United Security Bancshares(UBFO) - 2025 Q3 - Quarterly Results

Executive Summary & Highlights 3rd Quarter 2025 Financial Results Overview United Security Bancshares reported increased net income and EPS for Q3 2025 compared to Q3 2024, driven by strong loan growth and improved shareholders' equity, despite ongoing student loan charge-offs which decreased in magnitude this quarter Q3 2025 Financial Results Summary | Metric | Q3 2025 | Q3 2024 | Change | % Change | | :-------------------------------- | :------ | :------ | :------ | :------- | | Net Income | $4.0 million | $3.8 million | +$0.2 million | +5.26% | | Basic and Diluted EPS | $0.23 | $0.22 | +$0.01 | +4.55% | - Loan growth of $30.0 million this quarter compared to the end of 2024[3] - Shareholders' equity improved by $7.0 million after dividends[3] - Magnitude of charge-offs in the student loan portfolio decreased this quarter compared to past few quarters[3] Third Quarter 2025 Key Financial Highlights Key financial metrics for Q3 2025 showed improvements in net interest margin, return on assets, and return on equity, alongside decreases in the cost of deposits and interest expense. Total loans and deposits also increased Q3 2025 Key Financial Highlights Table | Metric | Q3 2025 | Q3 2024 | Change | | :----------------------------------- | :------ | :------ | :------- | | Net Interest Margin | 4.35% | 4.20% | +0.15% | | Annualized Average Cost of Deposits | 1.12% | 1.18% | -0.06% | | Net Income | $4.0 million | $3.8 million | +5.07% | | Loan Interest and Fees | $14.3 million | $14.4 million | -0.94% | | Interest Income | $15.6 million | $15.8 million | -0.82% | | Interest Expense | $3.2 million | $3.9 million | -18.67% | | Noninterest Income | $1.6 million | $2.0 million | -20.02% | | Provision for Credit Losses | $948,000 | $1.6 million | -$652,000 | | Noninterest Expense | $7.4 million | $7.1 million | +4.09% | | Annualized Return on Average Assets (ROAA) | 1.29% | 1.24% | +0.05% | | Annualized Return on Average Equity (ROAE) | 11.68% | 11.63% | +0.05% | | Total Loans, net of unearned fees | $958.3 million | $928.5 million (Dec 31, 2024) | +3.22% | | Total Deposits | $1.08 billion | $1.06 billion (Dec 31, 2024) | +1.73% | - Partial redemption of $3.0 million on Junior Subordinated Debentures (TruPS) on July 1, 2025, resulting in a gain of $241,000[3] Results of Operations Quarter Ended September 30, 2025 For the third quarter of 2025, the Company reported an increase in net income and improved profitability ratios compared to the prior year, primarily driven by a decrease in the provision for credit losses and reduced short-term borrowing expenses, despite higher noninterest expenses and income tax provision Net Income and Profitability Ratios (Q3 2025) Net Income and Profitability Ratios Data | Metric | Q3 2025 | Q3 2024 | Q2 2025 | YoY Change | QoQ Change | | :-------------------------------- | :------ | :------ | :------ | :--------- | :--------- | | Net Income | $4.0 million | $3.8 million | $2.2 million | +5.07% | +81.82% | | Basic and Diluted EPS | $0.23 | $0.22 | $0.13 | +$0.01 | +$0.10 | | ROAE | 11.68% | 11.63% | - | +0.05% | - | | ROAA | 1.29% | 1.24% | - | +0.05% | - | - The increase in net income was primarily due to a $610,000 decrease in the provision for credit losses and a $717,000 decrease in short-term borrowing expense, partially offset by increases in noninterest expense ($292,000) and income tax provision ($326,000), and a decrease in loan and fee income ($135,000)[4] - A gain of $241,000 related to the partial redemption of TruPS and a $6,000 gain from changes in fair value of TruPS also contributed to the income increase[4] Net Interest Income and Margin (Q3 2025) Net Interest Income and Margin Data | Metric | Q3 2025 | Q3 2024 | YoY Change | Q2 2025 | QoQ Change | | :----------------------------------- | :------ | :------ | :--------- | :------ | :--------- | | Net Interest Income (before provision) | $12.4 million | $11.8 million | +5.14% | $11.9 million | +$556,000 | | Net Interest Margin | 4.35% | 4.20% | +0.15% | - | - | | Annualized Average Cost of Deposits | 1.12% | 1.18% | -0.06% | - | - | | Annualized Average Cost of Funds | 1.13% | 1.38% | -0.25% | - | - | - The increase in net interest income was driven by increases in interest on overnight investments held at the Federal Reserve and decreases in interest expense on short-term borrowings and deposits, offset by decreases in loan-interest income and investment securities interest income[6] - Yields on interest-earning assets decreased from 5.60% to 5.47%, while the cost of interest-bearing liabilities decreased from 2.13% to 1.81%[6] Noninterest Income (Q3 2025) Noninterest Income Data | Metric | Q3 2025 | Q3 2024 | YoY Change | Q2 2025 | QoQ Change | | :----------------------------------- | :------ | :------ | :--------- | :------ | :--------- | | Total Noninterest Income | $1.6 million | $2.0 million | -$405,000 | $758,000 | +$860,000 | | Gain on fair value of TruPS | $247,000 | $661,000 | -$414,000 | -$317,000 (loss) | +$564,000 | - The decrease in noninterest income YoY was primarily due to a lower gain on the fair value of TruPS, while the QoQ increase was due to a shift from a loss to a gain on TruPS and an increase in customer service fees of $121,000[7] - Noninterest income for Q3 2025 also included a realized gain of $241,000 from the partial redemption of $3.0 million of TruPS[7] Noninterest Expense (Q3 2025) Noninterest Expense Data | Metric | Q3 2025 | Q3 2024 | YoY Change | Q2 2025 | QoQ Change | | :-------------------- | :------ | :------ | :--------- | :------ | :--------- | | Total Noninterest Expense | $7.4 million | $7.1 million | +$292,000 | $7.7 million | -$305,000 | - The YoY increase was partially due to increases of $125,000 in other noninterest expense and $93,000 in salaries and employee benefit expenses, offset by decreases in loan-related expenses of $95,000[8] - Salaries and employee benefits increased primarily due to increases of $144,000 in employee salary expense and $101,000 in group insurance costs[8] Provision for Credit Losses (Q3 2025) Provision for Credit Losses Data | Metric | Q3 2025 | Q3 2024 | Change | | :-------------------------- | :------ | :------ | :------- | | Provision for Credit Losses | $948,000 | $1.6 million | -$652,000 | - The decreased credit provision was due to a decrease in charge-offs within the student loan portfolio[3] Efficiency Ratio and Income Tax (Q3 2025) Efficiency Ratio and Income Tax Data | Metric | Q3 2025 | Q3 2024 | Change | | :-------------------- | :------ | :------ | :------- | | Efficiency Ratio | 52.80% | 52.47% | +0.33% | | Income Tax Provision | $1.6 million | $1.3 million | +$300,000 | | Effective Tax Rate | 28.86% | 25.43% | +3.43% | - The deterioration in the efficiency ratio was due to an increase in noninterest expense and a decrease in noninterest income, offset by an increase in net interest income[9] Nine Months Ended September 30, 2025 For the nine months ended September 30, 2025, net income decreased significantly compared to the prior year, primarily due to a substantial increase in the provision for credit losses, higher deposit interest expense, and increased noninterest expense, which outweighed reductions in short-term borrowing expense and income tax provision Net Income and Profitability Ratios (9M 2025) Net Income and Profitability Ratios Data | Metric | 9M 2025 | 9M 2024 | Change | % Change | | :-------------------------------- | :------ | :------ | :------ | :------- | | Net Income | $8.9 million | $12.3 million | -$3.4 million | -27.78% | | Basic and Diluted EPS | $0.51 | $0.72 | -$0.21 | -29.17% | | ROAE | 8.79% | 12.95% | -4.16% | - | | ROAA | 0.98% | 1.36% | -0.38% | - | - The decrease in net income was primarily the result of a $3.4 million increase in the provision for credit losses, a $2.0 million increase in deposit interest expense, and a $1.9 million increase in noninterest expense[11] - These negative impacts were partially offset by a $3.3 million decrease in short-term borrowing expense, a $1.2 million decrease in the income tax provision, an increase of $59,000 on the fair value of TruPS, and an increase of $516,000 in loan and fee income[11] Net Interest Income and Margin (9M 2025) Net Interest Income and Margin Data | Metric | 9M 2025 | 9M 2024 | Change | % Change | | :----------------------------------- | :------ | :------ | :------ | :------- | | Net Interest Income (before provision) | $36.6 million | $35.0 million | +$1.5 million | +4.37% | | Net Interest Margin | 4.42% | 4.27% | +0.15% | - | | Annualized Average Cost of Deposits | 1.11% | 0.91% | +0.20% | - | | Annualized Average Cost of Funds | 1.12% | 1.25% | -0.13% | - | - The increase in net interest income was driven by increases in loan-interest income, increases in income on overnight deposits held at the Federal Reserve, and decreases in interest expense on short-term borrowings, offset by increases in interest expense on deposits[13] - Yields on interest-earning assets decreased slightly to 5.55% from 5.56%, while yields on interest-bearing liabilities decreased to 1.78% from 1.97%[13] Noninterest Income (9M 2025) Noninterest Income Data | Metric | 9M 2025 | 9M 2024 | Change | | :-------------------- | :------ | :------ | :------- | | Total Noninterest Income | $3.7 million | $4.6 million | -$852,000 | | Gain on fair value of TruPS | $200,000 | $141,000 | +$59,000 | - The decrease in noninterest income was partially due to a $573,000 gain on proceeds from life insurance realized during the nine months ended September 30, 2024, and a decrease in other noninterest income of $342,000[14] - Noninterest income also included a realized gain of $241,000 related to the partial redemption of $3.0 million of the TruPS contractual balance[14] Noninterest Expense (9M 2025) Noninterest Expense Data | Metric | 9M 2025 | 9M 2024 | Change | | :-------------------- | :------ | :------ | :------- | | Total Noninterest Expense | $22.8 million | $20.8 million | +$1.9 million | - The increase was partially from increases of $1.0 million in salaries and employee benefit expenses, $444,000 in data processing expenses, and $323,000 in other noninterest expense[15] - Salaries and employee benefits increased primarily due to increases of $554,000 in group insurance costs and $342,000 in employee salaries[15] Provision for Credit Losses (9M 2025) Provision for Credit Losses Data | Metric | 9M 2025 | 9M 2024 | Change | | :-------------------------- | :------ | :------ | :------- | | Provision for Credit Losses | $5.1 million | $1.8 million | +$3.3 million | - The provisions recorded during 2025 and 2024 were primarily driven by deterioration within the student loan portfolio[22] Efficiency Ratio and Income Tax (9M 2025) Efficiency Ratio and Income Tax Data | Metric | 9M 2025 | 9M 2024 | Change | | :-------------------- | :------ | :------ | :------- | | Efficiency Ratio | 56.36% | 52.96% | +3.40% | | Income Tax Provision | $3.6 million | $4.8 million | -$1.2 million | | Effective Tax Rate | 28.61% | 27.88% | +0.73% | - The deterioration in the efficiency ratio was due to increases in interest expense and noninterest expense and a decrease in noninterest income, offset by an increase in net interest income[16] Balance Sheet Review Assets Review Total assets increased by 1.97% since December 31, 2024, primarily driven by growth in gross loan balances, particularly real estate construction and agricultural loans, while investment securities decreased and OREO balances rose due to foreclosures Asset Categories Overview | Asset Category | Sep 30, 2025 | Dec 31, 2024 | Change | % Change | | :----------------------------------- | :----------- | :----------- | :------- | :------- | | Total Assets | $1.236 billion | $1.212 billion | +$23.9 million | +1.97% | | Gross Loan Balances | +$30.1 million | - | - | - | | Investment Securities | -$16.4 million | - | - | - | | Total Cash and Cash Equivalents | +$10.6 million | - | - | - | | OREO Balances | $7.9 million | $4.6 million | +$3.3 million | +71.74% | - Increases in gross loans included $31.4 million in real estate construction and development loans and $22.7 million in agricultural loans, offset by decreases in commercial and industrial loans and installment loans[18] - Declines in the investment portfolio were primarily due to calls on and maturities of corporate securities, partially offset by a decrease in unrealized losses[18] Liabilities and Deposits Review Total deposits increased by 1.73% since December 31, 2024, driven by a significant rise in noninterest-bearing deposits, which offset a decrease in interest-bearing deposits. Core deposits also saw an increase Liabilities and Deposits Overview | Deposit Category | Sep 30, 2025 | Dec 31, 2024 | Change | % Change | | :----------------------- | :----------- | :----------- | :------- | :------- | | Total Deposits | $1.08 billion | $1.06 billion | +$18.3 million | +1.73% | | Noninterest-bearing Deposits | $384.4 million | $360.2 million | +$24.2 million | +6.72% | | Interest-bearing Deposits | -$5.9 million | - | - | - | | Core Deposits | +$18.9 million | - | - | - | - Brokered DDA accounts totaled $100.3 million at both September 30, 2025, and December 31, 2024, with an average rate of 4.53% for Q3 2025[19] Shareholders' Equity and Dividends Shareholders' equity increased by $7.0 million since December 31, 2024, primarily due to net income and a reduction in accumulated other comprehensive loss, partially offset by dividend payments. The Board declared a cash dividend of $0.12 per share Shareholders' Equity and Dividends Data | Metric | Sep 30, 2025 | Dec 31, 2024 | Change | | :----------------------------------- | :----------- | :----------- | :------- | | Total Shareholders' Equity | $137.4 million | $130.4 million | +$7.0 million | | Accumulated Other Comprehensive Loss | $10.6 million | $14.4 million | -$3.8 million | - The increase in equity was the result of $8.9 million in net income and a $3.8 million decrease in accumulated other comprehensive loss, partially offset by $6.3 million in dividend payments[20] - A cash dividend of $0.12 per share was declared on September 23, 2025, payable on October 21, 2025[21] Credit Quality Provision for Credit Losses and Net Charge-offs The Company recorded a significantly higher provision for credit losses and net loan charge-offs for the nine months ended September 30, 2025, compared to the prior year, primarily due to deterioration within the student loan portfolio Credit Losses and Net Charge-offs Data | Metric | 9M 2025 | 9M 2024 | Change | | :-------------------------- | :------ | :------ | :------- | | Provision for Credit Losses | $5.1 million | $1.8 million | +$3.3 million | | Net Loan Charge-offs | $4.6 million | $1.2 million | +$3.4 million | - The provisions and charge-offs were primarily driven by deterioration within the student loan portfolio[22] Allowance for Credit Losses The allowance for credit losses as a percentage of the loan portfolio slightly decreased, but management deems it adequate to cover potential losses Allowance for Credit Losses Data | Metric | Sep 30, 2025 | Dec 31, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | Allowance for Credit Losses to Loan Portfolio | 1.69% | 1.72% | -0.03% | - Management considers the allowance for credit losses at September 30, 2025, to be adequate[23] Non-performing Assets Non-performing assets decreased by $3.1 million, or 18.08%, since December 31, 2024, primarily due to a significant reduction in nonaccrual loans, partially offset by an increase in Other Real Estate Owned (OREO) from foreclosures Non-performing Assets Data | Metric | Sep 30, 2025 | Dec 31, 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Total Non-performing Assets | $14.1 million | $17.2 million | -$3.1 million | -18.08% | | Non-performing Assets to Total Assets | 1.14% | 1.42% | -0.28% | - | | Nonaccrual Loans | -$6.5 million | - | - | - | | OREO Balances | +$3.3 million | - | - | - | - The decrease