20Share) This note details the calculation of basic and diluted earnings per common share for the reporting periods | (In thousands, except shares and EPS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $2,169 | $4,297 | $4,851 | $8,458 | | Basic earnings per share | $0.13 | $0.25 | $0.28 | $0.49 | | Diluted earnings per share | $0.13 | $0.25 | $0.28 | $0.49 | | Weighted average common shares outstanding (Basic) | 17,235,873 | 17,186,266 | 17,232,825 | 17,178,566 | | Weighted average common shares outstanding (Diluted) | 17,260,392 | 17,187,266 | 17,261,463 | 17,179,559 | - **Basic and diluted EPS** decreased by approximately **48%** for the three months ended June 30, 2025, and by **42%** for the six months ended June 30, 2025, compared to the prior-year periods[83](index=83&type=chunk) [11. Taxes on Income](index=26&type=section&id=11.%20Taxes%20on%20Income) This note provides information on the provision for income taxes, effective tax rates, and deferred tax assets and liabilities | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Provision for income taxes | $855 | $1,750 | $1,925 | $3,446 | | Effective tax rate | 28.27% | 28.94% | 28.41% | 28.95% | - The **provision for income taxes** decreased by **$895k** for the quarter and **$1.5 million** for the six months ended June 30, 2025, compared to the prior-year periods[87](index=87&type=chunk) - The **effective tax rate** slightly decreased for both the three-month (**28.27% vs 28.94%**) and six-month (**28.41% vs 28.95%**) periods ended June 30, 2025, compared to 2024[87](index=87&type=chunk) - No valuation allowance was recorded for deferred tax assets at June 30, 2025, or December 31, 2024[85](index=85&type=chunk) [12. Junior Subordinated Debt/Trust Preferred Securities](index=26&type=section&id=12.%20Junior%20Subordinated%20Debt%2FTrust%20Preferred%20Securities) This note describes the company's junior subordinated debentures and related fair value measurements and interest rates - The contractual principal balance of **junior subordinated debentures (TruPS)** was **$12.0 million** at June 30, 2025, and December 31, 2024[88](index=88&type=chunk) - A partial redemption of **$3.0 million** of **TruPS** was made on July 1, 2025, reducing the contractual principal balance to **$9.0 million**[92](index=92&type=chunk) | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Fair value calculation loss | $(410) | $(104) | $(282) | $(244) | | Other comprehensive income (loss) gain | $(93) | $121 | $(235) | $275 | | Recognized loss on fair value | $(317) | $(225) | $(48) | $(520) | - The rate paid on **TruPS** is **3-month SOFR plus 129 basis points**, adjusted quarterly[89](index=89&type=chunk) [13. Fair Value Measurements and Disclosure](index=27&type=section&id=13.%20Fair%20Value%20Measurements%20and%20Disclosure) This note explains the fair value hierarchy and provides disclosures regarding the measurement of financial instruments at fair value - The **fair value hierarchy** categorizes inputs into **Level 1 (quoted prices in active markets)**, **Level 2 (observable inputs)**, and **Level 3 (unobservable inputs)**[98](index=98&type=chunk) | (In thousands) | June 30, 2025 (Fair Value) | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Investment securities | $147,041 | $0 | $147,041 | $0 | | Marketable equity securities | $3,382 | $3,382 | $0 | $0 | | Loans, net | $901,983 | $0 | $0 | $901,983 | | Time deposits | $76,735 | $0 | $0 | $76,735 | | Junior subordinated debt | $11,831 | $0 | $0 | $11,831 | - **Junior subordinated debt** is classified as **Level 3** due to the subjective nature of inputs, credit concerns in capital markets, and inactivity in trust preferred markets[107](index=107&type=chunk) - There were no transfers between fair value measurement classifications during the six months ended June 30, 2025, or 2024[100](index=100&type=chunk) [14. Goodwill and Intangible Assets](index=31&type=section&id=14.%20Goodwill%20and%20Intangible%20Assets) This note reports on the carrying value of goodwill and intangible assets and assessments for impairment - **Goodwill** remained unchanged at **$4.5 million** at June 30, 2025, and December 31, 2024[112](index=112&type=chunk) - The **Company** concluded that **goodwill** was not impaired as of December 31, 2024, and no triggering events occurred through June 30, 2025[112](index=112&type=chunk) [15. Accumulated Other Comprehensive Income (Loss)](index=31&type=section&id=15.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of accumulated other comprehensive income or loss, including unrealized gains and losses | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net unrealized gain (loss) on available-for-sale securities | $(12,830) | $(15,760) | | Unfunded status of the supplemental retirement plans | $(135) | $(147) | | Net unrealized gain (loss) on junior subordinated debentures | $1,389 | $1,555 | | Accumulated other comprehensive loss | $(11,576) | $(14,352) | - The **accumulated other comprehensive loss** decreased to **$(11.6) million** at June 30, 2025, from **$(14.4) million** at December 31, 2024[113](index=113&type=chunk) - **Net unrealized gain (loss) on available-for-sale securities** improved by **$2.9 million** during the six months ended June 30, 2025[113](index=113&type=chunk) [16. Segment Information](index=31&type=section&id=16.%20Segment%20Information) This note provides financial information about the company's operating segments, if any, and geographic concentrations - The **Company** operates as a single reportable segment, primarily banking operations, with all operations being domestic[114](index=114&type=chunk) | (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total revenue | $32,408 | $32,421 | | Banking segment net income | $4,851 | $8,458 | | Banking segment assets | $1,214,137 | $1,211,718 | [17. Investment in York Monterey Properties](index=32&type=section&id=17.