Financial Performance - Net income for the quarter ended March 31, 2024, decreased 32.07% to $4.2 million compared to $6.1 million for the same period in 2023[131]. - The annualized return on average assets (ROAA) decreased to 1.40% for the quarter ended March 31, 2024, from 1.95% for the same quarter in 2023[137]. - The annualized return on average equity (ROAE) decreased to 13.51% for the quarter ended March 31, 2024, compared to 22.05% for the same quarter in 2023[137]. - Noninterest income decreased by $395,000 to $1,053,000 for the quarter ended March 31, 2024, compared to the same period in 2023[150]. - Noninterest expense for Q1 2024 increased by $498,000 to $6.7 million compared to Q1 2023, primarily due to higher professional fees and salaries[153]. - The effective tax rate for Q1 2024 was 28.94%, a slight decrease from 29.16% in Q1 2023[156]. Loan and Deposit Trends - Total loans increased 1.02% to $929.4 million compared to $920.0 million at December 31, 2023[133]. - Total deposits decreased 4.83% to $955.9 million compared to $1.0 billion at December 31, 2023[133]. - Net loans increased by 1.1% from December 31, 2023, to $913.9 million but decreased by 1.4% year-over-year[157]. - Total deposits decreased to $955.9 million at March 31, 2024, down $48.5 million, or 4.8%, from $1.00 billion at December 31, 2023, and down $155.2 million, or 14.0%, from $1.11 billion at March 31, 2023[171]. - Noninterest-bearing deposits fell to $353.2 million, a decrease of $50.1 million, or 12.4%, from $403.2 million at December 31, 2023[171]. - Interest-bearing deposits increased slightly to $602.8 million, up $1.5 million, or 0.3%, from $601.3 million at December 31, 2023[171]. - Core deposits constituted 97.1% of total deposits at March 31, 2024, compared to 97.6% at December 31, 2023[172]. Asset Quality and Credit Losses - The allowance for credit losses as a percentage of gross loans decreased to 1.66%, compared to 1.70% at December 31, 2023[133]. - The Company recorded a provision for credit losses of $173,000 for the quarter ended March 31, 2024, compared to a reversal of provision of $493,000 for the same quarter in 2023[133]. - Nonperforming assets decreased to $16.3 million at March 31, 2024, down from $16.5 million at December 31, 2023[185]. - Nonaccrual loans increased to $11.6 million at March 31, 2024, compared to $11.4 million at December 31, 2023[186]. - The allowance for credit losses to nonperforming loans was 131.34% at March 31, 2024[185]. - Net charge-offs for the quarter ended March 31, 2024, totaled $289,000, down from $434,000 for the same period in 2023, with an annualized net charge-off rate of 0.13%[195]. Capital and Dividends - The Tier 1 Capital Ratio for the Bank was 12.50% at March 31, 2024, up from 10.88% at March 31, 2023[207]. - The Board of Directors authorized a stock repurchase program of up to $3.0 million, representing 2.4% of total shareholders' equity of $124.2 million as of March 31, 2024[211]. - The Bank paid $2.1 million in cash dividends to the Holding Company during the quarter ended March 31, 2024, which funded operating costs and interest payments[212]. - A cash dividend of $0.12 per share was declared on March 26, 2024, with approximately $2.1 million transferred from retained earnings to dividends payable[213]. - The Bank is subject to dividend restrictions under the California Financial Code, limiting cash dividends to the lesser of retained earnings or net income for the last three fiscal years[214]. Interest Income and Expenses - Total interest income increased by $320,000, or 2.2%, for the three months ended March 31, 2024, compared to the same period in 2023[144]. - Total interest expense increased approximately $1.6 million, or 96.1%, for the quarter ended March 31, 2024, compared to the same period in 2023[147]. - The overall average yield on the loan portfolio rose to 6.00% for the quarter ended March 31, 2024, up from 5.56% for the same quarter in 2023[145]. - The average yield on total interest-earning assets increased by 45 basis points, from 5.07% to 5.52%[146]. - The annualized average cost of funds was 1.73% for the quarter ended March 31, 2024, compared to 0.83% for the same quarter in 2023[133].

