Document

Dennis Woods, President and Chief Executive Officer, stated: “We are very pleased with our second quarter and year-to-date operating results. Our year-to-date net interest margin of 4.38% in an environment of increased deposit pricing pressure is a testament to the great work of our team members by providing outstanding service to our valued long-term customers. We were excited to increase our quarterly dividend this quarter to $0.12 per share in recognition of our growth in earnings and ROAE compared to last year. We continue to focus on our liquidity, credit risk, and balance sheet growth.”

Net interest income, before the provision for credit losses, was $12.5 million for the quarter ended June 30, 2023, representing a $2.1 million, or 20.1%, increase from the $10.4 million reported at June 30, 2022. The increase in net interest income was driven by growth in the loan and investment portfolios and increases in interest rates. The Company’s net interest margin increased from 3.38% to 4.30% between the quarters ended June 30, 2022 and June 30, 2023, respectively. The increase in the net interest margin was due to increases in yields on loans, investment securities, and interest-bearing deposits at FRB, and was partially offset by increases in average rates paid on deposits and rates on purchases of fed funds. Net interest income during the quarter ended June 30, 2023 decreased $441,000 from the $12.9 million reported during the quarter ended March 31, 2023. This was primarily due to increases in interest paid on deposits and fed funds.

Noninterest income for the quarter ended June 30, 2023 totaled $1.0 million, an increase of $409,000 from the $602,000 in non-interest income reported for the quarter ended June 30, 2022. The increase is primarily attributed to a decrease of $794,000 in the loss on the fair value of junior subordinated debentures between the two quarters and was offset by $566,000 in income received from an investment in a limited partnership during the second quarter of 2022. Noninterest income decreased $437,000 from the $1.4 million reported for the quarter ended March 31, 2023. This was primarily due to a gain of $333,000 recorded on the fair value of the junior subordinated debt during the first quarter of 2023 compared to a loss of $74,000 in the second quarter of 2023.

Noninterest expense for the quarter ended June 30, 2023 totaled $6.2 million, reflecting a $537,000 increase over $5.7 million reported for the quarter ended June 30, 2022, and a $33,000 decrease from the $6.2 million reported from the quarter ended March 31, 2023. The increase between the quarters ended June 30, 2023 and 2022 resulted partially from increases of $524,000 in salaries and employee benefits and $60,000 in data processing fees. Salaries and employee benefits increased due to increases in salary expenses of $346,000 and group insurance expenses of $262,000.

Net income for the six months ended June 30, 2023 increased 79.3% to $10.5 million, compared to the six months ended June 30, 2022. The increase is primarily the result of an increase of $7.7 million in loan interest income and fees, an increase of $1.2 million in investment income, and a $2.1 million decrease in the loss on the fair value of junior subordinated debentures, partially offset by a $2.2 million increase in interest on deposits and $2.0 million increase in the provision for income taxes. ROAE for the six months ended June 30, 2023 was 19.32%, compared to 10.19% for the six months ended June 30, 2022. ROAA was 1.68% for the six months ended June 30, 2023, compared to 0.89% for the six months ended June 30, 2022.

Net interest income, before the provision for credit losses, for the six months ended June 30, 2023 totaled $25.4 million, an increase of $5.6 million, or 28.2%, from the $19.8 million reported for the period ended June 30, 2022. The impact of the increase in interest rates over the past year is reflected in the increase in net interest income. The Company’s net interest margin increased from 3.23% for the six months ended June 30, 2022 to 4.38% for the six months ended June 30, 2023. The increase in the net interest margin is due to increases in yields on investment securities, yields on loans, and yields on interest-bearing deposits at the Federal Reserve Bank, partially offset by increases in average deposit costs. Loan yields increased from 4.28% to 5.59% between the two periods while the yield on interest-bearing liabilities increased from 0.31% to 1.16% between the two periods.

Noninterest income for the six months ended June 30, 2023 totaled $2.5 million, an increase of $2.1 million when compared to the $395,000 reported for the six months ended June 30, 2022. For the six months ended June 30, 2023, a gain on the fair value of TRUPs of $258,000 was recorded, compared to a loss of $1.9 million for the same period in 2022. The change in the fair value of TRUPs reflected in noninterest income was caused by fluctuations in the LIBOR yield curve.