%20Investment%20in%20York%20Monterey%20Properties) This note details the company's investment in its subsidiary, York Monterey Properties, Inc., and related asset transfers - The **Bank's investment in York Monterey Properties, Inc. (YMP)** totaled **$8.0 million** at June 30, 2025, up from **$5.0 million** at December 31, 2024[118](index=118&type=chunk) - On January 14, 2025, **$3.3 million** in nonaccrual loans related to **YMP** were foreclosed and transferred to **Other Real Estate Owned (OREO)**[117](index=117&type=chunk) - At June 30, 2025, **$7.9 million** of the total investment in **YMP** was recognized within **OREO** on the consolidated balance sheets[118](index=118&type=chunk) [18. Commitments and Contingent Liabilities](index=32&type=section&id=18.%20Commitments%20and%20Contingent%20Liabilities) This note discloses off-balance sheet commitments, such as credit extensions and letters of credit, and potential legal liabilities | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commitments to extend credit | $221,842 | $204,033 | | Standby letters of credit | $28,424 | $29,174 | - **Commitments to extend credit** increased by **$17.8 million** from December 31, 2024, to June 30, 2025[120](index=120&type=chunk) - Unfunded commitments for investment in limited partnerships totaled **$2.2 million** at both June 30, 2025, and December 31, 2024[122](index=122&type=chunk) - Management believes that any liability from legal proceedings would not have a material adverse effect on the **Company's financial condition** or **results of operations**[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, analyzing key trends and drivers [Overview](index=33&type=section&id=Overview) This overview summarizes key financial highlights and significant changes in the company's performance and financial position - **Net interest margin** increased to **4.35%** for the quarter ended June 30, 2025, up from **4.28%** in the prior year[132](index=132&type=chunk) - **Net income for the quarter decreased 49.52% to $2.2 million**, primarily due to a **$1.8 million** increase in the **provision for credit losses**[132](index=132&type=chunk) - Annualized average cost of deposits increased to **1.11%** for the quarter ended June 30, 2025, from **0.79%** in the prior year[132](index=132&type=chunk) - **Total loans**, net of unearned fees, increased **2.03%** to **$947.3 million** at June 30, 2025, compared to **$928.5 million** at December 31, 2024[132](index=132&type=chunk) - **OREO balances** increased from **$4.6 million** at December 31, 2024, to **$7.9 million** at June 30, 2025, due to the transfer of nonaccrual loans[132](index=132&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on net interest income, noninterest income, and operating expenses | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income | $4.9M | $8.5M | | Annualized return on average assets (ROAA) | 0.82% | 1.42% | | Annualized return on average equity (ROAE) | 7.31% | 13.64% | | Net Interest Income | $24,156k | $23,233k | | Net Interest Margin | 4.46% | 4.31% | | Total noninterest income | $2,122k | $2,571k | | Total noninterest expense | $15,344k | $13,708k | | Effective tax rate | 28.41% | 28.95% | - **Net interest income** increased by **$923k (3.97%)** for the six months ended June 30, 2025, compared to the same period in 2024, driven by higher loan yields and lower short-term borrowing costs[149](index=149&type=chunk)[151](index=151&type=chunk) - **Noninterest income** decreased by **$449k (17.46%)** for the six months ended June 30, 2025, primarily due to a **$573k** gain on life insurance proceeds in 2024 that did not recur[155](index=155&type=chunk) - **Noninterest expense** increased by **$1.6 million (11.93%)** for the six months ended June 30, 2025, mainly due to increases in salaries and employee benefits and data processing expenses[157](index=157&type=chunk) [Financial Condition](index=43&type=section&id=Financial%20Condition) This section discusses the company's balance sheet, including assets, liabilities, equity, loan quality, and nonperforming assets | (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | | :--- | :--- | :--- | :--- | | Total assets | $1,214,137 | $1,211,718 | $2,419 | | Net loans | $931,364 | $912,416 | $18,948 | | Investment securities | $150,423 | $160,708 | $(10,285) | | Total deposits | $1,055,669 | $1,057,622 | $(1,953) | | Nonperforming assets | $13,824 | $17,201 | $(3,377) | | Nonaccrual loans | $5,698 | $12,198 | $(6,500) | | Other real estate owned | $7,852 | $4,582 | $3,270 | | Allowance for credit losses to total loans | 1.68% | 1.72% | -0.04% | | Allowance for credit losses to nonperforming loans | 267.33% | 127.16% | 140.17% | - **Gross loans** increased by **$18.9 million (2.03%)** to **$947.3 million** at June 30, 2025, compared to December 31, 2024[163](index=163&type=chunk) - **Nonperforming assets** decreased by **$3.4 million (19.63%)** to **$13.8 million** at June 30, 2025, from **$17.2 million** at December 31, 2024[190](index=190&type=chunk) - **Net charge-offs** for the six months ended June 30, 2025, totaled **$4.0 million**, significantly higher than **$641k** in the prior year, primarily due to student loan charge-offs[199](index=199&type=chunk)[203](index=203&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and maintain adequate capital levels - The **loan-to-deposit ratio** increased to **89.74%** at June 30, 2025, from **87.79%** at December 31, 2024[209](index=209&type=chunk) - The **Company** had **$727.0 million** in unused lines of credit with the **Federal