Financial Performance - For the quarter ended March 31, 2024, United Security Bancshares reported net income of $4.2 million, a decrease of 31.15% from $6.1 million for the same period in 2023[1]. - Net income decreased to $4,161,000 for the three months ended March 31, 2024, down 32% from $6,125,000 in the prior year[20]. - Net income for the quarter ended March 31, 2024, decreased 32.1% to $4.2 million, compared to $6.1 million for the same period in 2023[28]. - The return on average assets was 1.40% for the three months ended March 31, 2024, down from 1.95% in the prior year[24]. Interest Income and Margin - Total interest income for the three months ended March 31, 2024, was $14,879,000, an increase of 2.2% from $14,559,000 in the same period of 2023[20]. - Net interest income before the provision for credit losses totaled $11.7 million, down 9.51% from $12.9 million in Q1 2023[7]. - The net interest margin decreased from 4.51% in Q1 2023 to 4.35% in Q1 2024 due to rising deposit and borrowing costs[7]. - The net interest margin for the period was 4.35%, slightly down from 4.51% in the previous year[21]. - Net interest margin decreased to 4.35% for the quarter ended March 31, 2024, compared to 4.51% for the quarter ended March 31, 2023[26]. Expenses - Noninterest expense rose to $6.7 million, an increase of 8.06% from $6.2 million in the same quarter last year, driven by higher professional fees and salaries[8]. - Total noninterest expense increased to $6,738,000, up 8% from $6,240,000 in the same period of 2023[20]. - The efficiency ratio rose to 52.96% for the three months ended March 31, 2024, compared to 43.48% in the prior year, indicating decreased operational efficiency[24]. - The efficiency ratio for the quarter ended March 31, 2024, increased to 52.96%, compared to 43.48% for the same period in 2023[30]. Assets and Equity - Total assets decreased by $4.6 million, or 0.4%, from December 31, 2023, to March 31, 2024, with gross loan balances increasing by $9.6 million[10]. - Total assets as of March 31, 2024, were $1,206,404,000, a decrease from $1,261,194,000 in the same period last year[23]. - Shareholders' equity increased to $124.2 million as of March 31, 2024, up from $122.5 million at the end of 2023, primarily due to net income[12]. Loans and Commitments - Average loans decreased to $904,392,000 from $947,453,000 year-over-year, reflecting a decline of 4.5%[21]. - Total loans, net of unearned fees, increased 1.02% to $929.4 million, compared to $920.0 million at December 31, 2023[26]. - Unfunded loan commitments rose from $183.5 million at December 31, 2023, to $190.3 million at March 31, 2024[10]. Credit Losses - The provision for credit losses was $173,000, compared to a reversal of $493,000 in the same period last year, indicating a shift towards increased credit loss provisions[20]. - The provision for credit losses was $173,000 for the quarter ended March 31, 2024, compared to a reversal of provision of $493,000 for the same period in 2023[35]. - The allowance for credit losses was 1.66% of the loan portfolio at March 31, 2024, slightly down from 1.70% at December 31, 2023[13]. Noninterest Income - Noninterest income totaled $1,053,000, a decrease of 27.3% from $1,448,000 in the prior year[20]. - Noninterest income for the quarter ended March 31, 2024, totaled $1.1 million, a decrease of $395,000 compared to $1.4 million for the same period in 2023[29]. Deposits - The annualized average cost of deposits increased to 0.72% in Q1 2024 from 0.48% in Q1 2023, while average interest-bearing deposits decreased by 12.9% from $689.7 million to $601.0 million[3]. - Total deposits decreased 4.8% to $955.9 million during the quarter ended March 31, 2024, compared to $1.0 billion at December 31, 2023[32]. Other - The effective tax rate for Q1 2024 was 28.9%, compared to 29.2% for the same period in 2023[9]. - Book value per share increased to $7.17, compared to $7.14 at December 31, 2023[26]. - Non-performing assets decreased to $16.3 million, representing 1.35% of total assets as of March 31, 2024, down from 1.36% at December 31, 2023[36]. - The Company declared a cash dividend of $0.12 per share, payable on April 22, 2024[34].

