United Security Bancshares(UBFO) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Overall Performance (Q2 2025 vs Q2 2024) United Security Bancshares reported a significant decrease in net income for Q2 2025 compared to Q2 2024, primarily driven by elevated student loan charge-offs and a substantial increase in the provision for credit losses | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :----------------------- | :------ | :------ | :--------- | :--------- | | Net Income | $2.2M | $4.3M | $(2.1M) | -48.84% | | EPS (Basic & Diluted) | $0.13 | $0.25 | $(0.12) | -48.00% | - The primary cause for the decrease in net income was a $1.9 million provision for credit losses, mainly due to elevated student loan charge-offs following the expiration of pandemic-related payment forbearance programs[3] CEO Commentary CEO Dennis Woods highlighted the impact of student loan charge-offs on credit loss provisions but affirmed the adequacy of the overall allowance. He also noted a strong equity position and ongoing investments in the branch network - Elevated student loan charge-offs, primarily due to the expiration of payment forbearance programs, led to a $1.9 million provision for credit losses[3] - The net interest margin for the quarter was 4.35%, and the equity position remains strong at $134.3 million[3] - The company is investing in its branch network, with a new Fresno location nearing completion in August 2025 and renovations planned for two existing branches in Firebaugh and Caruthers[3] Key Financial Highlights Key financial highlights for Q2 2025 include an increased net interest margin, higher cost of deposits, and significant decreases in net income, ROAA, and ROAE, alongside an increased provision for credit losses and OREO balances | Metric | Q2 2025 | Q2 2024 | Change (%) | | :-------------------------------------- | :---------- | :---------- | :--------- | | Net Interest Margin | 4.35% | 4.28% | +0.07 pp | | Annualized Avg Cost of Deposits | 1.11% | 0.79% | +0.32 pp | | Net Income | $2.2M | $4.3M | -49.52% | | Interest & Fees on Loans | $13.8M | $13.6M | +1.39% | | Interest Income | $15.00M | $14.97M | +0.2% | | Interest Expense | $3.1M | $3.5M | -9.0% | | Noninterest Income | $758K | $1.5M | -50.0% | | Provision for Credit Losses | $1.9M | $19K | +9900% | | Noninterest Expense | $7.7M | $7.0M | +10.99% | | Annualized ROAA | 0.73% | 1.45% | -0.72 pp | | Annualized ROAE | 6.46% | 13.79% | -7.33 pp | | Total Loans (net of unearned fees) | $947.3M | $928.5M (Dec 31, 2024) | +2.03% | | Total Deposits | $1.056B | $1.058B (Dec 31, 2024) | -0.18% | | OREO Balances | $7.9M | $4.6M (Dec 31, 2024) | +71.74% | Results of Operations Quarter Ended June 30, 2025 For Q2 2025, net income significantly declined due to increased provision for credit losses, higher deposit interest expense, and increased noninterest expense, partially offset by reduced short-term borrowing expense and income tax provision | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :---------- | :--------- | | Net Income | $2.2M | $4.3M | $(2.1M) | -49.52% | | EPS (Basic & Diluted) | $0.13 | $0.25 | $(0.12) | -48.00% | | ROAE | 6.46% | 13.79% | -7.33 pp | -53.15% | | ROAA | 0.73% | 1.45% | -0.72 pp | -49.66% | | Provision for Credit Losses | $1.9M | $19K | +$1.8M | +9473.68% | | Deposit Interest Expense | $2.868M | $1.857M | +$1.0M | +54.44% | | Noninterest Expense | $7.7M | $7.0M | +$766K | +10.94% | | Short-term Borrowing Expense | $273K | $1.593M | $(1.3M) | -82.86% | | Income Tax Provision | $855K | $1.8M | $(895K) | -49.72% | | Loan and Fee Income | $13.765M | $13.576M | +$189K | +1.39% | - The annualized average cost of deposits increased to 1.11% from 0.79% YoY, with average interest-bearing deposits increasing by 14.25% to $678.8 million. Brokered deposits averaged $100.0 million at a 4.55% rate[6] | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :---------------------- | :---------- | :---------- | :---------- | :--------- | | Net Interest Income | $11.9M | $11.5M | +$341K | +2.96% | | Net Interest Margin | 4.35% | 4.28% | +0.07 pp | +1.64% | | Loan Yields | 5.92% | 6.00% | -0.08 pp | -1.33% | | Cost of Interest-Bearing Liabilities | 1.80% | 