Reserve Bank** and **FHLB** at June 30, 2025[210](index=210&type=chunk) - **Core deposits** comprised approximately **87.43%** of **total deposits** at June 30, 2025, providing a significant and stable funding source[179](index=179&type=chunk)[210](index=210&type=chunk) | Capital Ratios | June 30, 2025 | December 31, 2024 | Minimum Requirement | | :--- | :--- | :--- | :--- | | Company Tier 1 capital to adjusted average assets (Leverage Ratio) | 12.83% | 12.57% | 9.00% | | Bank Tier 1 capital to adjusted average assets (Leverage Ratio) | 12.56% | 12.59% | 9.00% | - Both the **Company** and the **Bank** meet all capital adequacy requirements, with **Tier 1 Leverage Ratios** well above the **9.00%** minimum[213](index=213&type=chunk)[215](index=215&type=chunk) - A **cash dividend of $0.12 per share** was declared on June 24, 2025, and a partial redemption of **$3.0 million** of **TruPS** was made on July 1, 2025[218](index=218&type=chunk)[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable to smaller reporting companies, as stated in the report - This item is not applicable to smaller reporting companies[221](index=221&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025. No material changes to internal control over financial reporting occurred during the quarter - **Disclosure controls and procedures** were effective at a reasonable assurance level as of June 30, 2025[223](index=223&type=chunk) - No changes were made to the **Company's internal control over financial reporting** during the quarter ended June 30, 2025, that materially affected or were reasonably likely to materially affect it[224](index=224&type=chunk) - **Controls and procedures** provide reasonable, not absolute, assurance that objectives will be met, acknowledging inherent limitations[225](index=225&type=chunk) PART II. Other Information This section includes additional disclosures such as legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings in the normal course of business, but management believes any resulting liability would not have a material adverse effect on its financial condition or results of operations - The **Company** is involved in various **legal proceedings** in the normal course of business[227](index=227&type=chunk) - Management believes that any **ultimate liability** from these proceedings would not be material to the **Company's financial position** or **results of operations**[227](index=227&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) This section is marked as 'N/A' in the report, indicating no new material risk factors for the quarter - This item is not applicable (N/A)[228](index=228&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on any unregistered sales of equity securities and the application of their proceeds - No **unregistered sales of equity securities** and use of proceeds occurred during the quarter ended June 30, 2025[228](index=228&type=chunk) [Item 3. Defaults Upon Senior Securities](index=56&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as 'N/A' in the report - This item is not applicable (N/A)[229](index=229&type=chunk) [Item 4. Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as 'N/A' in the report - This item is not applicable (N/A)[229](index=229&type=chunk) [Item 5. Other Information](index=56&type=section&id=Item%205.%20Other%20Information) This item is marked as 'N/A' in the report - This item is not applicable (N/A)[229](index=229&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, executive agreements, equity plans, and certifications required by SEC regulations - **Exhibits** include **Articles of Incorporation**, **Bylaws**, **Executive Salary Continuation Agreements**, **Employment Agreements**, **Stock Option Plans**, and **Equity Incentive Award Plans**[231](index=231&type=chunk) - **Computation of earnings per share** is provided in **Note 10 to the Consolidated Financial Statements**[231](index=231&type=chunk)[233](index=233&type=chunk) - **Interactive data files** are furnished pursuant to **Rule 405 of Regulation S-T**[232](index=232&type=chunk) - **Certifications of the Chief Executive Officer and Chief Financial Officer** are included pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[237](index=237&type=chunk) [Signatures](index=60&type=section&id=Signatures) The report is duly signed on August 7, 2025, by Dennis R. Woods, President and Chief Executive Officer, and David A. Kinross, Senior Vice President and Chief Financial Officer, as authorized representatives of United Security Bancshares - The report was signed on **August 7, 2025**[240](index=240&type=chunk) - Signed by **Dennis R. Woods, President and Chief Executive Officer**, and **David A. Kinross, Senior Vice President and Chief Financial Officer**[240](index=240&type=chunk)

United Security Bancshares Reports 2nd Quarter Financial Results FRESNO, CA - July 17, 2025. United Security Bancshares (Nasdaq: UBFO) today announced its unaudited financial results for the quarter ended June 30, 2025. The Company reported net income of $2.2 million, or $0.13 per basic and diluted share, for the quarter ended June 30, 2025, compared to $4.3 million, or $0.25 per basic and diluted share, for the quarter ended June 30, 2024. The annualized average cost of deposits was 1.11% for the quarter e ...

Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Commission file number: 000-32897 UNITED SECURITY BANCSHARES (Exact name of registrant as specified in its charter) | CALIFORNIA | 91-2112732 | | --- | --- | | (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | | 2126 Inyo Street, Fresno, California | 93721 | | (Address of principal executive offices) | (Zip Code) | | Registrant's telephone number, including area code | ...