Market Presence - United Security Bancshares operates primarily in Fresno, Madera, Kern, and Santa Clara Counties, with a total deposit market share of 0.33% across these regions as of June 30, 2023[28]. - The Bank ranks 9th in Fresno County with a market share of 4.24%, 4th in Madera County with 8.40%, 14th in Kern County with 0.68%, and 40th in Santa Clara County with 0.01%[28]. - The company’s primary market areas include Fresno, Madera, Santa Clara, and Kern Counties, with varying market shares across these regions[27]. Banking Services - The Bank offers a full range of commercial banking services, including various deposit instruments and lending products, with a focus on personalized service to compete against larger institutions[19][20]. - The company offers a variety of commercial banking services, including real estate loans, commercial loans, and agricultural loans, with a focus on personalized service[19][20]. - The company does not originate subprime or adjustable-rate loans, maintaining a conservative lending approach[22]. - The company competes with larger banks by offering competitive interest rates and personalized service, despite not providing trust and wealth management services[26]. Regulatory Environment - The Company is subject to various federal and state regulations that govern capital adequacy, reserves, and loan limitations, impacting its operational strategies[29][30]. - The Company is subject to various federal and state regulations that govern capital adequacy, loan limitations, and branch operations, which can impact its growth and earnings[29]. - The Company is subject to regulation by the Securities and Exchange Commission (SEC) and must comply with its disclosure requirements[35]. - The Company is subject to various federal and state consumer protection laws, which can result in significant potential liability from litigation and regulatory sanctions[77][78]. - The CFPB has broad supervisory and enforcement authority over consumer financial products, which may impact the Company's business and financial condition[78]. Capital and Financial Stability - As of December 31, 2023, the Company and the Bank were classified as "well capitalized" under applicable standards, meeting the total risk-based capital ratio of 10% or more, Tier 1 risk-based capital ratio of 8% or more, and leverage capital ratio of 5% or more[58][63]. - The Dodd-Frank Act increased the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets[33]. - The Dodd-Frank Act established a minimum non-risk-based leverage ratio set at 4.00%[33]. - The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund to 1.35% of insured deposits[33]. - The Dodd-Frank Act added an additional capital conservation buffer of 2.5% of risk-weighted assets over each required capital ratio[33]. - The Company and the Bank adopted the community bank leverage ratio framework during 2020, allowing them to be considered "well capitalized" for prompt corrective action purposes[57][63]. - The Bank is eligible to accept brokered deposits as it is deemed "well-capitalized" as of December 31, 2023[66]. Employee and Corporate Governance - The Company employed 114 full-time equivalent staff as of December 31, 2023[103]. - The Company provides competitive pay consistent with employee position and experience, with annual increases based on merit[104]. - Employees receive a comprehensive benefits package, including 100% matching contributions up to 4% of salary for retirement plans[105]. - The Company has a code of ethics that prohibits discrimination or harassment, requiring annual training for all employees[106]. - The Company is subject to the Community Reinvestment Act (CRA) and received a "Satisfactory" rating in its most recent examination[96]. Compliance and Risk Management - The Company emphasizes the importance of risk management and compliance with regulatory requirements to maintain financial stability and growth[11]. - The Anti-Money Laundering Act of 2020 (AML Act) represents significant changes to anti-money laundering laws, with new regulations expected to impact operations[82]. - The AML Act expands federal AML laws to a broader range of industries, including cryptocurrency and antiquities[84]. - The Corporate Transparency Act (CTA) requires reporting of beneficial ownership information to a confidential FinCEN database starting January 1, 2025[89]. - The Company must comply with cybersecurity regulations, including new SEC rules for disclosures regarding cybersecurity risk management[99]. Investment and Assets - 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, 2023[73]. - The Bank owned 38,567 shares of Federal Reserve Bank of San Francisco stock with paid-in capital totaling $1,929,850 as of December 31, 2023[76]. - The Company has a subsidiary, York Monterey Properties, Inc., which was funded with an initial investment of $250,000 and an additional $805,000 to manage real estate acquired through foreclosures[15]. Deposit Insurance and Assessment - The FDIC insures deposits up to $250,000 per qualified account, and the assessment rates for deposit insurance are based on the average consolidated total assets less average tangible equity capital[68][69]. - The FDIC adopted a restoration plan in September 2020 to achieve a reserve ratio of 1.35% by September 30, 2028, following a decline to 1.30% due to extraordinary growth in insured deposits[69]. - The FDIC's deposit insurance fund reserve ratio fell below the statutory minimum of 1.35% in 2020, leading to a restoration plan to achieve the minimum by September 30, 2028[69].

Commission file number: 000-32897 UNITED SECURITY BANCSHARES Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (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 | ...

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 | ...