For the six months ended June 30, 2023, noninterest expense totaled $12.4 million, an increase of $863,000 compared to $11.6 million for the six months ended June 30, 2022. On a year-over-year comparative basis, noninterest expense increased due to increases of $735,000 in salaries and employee benefits, $192,000 in occupancy expense, and $119,000 in data processing fees, partially offset by decreases of $76,000 in professional fees and $32,000 in regulatory assessments. Salaries and employee benefit expense increased due to increases in salaries and group insurance costs and occupancy expense increased due to increased depreciation expense, utility costs, and building services expenses. Also included in the increase in noninterest expense is an increase of $323,000 in the provision for unfunded loan commitments.

Total assets decreased $10.4 million, or 0.8%, between December 31, 2022 and June 30, 2023. Overnight balances held at the Federal Reserve Bank increased $18.2 million, gross loan balances decreased $20.4 million, and investment securities decreased $5.3 million. Decreases in gross loans included decreases of $18.1 million in real estate construction and development loans, $5.0 million in commercial and industrial loans, and $2.4 million in real estate mortgage loans, offset by increases of $4.9 million in agricultural loans. Declines in the investment portfolio were the result of $6.3 million in paydowns offset by a decrease in unrealized losses totaling $873,000 between the two periods. Total cash and cash equivalents increased $19.8 million between December 31, 2022 and June 30, 2023. Unfunded loan commitments increased from $190.2 million at December 31, 2022 to $224.4 million at June 30, 2023. OREO balances totaled $4.6 million at December 31, 2022 and June 30, 2023.

Total deposits decreased $118.9 million, or 10.2%, to $1.05 billion during the six months ended June 30, 2023. This was due to decreases of $113.7 million in interest bearing deposits and decreases of $5.2 million in noninterest-bearing deposits. NOW and money market accounts decreased $114.2 million, savings accounts decreased $11.9 million, and time deposits increased $12.4 million. In total, NOW, money market and savings accounts decreased 20.1% to $499.7 million at June 30, 2023, compared to $625.8 million at December 31, 2022. Noninterest bearing deposits decreased 1.1% to $476.4 million at June 30, 2023, compared to $481.6 million at December 31, 2022. Core deposits, which are made up of the balance of noninterest bearing deposits, NOW, money market, savings, and time deposits accounts less than $250,000, decreased $123.1 million.

Shareholders’ equity at June 30, 2023 totaled $115.7 million, an increase of $3.2 million from the $112.5 million reported at December 31, 2022. This increase in equity was the result of $10.5 million in net income and a decrease of $867,000 in accumulated other comprehensive loss, partially offset by a $4.7 million, net of tax, accounting adjustment to retained earnings related to the adoption of CECL and $3.9 million in dividend payments. At June 30, 2023, the accumulated other comprehensive loss totaled $16.6 million, compared to $17.5 million at December 31, 2022. The decrease in accumulated other comprehensive loss was primarily the result of a decrease in net unrealized losses on investment securities of $873,000 and a $37,000 increase in the fair value of TRUPs caused by a change in market credit spreads during the six months ended June 30, 2023. The change in unrealized loss on the investment portfolio is attributed to changes in interest rates, and not credit quality. The Company does not intend to sell and it is more likely than not that it will not be required to sell any securities that have an unrealized loss.

On January 1, 2023, the Company adopted the Current Expected Credit Loss (CECL) methodology and recognized a $6.6 million increase to the allowance for credit losses, and a related $4.7 million reduction to retained earnings, net of tax. CECL is a forward-looking model that broadens the range of data to include the use of economic forecasts to estimate credit losses over the life of the loan portfolio in addition to the use of past loss data and current conditions. This new model will have an impact on the allowance for credit losses going forward and may result in a lack of comparability between the current and previous year. The Company recorded a provision for credit losses of $598,000 for the six months ended June 30, 2023, compared to $417,000 provision for the six months ended June 30, 2022. The provisions recorded during 2022 and 2023 were primarily driven by increases in loan balances and charge-offs within the student loan portfolio. Net loan charge-offs totaled $902,000 for the six months ended June 30, 2023, compared to $37,000 for the six months ended June 30, 2022, and were primarily due to losses in the student loan portfolio.