Financial Performance - Net income for the quarter ended March 31, 2025, decreased 35.54% to $2.7 million, compared to $4.2 million for the same quarter in 2024[4] - Net income for the three months ended March 31, 2025, was $2,682 thousand, down 35.7% from $4,161 thousand for the same period in 2024[27] - Net income for Q1 2025 decreased to $2,682,000, down 35.5% from $4,161,000 in Q1 2024[36] - Noninterest income rose to $1,360 thousand in Q1 2025, up 29.1% from $1,053 thousand in Q1 2024[27] - Total non-interest income for Q1 2025 was $1,360,000, significantly higher than $120,000 in Q4 2024, showing a strong recovery in non-interest revenue[32] Interest and Loans - Net interest margin increased to 4.58% for the quarter ended March 31, 2025, compared to 4.35% for the same quarter in 2024[4] - The average interest rate on loans increased to 6.17% in Q1 2025, compared to 6.00% in Q1 2024[28] - Net interest income after provision for credit losses was $9,996 thousand for Q1 2025, compared to $11,541 thousand in Q1 2024, reflecting a decrease of 13.4%[27] - Total interest income for Q1 2025 was $15,283,000, an increase from $14,879,000 in Q1 2024, representing a growth of 2.7%[32] Credit Losses and Asset Quality - Provision for credit losses was $2.3 million for the quarter ended March 31, 2025, compared to $173,000 for the same quarter in 2024[17] - The provision for credit losses increased significantly to $2,300 thousand in Q1 2025, compared to only $173 thousand in Q1 2024[27] - The allowance for credit losses was $15,356 thousand as of March 31, 2025, down from $16,046 thousand at December 31, 2024[26] - The allowance for credit losses to nonperforming loans increased to 241.79% in Q1 2025 from 127.16% in Q4 2024, reflecting a stronger reserve position[33] - The company reported a net charge-off rate of 1.22% for Q1 2025, compared to 0.13% in Q1 2024, indicating increased credit risk[34] Expenses and Efficiency - Noninterest expense increased 12.85% to $7.6 million for the quarter ended March 31, 2025, compared to $6.7 million for the same quarter in 2024[9] - The efficiency ratio for the quarter ended March 31, 2025, increased to 55.90%, compared to 52.96% for the same quarter in 2024[10] - Total noninterest expense increased to $7,604 thousand in Q1 2025, compared to $6,738 thousand in Q1 2024, marking an increase of 12.8%[27] - The efficiency ratio for Q1 2025 was 55.90%, compared to 52.96% in Q1 2024, indicating increased operational costs relative to income[34] Deposits and Loans - Total deposits decreased 2.97% to $1.03 billion during the quarter ended March 31, 2025, compared to $1.06 billion at December 31, 2024[14] - Total deposits decreased to $1,026,213 thousand as of March 31, 2025, from $1,057,622 thousand at December 31, 2024, a reduction of about 3.0%[26] - Total loans, net of unearned fees, decreased 0.84% to $920.7 million, compared to $928.5 million at December 31, 2024[4] - The loan-to-deposit ratio as of March 31, 2025, was 89.71%, up from 87.79% in Q4 2024, suggesting a tighter liquidity position[34] Assets - Total assets decreased to $1,191,791 thousand as of March 31, 2025, from $1,211,718 thousand at December 31, 2024, representing a decline of approximately 1.6%[26] - Total assets as of March 31, 2025, were $1,191,791,000, a decrease from $1,206,404,000 as of March 31, 2024[31] - Non-performing assets decreased $3.0 million to $14.2 million between December 31, 2024, and March 31, 2025[19] - Nonperforming assets decreased to $14,203,000 in Q1 2025 from $17,201,000 in Q4 2024, indicating improved asset quality[33] Shareholders' Equity - Shareholders' equity at March 31, 2025, totaled $132.9 million, an increase of $2.5 million from $130.4 million at December 31, 2024[15]

Market Presence - United Security Bancshares operates primarily in Fresno, Madera, Kern, and Santa Clara Counties, with a total of 53 FDIC-insured financial institutions competing in these areas[28]. - As of June 30, 2024, the bank holds a 4.18% market share in Fresno County, ranking 9th, and an 8.48% market share in Madera County, ranking 5th[29]. - The bank's total market share across Fresno, Madera, Kern, and Santa Clara Counties is 0.53%, ranking 18th overall[29]. Banking Services - The bank offers a variety of commercial banking services, including real estate loans, commercial loans, and agricultural loans, with a focus on personalized service[19][20]. - United Security Bancshares has a high concentration of commercial real estate loans but does not engage in residential mortgage lending[22]. - The bank's competitive strategy includes offering competitive interest rates and a higher level of personalized service compared to larger competitors[26]. Technology and Customer Service - The bank has established Interactive Teller Machines (ITMs) at all branch locations and nine off-site ITMs to enhance customer service[14]. Financial Instruments - The bank's subsidiary, York Monterey Properties, Inc., was funded with a $250,000 cash investment and an additional $805,000 to manage real estate acquired through foreclosures[15]. - The bank's Trust Preferred Securities issued in 2007 amounted to $15 million, with a floating interest rate of 1.29% over the forward 3-month SOFR rate[16]. Regulatory Environment - The bank's operations are subject to complex regulations that can materially affect its business and financial results[30]. - The Dodd-Frank Act increased the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets[32]. - The Dodd-Frank Act established a minimum non-risk-based leverage ratio set at 4.00%[34]. - The FDIC is required to increase the reserve ratio of the Deposit Insurance Fund to 1.35% of insured deposits[36]. - The Dodd-Frank Act broadened the base for FDIC insurance assessments, now based on average consolidated total assets less tangible equity capital[36]. - The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) with authority over depository institutions with $10 billion or more in assets[36]. - The Dodd-Frank Act prohibits excessive compensation for executives of depository institutions with assets over $1.0 billion[36]. - The Dodd-Frank Act allows national and state banks to establish branches in other states[36]. - The FRB's risk-based capital adequacy guidelines require bank holding companies to maintain minimum levels of capital based on risk-weighted assets[48]. - The FRB's policy regarding dividends states that a bank holding company should not pay cash dividends exceeding its net income for the past year[51]. Capital and Stock - The Company's common stock is listed on Nasdaq and is subject to Nasdaq