1.96% | -0.16 pp | -8.16% | | Noninterest Income Item | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :---------------------------------- | :---------- | :---------- | :---------- | :--------- | | Total Noninterest Income | $758K | $1.5M | $(759K) | -50.0% | | Gain on Life Insurance Proceeds | $0 | $573K | $(573K) | -100% | | Loss on Fair Value of TruPS | $(317K) | $(225K) | $(92K) | +40.89% | | Noninterest Expense Item | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :---------------------------------- | :---------- | :---------- | :---------- | :--------- | | Total Noninterest Expense | $7.7M | $7.0M | +$766K | +10.99% | | Salaries & Employee Benefits | $4.033M | $3.390M | +$643K | +18.97% | | Other Noninterest Expense | $954K | $727K | +$227K | +31.22% | | Professional Fees | $350K | $642K | $(292K) | -45.48% | - The efficiency ratio deteriorated to 61.34% in Q2 2025 from 53.50% in Q2 2024, driven by increased noninterest expense and decreased noninterest income, partially offset by increased net interest income[10] Six Months Ended June 30, 2025 For the first six months of 2025, net income decreased significantly year-over-year, primarily due to a substantial increase in the provision for credit losses and higher operating expenses, despite some offsets from reduced borrowing costs and tax provisions | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :---------- | :--------- | | Net Income | $4.9M | $8.5M | $(3.6M) | -42.65% | | EPS (Basic & Diluted) | $0.28 | $0.49 | $(0.21) | -42.86% | | ROAE | 7.31% | 13.64% | -6.33 pp | -46.41% | | ROAA | 0.82% | 1.42% | -0.60 pp | -42.25% | | Provision for Credit Losses | $4.2M | $192K | +$4.0M | +2083.33% | | Deposit Interest Expense | $5.6M | $3.6M | +$2.1M | +58.33% | | Noninterest Expense | $15.3M | $13.7M | +$1.6M | +11.68% | | Short-term Borrowing Expense | $481K | $3.036M | $(2.6M) | -85.14% | | Income Tax Provision | $1.9M | $3.4M | $(1.5M) | -44.12% | | Loan and Fee Income | $27.7M | $27.1M | +$651K | +2.40% | - The annualized average cost of deposits for the six months ended June 30, 2025, was 1.10%, up from 0.75% in the prior year period. Average interest-bearing deposits increased by 13.9% to $680.9 million[13] | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :---------------------- | :---------- | :---------- | :---------- | :--------- | | Net Interest Income | $24.2M | $23.2M | +$923K | +3.97% | | Net Interest Margin | 4.46% | 4.31% | +0.15 pp | +3.48% | | Loan Yields | 6.05% | 5.99% | +0.06 pp | +1.00% | | Cost of Interest-Bearing Liabilities | 1.77% | 1.89% | -0.12 pp | -6.35% | | Noninterest Income Item | H1 2025 | H1 2024 | Change ($) | Change (%) | | :---------------------------------- | :---------- | :---------- | :---------- | :--------- | | Total Noninterest Income | $2.1M | $2.6M | $(449K) | -17.27% | | Gain on Life Insurance Proceeds | $0 | $573K | $(573K) | -100% | | Loss on Fair Value of TruPS | $(48K) | $(520K) | +$472K | -90.77% | | Noninterest Expense Item | H1 2025 | H1 2024 | Change ($) | Change (%) | | :---------------------------------- | :---------- | :---------- | :---------- | :--------- | | Total Noninterest Expense | $15.3M | $13.7M | +$1.6M | +11.68% | | Salaries & Employee Benefits | $7.959M | $6.888M | +$1.1M | +15.55% | | Data Processing Expenses | $806K | $309K | +$497K | +160.84% | | Occupancy Expense | $1.896M | $1.741M | +$155K | +8.90% | - The efficiency ratio for the six months ended June 30, 2025, increased to 58.52% from 53.23% in the prior year, reflecting higher noninterest expense and lower noninterest income, partially offset by increased net interest income[17] Balance Sheet Review Assets Total assets saw a slight increase, driven by growth in gross loans, particularly agricultural and real estate construction loans, while investment securities and cash equivalents decreased | Asset Category | June 30, 2025 | Dec 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------ | :------------ | :---------- | :--------- | | Total Assets | $1,214.1M | $1,211.7M | +$2.4M | +0.20% | | Gross Loan Balances | $949.3M | $930.2M | +$19.0M | +2.04% | | Investment Securities | $150.4M | $160.7M | $(10.3M) | -6.41% | | Cash and