Non-performing assets, comprised of nonaccrual loans, loan modifications, other real estate owned through foreclosure, and loans more than 90 days past due and still accruing interest, decreased $1.6 million between December 31, 2022 and June 30, 2023 to $18.0 million. Nonperforming assets as a percentage of total assets decreased from 1.49% at December 31, 2022 to 1.39% at June 30, 2023. The decrease in nonperforming assets is primarily attributed to decreases of $1,341,000 in nonaccrual loans and $81,000 in loans past due more than 90 days. OREO balances remained at $4.6 million at December 31, 2022 and June 30, 2023.

United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, which was founded in 1987. United Security Bank is headquartered in Fresno and operates 12 full-service branch offices in Fresno, Bakersfield, Campbell, Caruthers, Coalinga, Firebaugh, Mendota, Oakhurst, San Joaquin, and Taft, California. Additionally, United Security Bank operates Commercial Real Estate Construction, Commercial Lending, and Consumer Lending departments. For more information, please visit www.unitedsecuritybank.com.

This press release and the accompanying financial tables contain a non-GAAP financial measure (net income before non-Core) within the meaning of the Securities and Exchange Commission’s Regulation G. In the accompanying financial table, the Company has provided a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure. The Company’s management believes that this non-GAAP financial measure provides useful information about the Company’s results of operations and/or financial position to both investors and management. The Company provides this non-GAAP financial measure to investors to assist them in performing their analysis of its historical operating results. The non-GAAP financial measure shows the Company’s operating results before consideration of certain adjustments and, consequently, this non-GAAP financial measure should not be construed as an alternative to net income as an indicator of the Company’s operating performance, as determined in accordance with GAAP. The Company may calculate this non-GAAP financial measure differently than other companies.

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Company intends such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Forward-looking statements are based on management’s knowledge and belief as of today and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements are subject to risks and uncertainties and actual results may differ materially from those presented. Factors that might cause such differences, some of which are beyond the Company’s ability to control or predict, include, but are not limited to: (1) adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions,

inflationary pressures, labor shortages, and global conflict and unrest; (2) changes in general economic and financial market conditions, either nationally or locally; (3) fiscal policies of the U.S. government, including interest rate policies of the Board of Governors of the Federal Reserve System; (4) changes in banking laws or regulations including the implementation of increased capital requirements for financial institutions; (5) increased competition in the Company’s markets, impacting the ability to execute its business plans; (6) loss of or inability to attract key personnel; (7) unanticipated deterioration in our loan portfolio, credit losses, and the sufficiency of our allowance for credit losses; (8) drought, earthquakes, floods or other natural disasters impacting the local economy and/or the condition of real estate collateral; (9) the impact of technological changes and the ability to develop and maintain secure and reliable electronic systems including failures in or breaches of the Company’s operational and/or security systems or infrastructure; (10) the failure to maintain effective controls over our financial reporting; (11) the quality and quantity of our deposits; (12) adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; (13) risks related to the sufficiency of liquidity; (14) the possibility that our recorded goodwill could become impaired which may have an adverse impact on our earnings and capital, (15) changes in accounting policies or procedures; and (16) the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the lingering effects of the COVID-19 global pandemic.

The Company does not undertake (and expressly disclaims) any obligation to publicly revise or update these forward-looking statements to reflect subsequent events or circumstances except as may be required by law. For a more complete discussion of these risks and uncertainties, see the Company’s Annual Report on Form 10-K, for the year ended December 31, 2022, and particularly the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers should carefully review all disclosures the Company files from time to time with the Securities and Exchange Commission.