standards for listed companies[53]. - As of December 31, 2024, the Company and the Bank were classified as "well capitalized" under applicable standards[57]. - The Bank owned 67,374 shares of the Federal Home Loan Bank of San Francisco capital stock valued at $6,737,400 as of December 31, 2024[71]. - The Bank owned 38,908 shares of Federal Reserve Bank of San Francisco stock with paid-in capital totaling $1,945,400 as of December 31, 2024[74]. - The FDIC insures deposits up to $250,000 per qualified account, with a risk-based assessment system categorizing banks into four risk categories[67]. - The FDIC's deposit insurance fund reserve ratio fell to 1.30% in 2020, prompting a restoration plan to achieve a minimum of 1.35% by September 30, 2028[68]. - The Company and the Bank adopted the community bank leverage ratio framework during 2020, maintaining a leverage ratio greater than 9%[57]. - The Bank is prohibited from paying dividends if it would become "undercapitalized" after such payments[61]. - The FDIC has the authority to terminate a depository institution's deposit insurance if its financial condition is deemed unsafe or unsound[69]. Compliance and Consumer Protection - The Company is subject to various federal and state consumer protection laws, which can result in significant liabilities if violated[75]. - The Federal Deposit Insurance Corporation Improvement Act requires prompt corrective action for banks falling below prescribed minimum capital ratios[59]. - The Bank received a CRA rating of "Satisfactory" as of its most recent examination, which is crucial for undertaking certain activities, including acquisitions[93]. - On October 24, 2023, the FRB and FDIC released a joint final rule to amend the CRA, promoting greater access to credit and adjusting to industry changes, with certain provisions delayed until January 1, 2026[94]. - The Anti-Money Laundering Act of 2020 represents significant changes to anti-money laundering laws, with its full impact yet to be determined as regulations are still being proposed[79]. - The AML Act expands federal AML laws to a broader range of industries, including cryptocurrency, and requires FinCEN to facilitate information sharing among law enforcement agencies[81]. - The Corporate Transparency Act mandates reporting of beneficial ownership information to a confidential FinCEN database, with compliance required by January 1, 2025[86]. - The AML Act enhances enforcement, increasing civil penalties for violations and allowing for whistleblower awards leading to fines or forfeitures of at least $50,000[84]. - The Bank is subject to federal statutory and regulatory provisions covering security procedures, management interlocks, and funds availability[101]. Mergers and Acquisitions - The FDIC is conducting a broader reevaluation of its bank merger review process, with proposed changes currently open for public comment until April 10, 2025[100]. - The Bank Merger Act allows the FDIC to review and approve proposed bank mergers, ensuring they do not harm competition or financial stability[99]. - In September 2024, the FDIC issued a final statement of policy for reviewing Bank Merger Act applications, establishing higher expectations for statutory factors[100]. Employee and Organizational Structure - The Company employed 114 full-time equivalent staff as of December 31, 2024[104]. - The Company offers a comprehensive benefits package including 100% matching contributions up to 4% of salary for retirement plans[106]. - The Company emphasizes competitive pay and performance-based incentive programs for employee retention and development[105]. - The Company has a focus on maintaining employee health and wellness through a comprehensive benefits package[106]. - The Company has faced increased competition from other financial institutions and non-bank financial services[26]. - The Company is subject to various risks including economic conditions, regulatory changes, and competition impacting its business operations[11]. - The Company cannot predict the future impact of potential changes to the Dodd-Frank Act and its regulations due to political dynamics[36].

Financial Performance - Net income for the year ended December 31, 2024, decreased 25.3% to $14.8 million, compared to $19.8 million for the year ended December 31, 2023[12]. - For the quarter ended December 31, 2024, net income was $2.5 million, a decrease of 53.8% compared to $5.4 million for the same quarter in 2023[4]. - Noninterest income for the quarter ended December 31, 2024, totaled $120,000, a decrease of $2.9 million from $3.0 million in the same quarter of 2023[8]. - The annualized return on average assets (ROAA) decreased to 0.81% for the quarter ended December 31, 2024, compared to 1.72% for the same quarter in 2023[5]. - Net income for the three months ended December 31, 2024, was $2,495,000, a decrease of 34.9% from $3,829,000 in the previous quarter[36]. - Basic net income per common share for the three months ended December 31, 2024, was $0.15, down from $0.22 in the previous quarter, reflecting a decrease of 31.8%[36]. - Non-GAAP core net income for the year ended December 31, 2024, was $15,216,000, a decrease of 22.4% from $19,601,000 in 2023[47]. Deposits and Loans - Total deposits increased 5.3% to $1.06 billion as of December 31, 2024, compared to $1.00 billion at the end of 2023[4]. - Total deposits increased by $53.1 million, or 5.3%, to $1.1 billion as of December 31, 2024, driven by a $96.2 million increase in interest-bearing deposits[21]. - Interest-bearing deposits increased by $96.2 million, while noninterest-bearing deposits decreased by 10.7% to $360.2 million[21]. - Core deposits decreased by $56.6 million, reflecting a decline in noninterest-bearing deposits and savings accounts[21]. - Total loans, net of unearned fees, increased 0.92% to $928.5 million as of December 31, 2024, compared to $920.0 million at the end of 2023[4]. - Average loans for the three months ended December 31, 2024, were $939,110,000, a slight increase from $935,637,000 in the same period last year[38]. Expenses and Efficiency - Noninterest expense for the year ended December 31, 2024, totaled $28.3 million, an increase of $2.3 million compared to $26.0 million for the year ended December 31, 2023[17]. - The efficiency ratio for the quarter ended December 31, 2024, increased to 60.79%, compared to 46.40% for the same quarter in 2023[10]. - Total noninterest expense increased to $7,430,000 for the three months ended December 31, 2024, compared to $7,142,000 in the previous quarter, marking an increase of 4.0%[36]. - Efficiency ratio for Q4 2024 