PART I. Financial Information This section provides the unaudited financial statements and management's discussion and analysis for the first quarter of 2023 [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for United Security Bancshares, including detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $1.26 billion, driven by lower net loans and deposits, while shareholders' equity remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$1,261,194** | **$1,299,193** | | Net Loans | $927,105 | $969,996 | | Total Investment Securities | $208,914 | $210,860 | | **Total Liabilities** | **$1,148,286** | **$1,186,730** | | Total Deposits | $1,111,132 | $1,165,484 | | **Total Shareholders' Equity** | **$112,908** | **$112,463** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income significantly increased to $6.1 million, driven by a 37.2% rise in net interest income and higher diluted EPS Q1 2023 vs Q1 2022 Income Statement (in thousands, except EPS) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Interest Income | $14,559 | $9,991 | | Net Interest Income | $12,945 | $9,438 | | (Reversal) Provision for Credit Losses | $(493) | $5 | | Total Noninterest Income (Loss) | $1,448 | $(206) | | Total Noninterest Expense | $6,240 | $5,816 | | **Net Income** | **$6,125** | **$2,443** | | **Diluted EPS** | **$0.36** | **$0.14** | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income reached $6.8 million, a turnaround from prior-year loss, driven by unrealized gains on debt securities Comprehensive Income (Loss) (in thousands) | Component | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Income | $6,125 | $2,443 | | Other Comprehensive Income (Loss) | $639 | $(7,301) | | **Comprehensive Income (Loss)** | **$6,764** | **$(4,858)** | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity slightly increased to $112.9 million, influenced by net income, comprehensive income, and CECL adoption - The adoption of the Current Expected Credit Loss (CECL) standard on January 1, 2023, resulted in a cumulative downward adjustment to retained earnings of **$4.7 million**[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities provided $9.3 million cash, investing activities $40.3 million, while financing activities used $43.0 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $9,328 | $2,225 | | Net Cash from Investing Activities | $40,255 | $(20,894) | | Net Cash from Financing Activities | $(43,025) | $24,354 | | **Net Change in Cash** | **$6,558** | **$5,715** | | **Cash at End of Period** | **$45,153** | **$224,934** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, including CECL adoption's impact on credit losses, and portfolio compositions - The Company adopted ASC 326 ("CECL") on January 1, 2023, resulting in a **$6.4 million** increase in the allowance for credit losses and a **$4.7 million** reduction to retained earnings, net of tax[19](index=19&type=chunk) Impact of CECL Adoption on Allowance for Credit Losses (in thousands) | Loan Category | Allowance Before CECL | Impact of CECL | Allowance After CECL | | :--- | :--- | :--- | :--- | | Commercial and industrial | $956 | $1,336 | $2,292 | | Real estate mortgage | $1,364 | $2,359 | $3,723 | | Real estate construction | $3,408 | $721 | $4,129 | | Agricultural | $525 | $1,025 | $1,550 | | Installment and student loans | $2,898 | $1,957 | $4,855 | | **Total** | **$10,182** | **$6,367** | **$16,549** | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial performance and condition, covering income, assets, deposits, and CECL adoption [Overview](index=34&type=section&id=Overview) Q1 2023 highlights include increased net income, higher net interest margin, and CECL-driven allowance for credit losses - Key highlights for Q1 2023 include: - Net income increased to **$6.1 million** compared to **$2.4 million** in Q1 2022 - Total assets decreased by **2.9%** to **$1.26 billion** since year-end 2022 - Total deposits decreased by **4.7%** to **$1.11 billion** since year-end 2022 - The allowance for credit losses as a percentage of gross loans increased to **1.65%** from **1.04%** at year-end 2022, mainly due to CECL adoption[138](index=138&type=chunk)[144](index=144&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Net income rose to $6.1 million, driven by a 37.2% increase in net interest income and an expanded net interest margin Rate and Volume Analysis of Net Interest Income Change (Q1 2023 vs Q1 2022, in thousands) | Component | Total Change | Change Due to Rate | Change Due to Volume | | :--- | :--- | :--- | :--- | | **Increase in Interest Income** | **$4,568** | **$5,332** | **$(764)** | | Loans | $3,881 | $2,869 | $1,012 | | Investment securities | $711 | $600 | $111 | | **Increase in Interest Expense** | **$1,151** | **$1,189** | **$(38)** | | **Increase in Net Interest Income** | **$3,417** | **$4,143** | **$(726)** | - Net interest margin increased to **4.45%** for Q1 2023, up from **3.10%** in Q1 2022, primarily due to a shift to higher-yielding assets and increased loan