United Security Bancshares
Consolidated Balance Sheets (unaudited)
(In thousands-except share data)	June 30, 2023		December 31, 2022
Assets
Cash and non-interest-bearing deposits in other banks	$	33,220	$	31,650
Due from Federal Reserve Bank (FRB)	25,183		6,945

Cash and cash equivalents	58,403		38,595


Investment securities (at fair value)
Available-for-sale (AFS) securities	202,213		207,545
Marketable equity securities	3,308		3,315
Total investment securities	205,521		210,860
Loans	961,379		981,772
Unearned fees and unamortized loan origination costs - net	(1,258)		(1,594)
Allowance for credit losses	(16,110)		(10,182)
Net loans	944,011		969,996
Premises and equipment - net	9,340		9,770
Accrued interest receivable	7,770		8,489
Other real estate owned (OREO)	4,582		4,582
Goodwill	4,488		4,488
Deferred tax assets - net	14,348		12,825

Cash surrender value of life insurance, net	23,196		22,893

Operating lease right-of-use assets	1,653		1,984
Other assets	15,507		14,711
Total assets	$	1,288,819	$	1,299,193

Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	476,387	$	481,629
Interest-bearing	570,167		683,855
Total deposits	1,046,554		1,165,484
Fed funds purchased	100,620		—
Operating lease liabilities	1,759		2,093
Other liabilities	13,487		8,270
Junior subordinated debentures (at fair value)	10,719		10,883
Total liabilities	1,173,139		1,186,730
Shareholders’ Equity
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 17,129,938 at June 30, 2023 and 17,067,253 at December 31, 2022	60,451		60,030
Retained earnings	71,857		69,928
Accumulated other comprehensive loss, net of tax	(16,628)		(17,495)
Total shareholders’ equity	115,680		112,463
Total liabilities and shareholders’ equity	$	1,288,819	$	1,299,193


United Security Bancshares
Consolidated Statements of Income (unaudited)	Three Months Ended						Six Months Ended
(In thousands - except share and per-share data)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Interest Income:
Interest and fees on loans	$	13,529	$	13,000	$	9,731	$	26,529	$	18,849
Interest on investment securities	1,501		1,501		1,004		3,002		1,795
Interest on deposits in FRB	56		58		258		114		340

Total interest income	15,086		14,559		10,993		29,645		20,984
Interest Expense:
Interest on deposits	1,944		1,343		515		3,287		1,023
Interest on other borrowed funds	638		271		69		909		114
Total interest expense	2,582		1,614		584		4,196		1,137
Net Interest Income	12,504		12,945		10,409		25,449		19,847
Provision (Reversal) for Credit Losses	1,091		(493)		512		598		417
Net Interest Income after Provision (Reversal) for Credit Losses	11,413		13,438		9,897		24,851		19,430
Noninterest Income:
Customer service fees	767		734		776		1,501		1,429
Increase in cash surrender value of bank-owned life insurance	171		132		114		303		253
Unrealized gain (loss) on fair value of marketable equity securities	(50)		43		(127)		(7)		(309)

Gain (loss) on fair value of junior subordinated debentures	(75)		333		(869)		258		(1,869)

Gain on sale of investment securities	—		—		—		—		30

Other	198		206		708		405		861
Total noninterest income	1,011		1,448		602		2,460		395
Noninterest Expense:
Salaries and employee benefits	3,301		3,260		2,777		6,561		5,826
Occupancy expense	858		963		849		1,820		1,628
Data processing	205		174		145		379		260
Professional fees	910		882		919		1,792		1,868
Regulatory assessments	193		192		187		385		417
Director fees	106		109		116		216		234

Correspondent bank service charges	19		19		24		38		50

Net cost of operation of OREO	58		37		2		96		(6)
Other	557		604		651		1,161		1,308
Total noninterest expense	6,207		6,240		5,670		12,448		11,585
Income Before Provision for Taxes	6,217		8,646		4,829		14,863		8,240
Provision for Taxes on Income	1,800		2,521		1,394		4,321		2,362
Net Income	$	4,417	$	6,125	$	3,435	$	10,542	$	5,878

Basic earnings per common share	$	0.26	$	0.36	$	0.20	$	0.62	$	0.35
Diluted earnings per common share	$	0.26	$	0.36	$	0.20	$	0.62	$	0.34
Weighted average basic shares for EPS	17,102,740		17,076,510		17,036,364		17,089,693		17,033,401
Weighted average diluted shares for EPS	17,114,740		17,092,460		17,057,755		17,103,601		17,054,742


United Security Bancshares
Average Balances and Rates (unaudited)	Three Months Ended									Six Months Ended
(In thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Average Balances:
Loans (1)	$	954,634		$	960,648		$	906,396		$	957,620		$	888,722
Investment securities	207,639			211,523			192,494			209,571			190,141