in non-performing assets is primarily attributed to a decrease of $6.5 million in nonaccrual loans, partially offset by an increase of $3.3 million in OREO balances due to foreclosures[24] - A nonaccrual loan with a principal balance of $3.2 million was paid off, and nonaccrual interest of $890,000 was recognized[24] Company Information About United Security Bancshares United Security Bancshares is the holding company for United Security Bank, established in 1987 and headquartered in Fresno, CA. It operates 13 full-service branch offices across various California cities and includes Commercial Real Estate Construction, Commercial Lending, and Consumer Lending departments - United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, founded in 1987[25] - Headquartered in Fresno, CA, with 13 full-service branch offices in various California locations[25] - Operates Commercial Real Estate Construction, Commercial Lending, and Consumer Lending departments[25] Forward-Looking Statements Disclaimer and Risk Factors This section contains forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from expectations. Readers are advised not to place undue reliance on these statements and to review the Company's Form 10-K for a comprehensive discussion of risks - Forward-looking statements are based on management's current knowledge and beliefs and are not guarantees of future performance[26] - Actual results may differ materially due to various factors, including adverse economic conditions, geopolitical developments, regulatory changes, increased competition, credit quality, technological changes, and liquidity risks[27] - The Company does not undertake any obligation to publicly revise or update these statements, except as required by law, and directs readers to its Annual Report on Form 10-K for a more complete discussion of risks[29] Financial Statements & Data Consolidated Balance Sheets (unaudited) The unaudited consolidated balance sheets present the Company's financial position as of September 30, 2025, and December 31, 2024, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheet Summary | (In thousands) | Sep 30, 2025 | Dec 31, 2024 | | :------------------------------------------ | :----------- | :----------- | | Assets | | | | Cash and cash equivalents | $66,767 | $56,211 | | Total investment securities | 144,342 | 160,708 | | Net loans | 942,113 | 912,416 | | Total assets | $1,235,620 | $1,211,718 | | Liabilities and Shareholders' Equity | | | | Total deposits | 1,075,900 | 1,057,622 | | Junior subordinated debentures (TruPS) | 9,145 | 11,572 | | Total liabilities | 1,098,238 | 1,081,356 | | Total shareholders' equity | 137,382 | 130,362 | | Total liabilities and shareholders' equity | $1,235,620 | $1,211,718 | Consolidated Statements of Income (unaudited) The unaudited consolidated statements of income provide a detailed breakdown of the Company's revenues and expenses for the three and nine months ended September 30, 2025, and 2024, showing net interest income, noninterest income/expense, and net income Consolidated Statements of Income Summary | (In thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total interest income | $15,626 | $15,755 | $45,913 | $45,605 | | Total interest expense | 3,207 | 3,943 | 9,337 | 10,559 | | Net Interest Income | 12,419 | 11,812 | 36,576 | 35,046 | | Provision for Credit Losses | 948 | 1,558 | 5,106 | 1,750 | | Total noninterest income | 1,618 | 2,023 | 3,739 | 4,591 | | Total noninterest expense | 7,434 | 7,142 | 22,778 | 20,849 | | Income Before Provision for Taxes | 5,655 | 5,135 | 12,431 | 17,038 | | Provision for Income Taxes | 1,632 | 1,306 | 3,557 | 4,751 | | Net Income | $4,023 | $3,829 | $8,874 | $12,287 | | Basic Net income per common share | $0.23 | $0.22 | $0.51 | $0.72 | | Diluted Net income per common share | $0.23 | $0.22 | $0.51 | $0.72 | Average Balances and Rates (unaudited) This table provides unaudited average balances for key assets and liabilities, along with the corresponding average