yields[154](index=154&type=chunk) - Noninterest income increased by **$1.7 million** year-over-year, largely due to a **$1.3 million** positive swing in the fair value adjustment of junior subordinated debentures[157](index=157&type=chunk) [Financial Condition](index=41&type=section&id=Financial%20Condition) Total assets decreased to $1.26 billion due to lower loans and deposits; asset quality stable, credit loss allowance increased Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2023 | % of Loans | December 31, 2022 | % of Loans | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $50,511 | 5.4% | $57,902 | 5.9% | | Real estate – mortgage | $665,706 | 70.6% | $671,521 | 68.5% | | RE construction & development | $137,257 | 14.6% | $153,374 | 15.6% | | Agricultural | $45,513 | 4.8% | $52,722 | 5.4% | | Installment and student loans | $43,740 | 4.6% | $44,659 | 4.6% | | **Total gross loans** | **$942,727** | **100.0%** | **$980,178** | **100.0%** | Nonperforming Assets (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Nonaccrual loans | $13,195 | $14,544 | | Loans past due 90+ days | $382 | $252 | | **Total nonperforming loans** | **$13,577** | **$14,796** | | Other real estate owned | $4,582 | $4,582 | | **Total nonperforming assets** | **$18,159** | **$19,378** | | NPA to Total Assets | 1.44% | 1.49% | - Total deposits decreased by **$54.4 million (4.7%)** since year-end 2022, primarily due to an **$86.9 million** drop in noninterest-bearing deposits[178](index=178&type=chunk)[180](index=180&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital) The company maintains strong liquidity with substantial cash and credit lines, and capital ratios remain well above minimums - At March 31, 2023, the company had **$13.2 million** in outstanding borrowings and access to an additional **$481.5 million** in unused, collateralized lines of credit[214](index=214&type=chunk) Capital Ratios as of March 31, 2023 | Ratio | Company | Bank | Minimum to be Well Capitalized | | :--- | :--- | :--- | :--- | | Tier 1 Leverage Ratio | 10.89% | 10.88% | 5.00% (9.00% for CBLR) | - A cash dividend of **$0.11** per share was declared on March 28, 2023[223](index=223&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - This section is not applicable because United Security Bancshares is a smaller reporting company[225](index=225&type=chunk) [Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal controls this quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[227](index=227&type=chunk) - No material changes were made to the internal control over financial reporting during the first quarter of 2023[228](index=228&type=chunk) PART II. Other Information This section covers legal proceedings, equity sales, and exhibits filed with the Form 10-Q [Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) Management expects no material adverse effect on financial condition from ongoing legal proceedings in the normal course - Management does not expect any material adverse effect on the Company's financial condition from ongoing legal proceedings[231](index=231&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the quarter ended March 31, 2023 - The company reported no unregistered sales of equity securities for the first quarter of 2023[232](index=232&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley - Exhibits filed with this report include CEO and CFO certifications as required by the Sarbanes-Oxley Act[233](index=233&type=chunk) Signatures The report was signed by the President and CEO, and Senior Vice President and CFO on May 15, 2023 - The report was signed on May 15, 2023, by Dennis R. Woods, President and Chief Executive Officer, and David A. Kinross, Senior Vice President and Chief Financial Officer[237](index=237&type=chunk)

[Part I](index=4&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201%20-%20Business) United Security Bancshares is a California-based bank holding company operating through its subsidiary, United Security Bank - United Security Bancshares is a bank holding company whose principal business is serving as the holding company for United Security Bank, a California state-chartered bank headquartered in Fresno, California[13](index=13&type=chunk)[15](index=15&type=chunk) - The Bank operates twelve branches and several lending offices primarily in Fresno, Madera, Kern, and Santa Clara Counties, offering commercial banking services, various deposit instruments, and a range of lending activities[15](index=15&type=chunk)[19](index=19&type=chunk) Loan Portfolio Composition (as of Dec 31, 2022) | Loan Type | Percentage of Total Loans | | :--- | :--- | | Real estate mortgage | 68.5% | | Real estate construction | 15.5% | | Commercial and industrial | 6.1% | | Agricultural | 5.4% | | Installment loans | 4.5% | - The company faces **high competition** in its primary markets of Fresno, Madera, Kern, and Santa Clara counties, ranking 20th in total deposit market share across these areas as of June 30, 2022[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The