Cash Equivalents | $49.1M | $56.2M | $(7.1M) | -12.99% | | OREO Balances | $7.9M | $4.6M | +$3.3M | +71.74% | | Unfunded Loan Commitments | $221.8M | $204.0M | +$17.8M | +8.73% | - Increases in gross loans were primarily in agricultural loans (+$15.4 million), real estate construction and development loans (+$15.2 million), and real estate mortgage loans (+$4.2 million), offset by decreases in commercial and industrial loans and installment loans[19] Liabilities (Deposits) Total deposits slightly decreased, with a shift from interest-bearing to noninterest-bearing deposits. Brokered DDA accounts remained significant, and core deposits experienced a minor decline | Deposit Category | June 30, 2025 | Dec 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------ | :------------ | :---------- | :--------- | | Total Deposits | $1,055.7M | $1,057.6M | $(2.0M) | -0.18% | | Noninterest-Bearing Deposits | $372.0M | $360.2M | +$11.9M | +3.30% | | Interest-Bearing Deposits | $683.6M | $697.5M | $(13.8M) | -1.98% | | Brokered DDA Accounts | $100.3M | $100.3M | $0 | 0.00% | | Core Deposits | N/A | N/A | $(1.2M) | N/A | - NOW, money market, and savings accounts collectively decreased by 2.03% to $606.5 million[20] Shareholders' Equity Shareholders' equity increased due to net income and a reduction in accumulated other comprehensive loss, partially offset by dividend payments. The company remains well-capitalized | Metric | June 30, 2025 | Dec 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------ | :------------ | :---------- | :--------- | | Total Shareholders' Equity | $134.3M | $130.4M | +$3.9M | +2.99% | | Net Income | +$4.9M | N/A | N/A | N/A | | Accumulated Other Comprehensive Loss | $(11.6M) | $(14.4M) | +$2.8M | -19.44% | | Dividend Payments | $(4.2M) | N/A | N/A | N/A | | Book Value Per Share | $7.68 | $7.51 | +$0.17 | +2.26% | | Tangible Book Value Per Share | $7.43 | $7.25 | +$0.18 | +2.48% | | Tier 1 Capital to Adjusted Average Assets | 12.83% | 12.57% | +0.26 pp | +2.07% | - The decrease in accumulated other comprehensive loss was primarily due to a $2.8 million decrease in net unrealized losses on investment securities[21] - A cash dividend of $0.12 per share was declared on June 24, 2025, payable on July 22, 2025[22] Credit Quality Provision for Credit Losses & Net Charge-offs The company recorded a significantly higher provision for credit losses and net loan charge-offs for the first half of 2025, primarily driven by charge-offs within the student loan portfolio | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :------------------------------ | :---------- | :---------- | :---------- | :--------- | | Provision for Credit Losses | $4.2M | $192K | +$4.0M | +2083.33% | | Net Loan Charge-offs | $4.0M | $641K | +$3.4M | +530.42% | | Annualized Net Charge-offs to Average Loans | 0.87% | 0.14% | +0.73 pp | +521.43% | Allowance for Credit Losses The allowance for credit losses slightly decreased as a percentage of the loan portfolio but significantly increased relative to nonperforming loans, indicating improved coverage | Metric | June 30, 2025 | Dec 31, 2024 | Change (pp) | | :------------------------------ | :------------ | :------------ | :---------- | | Allowance for Credit Losses to Total Loans | 1.68% | 1.72% | -0.04 pp | | Allowance for Credit Losses to Nonperforming Loans | 267.33% | 127.16% | +140.17 pp | - Management considers the allowance for credit losses at June 30, 2025, to be adequate[24] Non-Performing Assets Non-performing assets decreased significantly, primarily due to a reduction in nonaccrual loans, despite an increase in OREO balances from foreclosures | Metric | June 30, 2025 | Dec 31, 2024 | Change ($) | Change (%) | | :------------------------------ | :------------ | :------------ | :---------- | :--------- | | Total Non-Performing Assets | $13.8M | $17.2M | $(3.4M) | -19.77% | | Non-Performing Assets to Total Assets | 1.14% | 1.42% | -0.28 pp | -19.72% | | Total Nonaccrual Loans | $5.7M | $12.2M | $(6.5M) | -53.28% | | Other Real Estate Owned (OREO) | $7.9M | $4.6M | +$3.3M | +71.74% | - The decrease in nonaccrual loans included a $3.2 million payoff of a nonaccrual loan and the transfer of $3.3 million in nonaccrual loans to OREO due to foreclosure[25] Company Information About United Security Bancshares United Security Bancshares is the holding company for United Security Bank, operating 13 full-service branches in California and offering various lending services - United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, founded in 1987 and headquartered in Fresno, CA[26] - The bank operates 13 full-service branch offices across several California cities and includes Commercial Real Estate Construction, Commercial Lending, and Consumer Lending departments[26] Non-GAAP Financial Measures The press release includes a non-GAAP financial measure, 'Core Net Income,' which management believes provides a more comparative view of operating results by excluding non-core items like the Fair Value Adjustment for TruPS - The company uses 'Core Net Income' as a non-GAAP measure, excluding non-core items such as the Fair Value Adjustment for TruPS, to provide a more comparative view of financial results[3][27] | Metric | H1 2025 | H1 2024 | Change ($) | Change (%) | | :----------------------------------------- | :---------- | :---------- | :---------- | :--------- | | Net Income (GAAP) | $4,851K | $8,458K | $(3,607K) | -42.6% | | TruPS Fair Value Adjustment (1) | $(48K) | $(520K) | N/A | N/A | | Income Tax Effect | $14K | $154K | N/A | N/A | | Non-core items net of taxes | $(34K) | $(366K) | N/A | N/A | | Non-GAAP Core Net Income | $4,885K | $8,824K | $(3,939K) | -44.6% | Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, geopolitical developments, regulatory changes, competition, and operational risks, which could cause actual results to differ materially - Forward-looking statements are based on management's current knowledge and beliefs and are subject to risks and uncertainties, including adverse economic conditions, geopolitical developments, and interest rate policies[28][29] - Other factors that could cause differences include changes in banking laws, increased competition, unanticipated deterioration in the loan portfolio, technological changes, and adverse developments in the financial services industry[29][30] Financial Tables (Unaudited) Consolidated Balance Sheets The consolidated balance sheets provide a detailed breakdown of assets, liabilities, and shareholders' equity as of June 30, 2025, compared to December 31, 2024 | (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 (OREO) | 7,852 | 4,582 | | Total assets | $1,214,137 | $1,211,718 | | Liabilities and Shareholders' Equity | | | | Total deposits | 1,055,669 | 1,057,622 | | Junior subordinated debentures (TruPS) (at fair value) | 11,831 | 11,572 | | 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 | Consolidated Statements of Income The consolidated statements of income present the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year periods, detailing interest income, interest expense, noninterest income, and expenses | (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 | | :--- | :--- | :--- | :--- | :--- | | 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 | | Income Before Provision for Taxes | 3,024 | 6,047 | 6,776 | 11,904 | | Provision for Income Taxes | 855 | 1,750 | 1,925 | 3,446 | | 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 | $0.28 | $0.49 | Average Balances and Rates This table provides average balances for key assets and liabilities, along with average interest rates and net interest margin, for the three and six months ended June 30, 2025, and comparable prior periods | (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 | | :--- | :--- | :--- | :--- | :--- | | Average Balances: | | | | | | Loans (1) | $931,933 | $910,404 | $923,875 | $907,649 | | Total interest-earning assets | 1,094,964 | 1,082,749 | 1,091,855 | 1,084,069 | | Interest-bearing deposits | 678,779 | 594,138 | 680,934 | 597,587 | | Total interest-bearing liabilities | 699,313 | 709,071 | 698,843 | 704,004 | | Total average assets | $1,203,022 | $1,194,911 | $1,199,551 | $1,194,109 | | Average Rates: | | | | | | Loans (1) | 5.92 % | 6.00 % | 6.05 % | 5.99 % | | Total earning assets | 5.50 % | 5.56 % | 5.59 % | 5.54 % | | Interest bearing