interest rates, for the three and nine months ended September 30, 2025, and 2024, illustrating trends in interest-earning assets and interest-bearing liabilities Average Balances and Rates Data | (In thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Average Balances: | | | | | | Loans | $956,832 | $949,207 | $935,727 | $921,454 | | Total interest-earning assets | 1,133,053 | 1,120,080 | 1,106,485 | 1,096,012 | | Total average assets | $1,238,187 | $1,231,282 | $1,212,524 | $1,206,657 | | Interest-bearing deposits | $689,444 | $678,334 | $683,802 | $624,699 | | Total interest-bearing liabilities | 701,272 | 735,502 | 699,661 | 714,580 | | Total equity | 136,703 | 130,929 | 135,007 | 126,757 | | Average Rates: | | | | | | Loans | 5.92% | 6.04% | 6.00% | 6.01% | | Total earning assets | 5.47% | 5.60% | 5.55% | 5.56% | | Interest-bearing deposits | 1.75% | 1.80% | 1.70% | 1.42% | | Total interest-bearing liabilities | 1.81% | 2.13% | 1.78% | 1.97% | | Net interest margin | 4.35% | 4.20% | 4.42% | 4.27% | Condensed Consolidated Financials (unaudited) These condensed unaudited consolidated financial statements provide a quarterly view of the Company's balance sheet and income statement trends, allowing for sequential analysis of financial performance and position over recent periods Condensed Consolidated Financials Summary | (In thousands) | Sep 30, 2025 | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Condensed - Consolidated Balance Sheets | | | | | | | Total assets | $1,235,620 | $1,214,137 | $1,191,791 | $1,211,718 | $1,255,376 | | Total deposits | 1,075,900 | 1,055,669 | 1,026,213 | 1,057,622 | 1,065,021 | | Total shareholders' equity | 137,382 | 134,254 | 132,876 | 130,362 | 132,856 | | Condensed - Consolidated Statements of Income | | | | | | | Total interest income | $15,626 | $15,004 | $15,283 | $15,146 | $15,755 | | Net interest income | 12,419 | 11,863 | 12,296 | 11,804 | 11,812 | | Provision for credit losses | 948 | 1,858 | 2,300 | 1,213 | 1,558 | | Net income | $4,023 | $2,169 | $2,682 | $2,495 | $3,829 | Nonperforming Assets (unaudited) This table provides a breakdown of nonperforming assets, including nonaccrual loans and other real estate owned, along with key ratios, as of September 30, 2025, and December 31, 2024 Nonperforming Assets Breakdown | (Dollars in thousands) | Sep 30, 2025 | Dec 31, 2024 | | :-------------------------------- | :----------- | :----------- | | Total nonaccrual loans | $5,699 | $12,198 | | Loans past due 90 days and still accruing | 555 | 421 | | Total nonperforming loans | 6,254 | 12,619 | | Other real estate owned | 7,852 | 4,582 | | Total nonperforming assets | $14,106 | $17,201 | | Nonperforming loans to total gross loans | 0.65% | 1.36% | | Nonperforming assets to total assets | 1.14% | 1.42% | | Allowance for credit losses to nonperforming loans | 259.59% | 127.16% | Selected Financial Data (unaudited) This table presents key financial performance and balance sheet ratios, including profitability, efficiency, credit quality, and per-share metrics, for the three and nine months ended September 30, 2025, and 2024, and period-end data Selected Financial Data Table | Metric | Three months ended Sep 30, 2025 | Three months ended Sep 30, 2024 | Nine months ended Sep 30, 2025 | Nine months ended Sep 30, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Return on average assets | 1.29% | 1.24% | 0.98% | 1.36% | | Return on average equity | 11.68% | 11.63% | 8.79% | 12.95% | | Efficiency ratio | 52.80% | 52.47% | 56.36% | 52.96% | | Annualized net charge-offs to average loans | 0.26% | 0.27% | 0.66% | 0.18% | | | Sep 30, 2025 | Dec 31, 2024 | | | | Shares outstanding - period end | 17,557,427 | 17,364,894 | | | | Book value per share | $7.82 | $7.51 | | | | Tangible book value per share | $7.57 | $7.25 | | | | Loan-to-deposit ratio | 89.07% | 87.79% | | | | Allowance for credit losses to total loans | 1.69% | 1.72% | | | | Tier 1 capital to adjusted average assets (Company) | 12.42% | 12.57% | | |