was 60.79%, up from 46.40% in Q4 2023, indicating increased operational costs[45]. Assets and Equity - Shareholders' equity rose to $130.4 million, an increase of $7.8 million from $122.5 million at December 31, 2023, due to $14.8 million in net income[22]. - The total assets of the company were $1.211 billion as of December 31, 2024, compared to $1.211 billion at December 31, 2023[34]. - Total assets decreased to $1,211,718,000 in Q4 2024 from $1,211,045,000 in Q4 2023, a decline of 0.04%[41]. - Total equity increased to $132,920,000 as of December 31, 2024, compared to $117,520,000 a year earlier, reflecting a growth of 13.1%[38]. Credit Quality - The provision for credit losses was $3.0 million for the year ended December 31, 2024, compared to $1.5 million in 2023, primarily due to charge-offs in the student loan portfolio[25]. - Non-performing assets increased by $745,000 to $17.2 million, representing 1.42% of total assets as of December 31, 2024, up from 1.36% in 2023[27]. - The allowance for credit losses was 1.72% of the loan portfolio at December 31, 2024, compared to 1.70% at December 31, 2023[26]. - Nonperforming loans to total gross loans increased to 1.36% in Q4 2024 from 1.29% in Q4 2023[44]. - Provision for credit losses was $1,213,000 in Q4 2024, compared to $873,000 in Q4 2023, reflecting a significant increase[42].

Financial Performance - Net income for the quarter decreased 0.62% to $3.8 million for the quarter ended September 30, 2024, compared to $3.9 million for the same quarter in 2023[147]. - The Company's annualized return on average assets was 1.36% for the nine months ended September 30, 2024, compared to 1.52% for the same period in 2023[151]. - The Company's annualized return on average equity was 12.95% for the nine months ended September 30, 2024, compared to 16.64% for the same period in 2023[151]. - Noninterest income for the quarter ended September 30, 2024, increased by $1.9 million to $2.0 million compared to the same quarter in 2023[165]. - Total noninterest income for the nine months ended September 30, 2024, increased by $2.0 million to $4.6 million compared to the same period in 2023[167]. Interest Income and Expenses - Net interest margin increased to 4.20% for the quarter ended September 30, 2024, compared to 4.09% for the same quarter in 2023[147]. - Interest expense increased 15.7% to $3.9 million, compared to $3.4 million for the third quarter of 2023[147]. - For the three months ended September 30, 2024, total interest income increased by $427,000, or 2.8%, compared to the same period in 2023[157]. - For the nine months ended September 30, 2024, total interest income increased by $634,000, or 1.41%, compared to the same period in 2023[159]. - Total interest expense increased by approximately $3.0 million, or 38.9%, for the nine months ended September 30, 2024, compared to the same period in 2023[162]. Loans and Deposits - Total loans, net of unearned fees, increased 5.99% to $975.2 million, compared to $920.0 million at December 31, 2023[147]. - Total deposits increased 6.0% to $1.07 billion, compared to $1.00 billion at December 31, 2023[147]. - Net loans increased to $958.6 million as of September 30, 2024, from $904.4 million at December 31, 2023, reflecting organic loan growth[176]. - Total gross loans amounted to $975.2 million as of September 30, 2024, an increase of $55.1 million or 6.0% from $920.0 million at December 31, 2023[178]. - Total deposits reached $1.07 billion at September 30, 2024, an increase of $60.5 million (6.0%) from December 31, 2023, but a decrease of $77.4 million (7.8%) year-over-year[191]. Credit Losses and Allowances - The allowance for credit losses as a percentage of gross loans decreased to 1.69%, compared to 1.70% at December 31, 2023[147]. - The Company recorded a provision for credit losses of $1.6 million for the quarter ended September 30, 2024, with no provision recorded for the same quarter in 2023[147]. - The allowance for credit losses was $15,296, slightly improved from $15,817 in the previous year[153]. - The provision for credit losses was $2.14 million for the nine months ended September 30, 2024, significantly higher than the $452,000 provision for the same period in 2023[214]. - Nonperforming assets rose to $17.43 million as of September 30, 2024, up from $16.46 million at December 31, 2023, representing an increase of $974,000[205]. Capital and Equity - Total shareholders' equity increased from $117,401 to $130,929, representing an increase of approximately 11%[153]. - The Company's effective tax rate for the three months ended September 30, 2024, was 25.43%, down from 28.78% for the same period in 2023[174]. - The Bank's Tier 1 Capital Ratio was 12.35% at September 30, 2024, up from 11.42% at the same date in 2023[229]. - The Company declared a cash dividend of $0.12 per share on September 24, 2024, with approximately $2.1 million transferred from retained earnings for this distribution[233]. Asset Management - Total assets as of September 30, 2024, were $1.26 billion, an increase of $44.3 million year-to-date, while total liabilities were $1.12 billion, an increase of $34.0 million[176]. - Average interest-earning assets for the three months ended September 30, 2024, were $1,120,080, generating interest income of $15,755, with a yield of 5.60%[153]. - Total average assets decreased from $1,266,644 to $1,231,282, reflecting a decline of approximately 2.77% year-over-year[153]. - Cash and cash equivalents increased to $47.9 million at September 30, 2024, from $40.8 million at December 31, 2023[223]. Loan Portfolio Composition - Real estate mortgage loans represented 70.5% of total loans at September 30, 2024, totaling $687.9 million, an increase from $646.7 million at December 31, 2023[179]. - Agricultural loans rose by $16.8 million (25.5%) from December 31, 2023, to September 30, 2024, and by $5.0 million (7.5%) year-over-year[184]. - Installment loans decreased by $1.9 million (5.0%) from December 31, 2023, to September 30, 2024, and by $3.2 million (8.0%) year-over-year, primarily due to declines in student loan balances[184]. - The outstanding balance of student loans decreased by $3.5 million (8.8%) year-over-year, with $1.0 million in loans for students not yet in repayment status as of September 30, 2024[185]. Economic Conditions and Monitoring - The company continues to monitor economic conditions in the real estate market to assess the adequacy of the allowance for credit losses[211]. - The prime rate decreased from 8.50% at September 30, 2023, to 8.00% at September 30, 2024, impacting future interest income and expense[155].