deposits | 1.70 % | 1.26 % | 1.67 % | 1.21 % | | Total interest-bearing liabilities | 1.80 % | 1.96 % | 1.77 % | 1.89 % | | Net interest margin (2) | 4.35 % | 4.28 % | 4.46 % | 4.31 % | Condensed - Consolidated Balance Sheets This condensed balance sheet provides a quarterly trend of key financial positions, including assets, liabilities, and equity, from June 30, 2024, to June 30, 2025 | (In thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $49,091 | $37,894 | $56,211 | $47,915 | $38,757 | | Investment securities | 150,423 | 160,534 | 160,708 | 168,835 | 166,316 | | Net loans | 931,364 | 905,297 | 912,416 | 958,628 | 934,090 | | Total assets | $1,214,137 | $1,191,791 | $1,211,718 | $1,255,376 | $1,219,822 | | Total deposits | 1,055,669 | 1,026,213 | 1,057,622 | 1,065,021 | 1,006,614 | | Total liabilities | 1,079,883 | 1,058,915 | 1,081,356 | 1,122,520 | 1,092,472 | | Total shareholders' equity | 134,254 | 132,876 | 130,362 | 132,856 | 127,350 | | Total liabilities and shareholder's equity | $1,214,137 | $1,191,791 | $1,211,718 | $1,255,376 | $1,219,822 | Condensed - Consolidated Statements of Income This condensed income statement provides a quarterly trend of financial results, including net interest income, provision for credit losses, non-interest income, and net income, from Q2 2024 to Q2 2025 | (In thousands) | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total interest income | $15,004 | $15,283 | $15,146 | $15,755 | $14,972 | | Total interest expense | 3,141 | 2,987 | 3,342 | 3,943 | 3,450 | | Net interest income | 11,863 | 12,296 | 11,804 | 11,812 | 11,522 | | Provision for credit losses | 1,858 | 2,300 | 1,213 | 1,558 | 19 | | Total non-interest income | 758 | 1,360 | 120 | 2,023 | 1,517 | | Total non-interest expense | 7,739 | 7,604 | 7,430 | 7,142 | 6,973 | | Net income | $2,169 | $2,682 | $2,495 | $3,829 | $4,297 | Nonperforming Assets This table details the composition and trends of nonperforming assets, including nonaccrual loans and OREO, and their ratios to total loans and assets, as of June 30, 2025, and December 31, 2024 | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total nonaccrual loans | $5,698 | $12,198 | | Loans past due 90 days and still accruing | 274 | 421 | | Total nonperforming loans | 5,972 | 12,619 | | Other real estate owned | 7,852 | 4,582 | | Total nonperforming assets | $13,824 | $17,201 | | Nonperforming loans to total gross loans | 0.63 % | 1.36 % | | Nonperforming assets to total assets | 1.14 % | 1.42 % | | Allowance for credit losses to nonperforming loans | 267.33 % | 127.16 % | Selected Financial Data This table provides key financial ratios and per-share data for the six months ended June 30, 2025, and December 31, 2024, offering insights into profitability, efficiency, and capital adequacy | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Return on average assets | 0.82 % | 1.42 % | | Return on average equity | 7.31 % | 13.64 % | | Efficiency ratio (1) | 58.52 % | 53.23 % | | Annualized net charge-offs to average loans | 0.87 % | 0.14 % | | | June 30, 2025 | December 31, 2024 | | Shares outstanding - period end | 17,475,927 | 17,364,894 | | Book value per share | $7.68 | $7.51 | | Tangible book value per share | $7.43 | $7.25 | | Loan-to-deposit ratio | 89.74 % | 87.79 % | | Allowance for credit losses to total loans | 1.68 % | 1.72 % | | Tier 1 capital to adjusted average assets (leverage ratio): Company | 12.83 % | 12.57 % | | Tier 1 capital to adjusted average assets (leverage ratio): Bank | 12.56 % | 12.59 % | Net Income before Non-Core Reconciliation This reconciliation table adjusts GAAP net income to a non-GAAP 'Core Net Income' by excluding the fair value adjustment for junior subordinated debentures (TruPS) and its related income tax effect, providing an alternative view of operating performance | (Dollars in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Net income | $4,851 | $8,458 | $(3,607) | (42.6)% | | Junior subordinated debentures (TruPS) fair value adjustment (1) | (48) | (520) | | | | Income tax effect | 14 | 154 | | | | Non-core items net of taxes | (34) | (366) | | | | Non-GAAP core net income | $4,885 | $8,824 | $(3,939) | (44.6)% |