company is **extensively regulated** by federal and state authorities, including the FRB, FDIC, and DFPI, with key regulations including the Dodd-Frank Act and the USA PATRIOT Act[30](index=30&type=chunk)[32](index=32&type=chunk)[54](index=54&type=chunk) - As of December 31, 2022, the company employed **117 full-time equivalent staff** and offers a 401(k) plan with a 100% match up to 4% of salary contributions[97](index=97&type=chunk)[99](index=99&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A%20-%20Risk%20Factors) This section is not required for smaller reporting companies, and therefore, no risk factors are listed - Disclosure of risk factors is **not required for smaller reporting companies**[102](index=102&type=chunk) [Item 1B. Unresolved Staff Comments](index=18&type=section&id=Item%201B%20%E2%80%93%20Unresolved%20Staff%20Comments) The Company reported no unresolved staff comments from the SEC as of December 31, 2022 - The Company had **no unresolved staff comments** at December 31, 2022[103](index=103&type=chunk) [Item 2. Properties](index=18&type=section&id=Item%202%20-%20Properties) The Company operates from twelve branches and two loan offices, owning its headquarters and six branches - The Company operates twelve branches, two loan production offices, and nine remote ITM/ATM locations across Fresno, Madera, Kern, and Santa Clara Counties[104](index=104&type=chunk) - As of year-end 2022, the Company **owned six branches and its Fresno headquarters**, and leased the remaining six branches and all remote machine locations[105](index=105&type=chunk) [Item 3. Legal Proceedings](index=18&type=section&id=Item%203%20-%20Legal%20Proceedings) The Company is not aware of any pending legal proceedings that would materially affect its financial condition - The Company is not currently a party to any legal proceedings that are expected to have a **material adverse effect** on its financial condition or operations[106](index=106&type=chunk) [Item 4. Mine Safety Disclosures](index=18&type=section&id=Item%204%20%E2%80%93%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine safety disclosures are **not applicable** to the Company's business[107](index=107&type=chunk) [Part II](index=18&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205%20-%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's stock (UBFO) trades on Nasdaq, with quarterly dividends of $0.11 per share paid in 2022 - The Company's common stock (UBFO) is traded on The Nasdaq Global Select Market and had approximately **549 record holders** as of December 31, 2022[108](index=108&type=chunk) 2022 Quarterly Common Stock Prices | Quarter | High | Low | | :--- | :--- | :--- | | Q1 2022 | $8.74 | $8.03 | | Q2 2022 | $8.67 | $7.24 | | Q3 2022 | $7.73 | $6.50 | | Q4 2022 | $7.44 | $6.51 | - The Company declared and paid quarterly cash dividends of **$0.11 per share** in 2022, consistent with the dividends paid in 2021[112](index=112&type=chunk) - The Company **did not repurchase any common shares** under its $3 million stock repurchase plan during 2022 and 2021[117](index=117&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income rose to $15.7 million in 2022, driven by a 29.2% increase in net interest income from rising rates [Overview and Financial Summary](index=20&type=section&id=7.1%20Overview%20and%20Financial%20Summary) Net income rose to $15.7 million in 2022, driven by higher net interest income, with improved ROAA and ROAE 2022 vs 2021 Financial Highlights | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $15.7 million | $10.1 million | | Total Assets | $1.30 billion | $1.33 billion | | Total Loans, net | $980.2 million | $871.5 million | | Total Deposits | $1.17 billion | $1.19 billion | | Net Interest Income | $46.1 million | $35.7 million | | Provision for Credit Losses | $1.8 million | $2.1 million | | Net Interest Margin | 3.69% | 3.16% | | ROAA | 1.16% | 0.82% | | ROAE | 13.75% | 8.47% | [Results of Operations](index=22&type=section&id=7.2%20Results%20of%20Operations) Net income increased by $5.6 million in 2022, as a $10.4 million rise in net interest income offset lower noninterest income Summary of Earnings (Years Ended Dec 31) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net interest income | $46,062 | $35,651 | $32,277 | | Provision for credit losses | $1,802 | $2,107 | $2,769 | | Noninterest income | $1,838 | $3,385 | $5,174 | | Noninterest expense | $24,039 | $23,615 | $22,270 | | **Net income** | **$15,686** | **$10,098** | **$8,961** | | **Net income - Diluted (per share)** | **$0.92** | **$0.59** | **$0.53** | - Net interest income increased by **$10.4 million (29.2%)** in 2022, driven by a 61 basis point increase in the yield on interest-earning assets[135](index=135&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - Noninterest income decreased by **$1.5 million (45.7%)** in 2022, primarily due to a larger loss on the fair value of junior subordinated debentures[150](index=150&type=chunk) - Noninterest expense