Net Income and Profitability - Net income for the quarter ended September 30, 2024, decreased 0.6% to $3.8 million compared to $3.9 million for the same period in 2023[1][4] - Net income for the nine months ended September 30, 2024, decreased 14.6% to $12.3 million compared to $14.4 million for the same period in 2023[10] - Net income for September 2024 was $3,829 thousand, down from $4,297 thousand in June 2024[33] - Net income for the nine months ended September 30, 2024, is $12.287 million, a decrease of 14.6% compared to $14.395 million in 2023[38] - Non-GAAP core net income for the nine months ended September 30, 2024, is $12.188 million, down 17.6% from $14.788 million in 2023[38] Net Interest Margin and Interest Income - Net interest margin increased to 4.20% for the quarter ended September 30, 2024, compared to 4.09% for the same period in 2023[2][6] - Net interest margin decreased slightly to 4.20% in September 2024 from 4.28% in June 2024[30] - Net interest income before provision for credit losses decreased by $2.3 million (0.91%) to $35.0 million for the nine months ended September 30, 2024, compared to $37.4 million in the same period in 2023[12] - Net interest income for the nine months ended September 30, 2024, was $35,046 thousand, down from $37,368 thousand in the same period of 2023, a decrease of 6.21%[28] - Total interest income rose to $15,755 thousand in September 2024, up from $14,972 thousand in June 2024[33] - Interest income from loans and fees for the nine months ended September 30, 2024, was $41,457 thousand, up from $40,292 thousand in the same period of 2023, an increase of 2.89%[28] Loans and Deposits - Total loans increased 5.99% to $975.2 million as of September 30, 2024, compared to $920.0 million at December 31, 2023[2] - Total deposits increased 6.0% to $1.07 billion as of September 30, 2024, compared to $1.00 billion at December 31, 2023[2] - Total loans increased to $975,151 thousand in September 2024, up from $949,413 thousand in June 2024[32] - Total deposits increased to $1,065,021 thousand in September 2024, up from $1,006,614 thousand in June 2024[32] - Net loans grew to $958,628 thousand in September 2024, up from $904,384 thousand in December 2023, an increase of 6%[27] - Total deposits rose to $1,065,021 thousand in September 2024, compared to $1,004,477 thousand in December 2023, marking a 6.03% increase[27] - Loan-to-deposit ratio as of September 30, 2024, is 91.56%, slightly down from 91.59% as of December 31, 2023[36] Noninterest Income and Expense - Noninterest income increased to $2.0 million for the quarter ended September 30, 2024, primarily due to a $661,000 gain on the fair value of junior subordinated debentures[7] - Noninterest income increased by $2.0 million to $4.6 million for the nine months ended September 30, 2024, driven by gains from life insurance proceeds and changes in the fair value of TRUPs[13] - Noninterest income for the nine months ended September 30, 2024, was $4,591 thousand, compared to $2,574 thousand in the same period of 2023, a significant increase of 78.36%[28] - Noninterest expense increased by $1.8 million to $20.8 million for the nine months ended September 30, 2024, primarily due to higher professional fees and salaries[14] - Total noninterest expense for the nine months ended September 30, 2024, was $20,849 thousand, up from $19,082 thousand in the same period of 2023, an increase of 9.26%[28] Asset and Liability Growth - Total assets increased by $44.3 million (3.7%) to $1.2 billion as of September 30, 2024, driven by growth in gross loan balances and cash equivalents[16] - Total deposits increased by $60.5 million (6.0%) to $1.1 billion as of September 30, 2024, with interest-bearing deposits rising by $103.7 million[17] - Total assets increased to $1,255,376 thousand as of September 30, 2024, compared to $1,211,045 thousand at the end of 2023, reflecting a growth of 3.66%[27] - Total interest-earning assets increased to $1,120,080 thousand in September 2024, up from $1,082,749 thousand in June 2024[30] Credit Quality and Provisions - The provision for credit losses increased to $1.8 million for the nine months ended September 30, 2024, compared to $587,000 in the same period in 2023, primarily due to student loan charge-offs[20] - Non-performing assets increased by $974,000 to $17.4 million as of September 30, 2024, representing 1.39% of total assets[21] - The company's provision for credit losses for the nine months ended September 30, 2024, was $1,750 thousand, compared to $587 thousand in the same period of 2023, a substantial increase of 198.13%[28] - Nonperforming loans to total gross loans ratio increased to 1.32% in September 2024 from 1.29% in December 2023[35] - Total nonperforming assets increased to $17,430 thousand in September 2024 from $16,456 thousand in December 2023[35] - Provision for credit losses increased significantly to $1,558 thousand in September 