increased by **$424,000 (1.8%)** in 2022, mainly due to higher professional fees and data processing costs[151](index=151&type=chunk) - The Company adopted the CECL accounting standard effective January 1, 2023, and estimates a one-time increase to its allowance for credit losses of **$6.0 million to $8.0 million**[147](index=147&type=chunk) [Financial Condition](index=28&type=section&id=7.3%20Financial%20Condition) Total assets decreased slightly to $1.30 billion as cash was deployed into a 12.9% growth in net loans Year-End Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Due from FRB | $6,945 | $188,162 | ($181,217) | (96.3)% | | Net loans | $969,996 | $862,200 | $107,796 | 12.9% | | Investment securities | $210,860 | $182,646 | $28,214 | 15.4% | | Total assets | $1,299,193 | $1,330,944 | ($31,751) | (2.4)% | | Total deposits | $1,165,484 | $1,188,106 | ($22,622) | (1.9)% | - The loan portfolio grew by **12.9% to $981.8 million** in 2022, led by a 20.4% increase in real estate mortgage loans and a 31.9% increase in commercial and industrial loans[156](index=156&type=chunk)[157](index=157&type=chunk) - The student loan portfolio decreased to **$42.1 million** from $48.5 million in 2021, with no new originations[162](index=162&type=chunk) - Nonperforming assets increased to **$19.5 million (1.99% of gross loans)** at year-end 2022 from $16.6 million (1.92% of gross loans) at year-end 2021[218](index=218&type=chunk)[222](index=222&type=chunk) - The Company and Bank remain **well-capitalized**, with the Company's Tier 1 Leverage Ratio at **10.10%** as of Dec 31, 2022, exceeding the 9.00% minimum requirement[57](index=57&type=chunk)[237](index=237&type=chunk)[449](index=449&type=chunk) [Critical Accounting Estimates and Policies](index=44&type=section&id=7.4%20Critical%20Accounting%20Estimates%20and%20Policies) The Company identifies the Allowance for Credit Losses and Fair Value of Junior Subordinated Debt as critical accounting estimates - The determination of the **Allowance for Credit Losses** is a critical accounting estimate requiring significant judgment regarding future cash flows and economic conditions[243](index=243&type=chunk) - The **Fair Value of Junior Subordinated Debt** is another critical estimate, valued using a discounted cash flow model with Level 3 inputs (unobservable inputs)[244](index=244&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%207A%20-%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not required for smaller reporting companies, and therefore, no market risk disclosures are provided - Disclosure of quantitative and qualitative information about market risk is **not required for smaller reporting companies**[245](index=245&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=44&type=section&id=Item%208%20-%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements, supplementary data, and the independent auditor's report [Report of Independent Registered Public Accounting Firm](index=46&type=section&id=8.1%20Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued an unqualified opinion, identifying the Allowance for Credit Losses as a critical audit matter - The auditor, Moss Adams LLP, issued an **unqualified opinion**, concluding that the financial statements are fairly presented in accordance with U.S. GAAP[249](index=249&type=chunk) - The **Allowance for Credit Losses was identified as a critical audit matter**, highlighting the significant auditor judgment required to evaluate management's assumptions[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) [Consolidated Financial Statements](index=47&type=section&id=8.2%20Consolidated%20Financial%20Statements) The financial statements show total assets of $1.30 billion and a 2022 net income of $15.7 million Consolidated Balance Sheet (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,299,193** | **$1,330,944** | | Net Loans | $969,996 | $862,200 | | Total Investment Securities | $210,860 | $182,646 | | **Total Liabilities** | **$1,186,730** | **$1,210,737** | | Total Deposits | $1,165,484 | $1,188,106 | | **Total Shareholders' Equity** | **$112,463** | **$120,207** | Consolidated Statement of Income (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net Interest Income | $46,062 | $35,651 | | Provision for Credit Losses | $1,802 | $2,107 | | Noninterest Income | $1,838 | $3,385 | | Noninterest Expense | $24,039 | $23,615 | | **Net Income** | **$15,686** | **$10,098** | | **Diluted EPS** | **$0.92** | **$0.59** | - The company experienced a net cash outflow from investing activities of **$174.2 million** in 2022, driven by a net increase in loans and purchases of securities[263](index=263&type=chunk) - Shareholders' equity decreased from $120.2 million to **$112.5 million**, largely due to a $16.3 million other comprehensive loss from unrealized losses on securities[262](index=262&type=chunk) [Notes to Consolidated Financial Statements](index=53&type=section&id=8.3%20Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies, including the upcoming CECL adoption, and provide breakdowns of financial statement components - The company will adopt the **CECL accounting standard on January 1, 2023**, replacing the current "incurred loss" model with an "expected loss" model[303](index=303&type=chunk) - At Dec 31, 2022, the investment portfolio had **unrealized losses of $27.1 million**, primarily due to changes in interest rates, not credit quality[306](index=306&type=chunk)[311](index=311&type=chunk) - The allowance for credit losses totaled **$10.2 million** at year-end 2022, based on historical loss migration and specific allowances for impaired loans[193](index=193&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) - The company has two stock-based compensation plans, with total stock-based compensation expense of **$185,000** in 2022[400](index=400&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk) - The company measures its junior subordinated debt at fair value, classifying it as a **Level 3 liability** with a fair value of **$10.9 million** at year-end 2022[425](index=425&type=chunk)[430](index=430&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=94&type=section&id=Item%209%20-%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The Company reported no changes in or disagreements with its accountants on accounting or financial disclosure - There were **no disagreements with accountants** on accounting and financial disclosure[452](index=452&type=chunk) [Item 9A. Controls and Procedures](index=94&type=section&id=Item%209A%20%E2%80%93%20Controls%20and%20Procedures) Management concluded that disclosure controls, procedures, and internal control over financial reporting were effective - Management concluded that the Company's **disclosure controls and procedures are effective** as of December 31, 2022[453](index=453&type=chunk) - Management concluded that the Company's **internal control over financial reporting is effective** as of December 31, 2022[454](index=454&type=chunk) [Item 9B. Other Information](index=95&type=section&id=Item%209B%20%E2%80%93%20Other%20Information) There was no other information to be reported in this item - **No information was reported** under this item[456](index=456&type=chunk) [Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections](index=95&type=section&id=Item%209C%20%E2%80%93%20Disclosures%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the Company - This disclosure is **not applicable** to the Company[457](index=457&type=chunk) [Part III](index=95&type=section&id=PART%20III) [Item 10. Directors, Executive Officers, and Corporate Governance](index=95&type=section&id=Item%2010%20%E2%80%93%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is **incorporated by reference** from the Company's 2023 Proxy Statement[459](index=459&type=chunk) [Item 11. Executive Compensation](index=95&type=section&id=Item%2011%20-%20Executive%20Compensation) Information for this item is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding executive compensation is **incorporated by reference** from the Company's 2023 Proxy Statement[460](index=460&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=95&type=section&id=Item%2012%20-%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding security ownership is **incorporated by reference** from the Company's 2023 Proxy Statement[461](index=461&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=95&type=section&id=Item%2013%20-%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is **incorporated by reference** from the Company's 2023 Proxy Statement[462](index=462&type=chunk) [Item 14. Principal Accounting Fees and Services](index=95&type=section&id=Item%2014%20%E2%80%93%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding principal accounting fees and services is **incorporated by reference** from the Company's 2023 Proxy Statement[463](index=463&type=chunk) [Part IV](index=96&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=96&type=section&id=Item%2015%20%E2%80%93%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the report - The Consolidated Financial Statements are located in **Item 8** of the report[465](index=465&type=chunk) - All financial statement schedules have been **omitted** because they are not applicable, not required, or the information is included elsewhere in the report[467](index=467&type=chunk) - Filed exhibits include Articles of Incorporation, Bylaws, various executive employment and compensation agreements, and **CEO/CFO certifications**[469](index=469&type=chunk)[470](index=470&type=chunk)

FORM 10-Q Commission file number: 000-32897 UNITED SECURITY BANCSHARES Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (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) | Registrants telephone number, including area co ...

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) | Registrants telephone number, including area code (559) ...

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) | Registrants telephone number, including area code (559) ...