2024 from $19 thousand in June 2024[33] - Allowance for credit losses to nonperforming loans decreased to 128.60% in September 2024 from 131.87% in December 2023[35] Capital and Shareholder Equity - The company's Tier 1 Leverage Ratio improved to 12.44% as of September 30, 2024, compared to 11.82% as of December 31, 2023[2] - Shareholders' equity increased by $10.3 million to $132.9 million as of September 30, 2024, driven by net income and a decrease in accumulated other comprehensive loss[18] - Tier 1 capital to adjusted average assets (leverage ratio) for the company as of September 30, 2024, is 12.44%, up from 11.82% as of December 31, 2023[36] - Book value per share as of September 30, 2024, is $7.67, compared to $7.14 as of December 31, 2023[36] - Tangible book value per share as of September 30, 2024, is $7.41, up from $6.88 as of December 31, 2023[36] Efficiency and Return Metrics - The efficiency ratio improved to 52.47% for the quarter ended September 30, 2024, compared to 54.63% for the same period in 2023[8] - Efficiency ratio for the three months ended 2024 is 52.47%, improving from 54.63% in 2023[36] - Annualized return on average assets (ROAA) increased to 1.24% for the quarter ended September 30, 2024, compared to 1.21% for the same period in 2023[4] - Return on average assets for the three months ended 2024 is 1.24%, compared to 1.21% for the same period in 2023[36] - Return on average equity for the three months ended 2024 is 11.63%, down from 13.06% in 2023[36] - Annualized net charge-offs to average loans for the three months ended 2024 is 0.27%, up from 0.20% in 2023[36] Dividends and Capital Adequacy - The company declared a cash dividend of $0.12 per share, payable on October 23, 2024[19] - The company remains well-capitalized and expects to maintain adequate capital levels[19] Cost of Deposits - Annualized average cost of deposits increased to 1.18% for the quarter ended September 30, 2024, compared to 0.71% for the same period in 2023[2][5]

Financial Performance - Net income for the quarter ended June 30, 2024, decreased 2.72% to $4.3 million, compared to $4.4 million for the same quarter in 2023[1] - Net income for Q2 2024 was $4,297,000, compared to $4,161,000 in Q1 2024 and $4,417,000 in Q2 2023, reflecting a year-over-year decrease of 2.7%[34] - Core net income for the six months ended June 30, 2024, was $8,824 thousand, a decrease of 14.8% from $10,359 thousand in the same period of 2023[43] Interest Income and Margin - Net interest margin decreased to 4.28% for the quarter ended June 30, 2024, down from 4.35% for the same quarter in 2023[3] - Total interest income for Q2 2024 was $14,972,000, a slight increase from $14,879,000 in Q1 2024 but a decrease from $15,086,000 in Q2 2023[34] - Net interest income after provision for credit losses for Q2 2024 was $11,503,000, compared to $11,541,000 in Q1 2024 and $11,413,000 in Q2 2023[34] - Net interest income for the quarter ended June 30, 2024, was $11,522 thousand, compared to $11,714 thousand for the previous quarter, reflecting a decrease of 1.63%[39] Loans and Deposits - Total loans, net of unearned fees, increased 3.19% to $949.4 million, compared to $920.0 million at December 31, 2023[3] - Total deposits increased 0.2% to $1.01 billion, compared to $1.00 billion at December 31, 2023[3] - Total deposits increased by $2.1 million, or 0.2%, to $1.0 billion as of June 30, 2024, driven by a $32.5 million increase in interest-bearing deposits[20] - The net loan-to-deposit ratio as of June 30, 2024, was 92.80%, an increase from 90.04% at the end of 2023[41] Credit Losses and Nonperforming Assets - The allowance for credit losses as a percentage of gross loans decreased to 1.61%, compared to 1.70% at December 31, 2023[3] - The provision for credit losses was $192,000 for the six months ended June 30, 2024, down from $598,000 for the same period in 2023[24] - Non-performing assets increased by $844,000 to $17.3 million, representing 1.42% of total assets as of June 30, 2024[26] - Nonperforming loans to total gross loans ratio was 1.34% as of June 30, 2024, compared to 1.29% at the end of 2023[40] Efficiency and Expenses - The efficiency ratio for the quarter ended June 30, 2024, increased to 53.49%, compared to 45.76% for the same quarter in 2023[10] - Total noninterest expense for Q2 2024 was $6,973,000, up from $6,738,000 in Q1 2024 and $6,207,000 in Q2 2023[34] Shareholder Equity and Dividends - Shareholders' equity rose to $127.4 million, an increase of $4.8 million from $122.5 million at December 31, 2023, due to $8.5 million in net income[21] - A cash dividend of $0.12 per share was declared on June 25, 2024, payable on July 23, 2024[23] Asset Growth - Total assets increased to $1.22 billion as of June 30, 2024, from $1.21 billion at December 31, 2023[33] - Total assets as of June 30, 2024, were $1,219,822 thousand, a slight increase from $1,206,404 thousand on March 31, 2024[38]