Interest-bearing deposits in FRB	3,674			5,493			136,898			4,578			156,959
Total interest-earning assets	1,165,947			1,177,664			1,235,788			1,171,769			1,235,822
Allowance for credit losses	(15,644)			(16,323)			(9,302)			(15,984)			(9,408)
Cash and due from banks	36,883			36,008			34,904			36,448			36,089
Other real estate owned	4,582			4,582			4,582			4,582			4,582
Other non-earning assets	78,381			78,550			71,526			75,396			68,575
Total average assets	$	1,270,149		$	1,280,481		$	1,337,498		$	1,272,211		$	1,335,660

Interest-bearing deposits	$	704,747		$	689,706		$	737,149		$	697,268		$	732,168
Junior subordinated debentures	10,912			10,801			10,863			10,856			11,009
Fed funds purchased	33,602			7,492			—			20,619			—
Total interest-bearing liabilities	749,261			707,999			748,012			728,743			743,177
Noninterest-bearing deposits	390,953			445,502			465,926			418,092			466,097
Other liabilities	22,205			14,014			9,583			15,039			9,774
Total liabilities	1,162,419			1,167,515			1,223,521			1,161,874			1,219,048
Total equity	107,730			112,966			113,977			110,337			116,612
Total liabilities and equity	$	1,270,149		$	1,280,481		$	1,337,498		$	1,272,211		$	1,335,660

Average Rates:
Loans (1)	5.68		%	5.49		%	4.31		%	5.59		%	4.28		%
Investment securities	2.90		%	2.88		%	2.09		%	2.89		%	1.90		%

Interest-bearing deposits in FRB	6.11		%	4.28		%	0.76		%	5.02		%	0.44		%
Earning assets	5.19		%	5.01		%	3.57		%	5.10		%	3.42		%
Interest bearing deposits	1.11		%	0.78		%	0.28		%	0.95		%	0.28		%
Total deposits	0.71		%	0.48		%	0.17		%	0.58		%	0.17		%
Fed fund purchased	5.28		%	4.87		%	—		%	5.20		%	—		%
Junior subordinated debentures	7.20		%	6.80		%	2.55		%	7.00		%	2.09		%
Total interest-bearing liabilities	1.38		%	0.92		%	0.31		%	1.16		%	0.31		%
Net interest margin (2)	4.30		%	4.45		%	3.38		%	4.38		%	3.23		%


United Security Bancshares
Condensed - Consolidated Balance Sheets (unaudited)

(In thousands)	June 30, 2023			March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022
Cash and cash equivalents	$	58,403		$	45,153	$	38,595	$	126,032	$	107,246
Investment securities	205,521			208,914		210,860		211,847		215,774
Loans net of unearned fees and unamortized loan origination costs	960,121			942,727		980,178		962,166		949,991
Allowance for credit losses	(16,110)		(10,063)	(15,622)		(10,182)		(10,063)		(9,907)
Net loans	944,011			927,105		969,996		952,103		940,084
Other assets	80,884			80,022		79,742		79,270		76,413
Total assets	$	1,288,819		$	1,261,194	$	1,299,193	$	1,369,252	$	1,339,517

Non-interest-bearing deposits	$	476,387		$	394,745	$	481,629	$	517,230	$	473,013
Interest-bearing deposits	570,167			716,387		683,855		723,588		735,181
Total deposits	1,046,554			1,111,132		1,165,484		1,240,818		1,208,194
Other liabilities	126,585			37,154		21,246		21,355		21,322
Total liabilities	1,173,139			1,148,286		1,186,730		1,262,173		1,229,516
Total shareholders’ equity	115,680			112,908		112,463		107,079		110,001
Total liabilities and shareholder’s equity	$	1,288,819		$	1,261,194	$	1,299,193	$	1,369,252	$	1,339,517


United Security Bancshares
Condensed - Consolidated Statements of Income (unaudited)
	For the Quarters Ended:
(In thousands)	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022
Total interest income	$	15,086	$	14,559	$	14,754	$	13,519	$	10,993
Total interest expense	2,582		1,614		1,269		789		584
Net interest income	12,504		12,945		13,485		12,730		10,409
Provision (reversal) for credit losses	1,091		(493)		585		607		606
Net interest income after (reversal) provision for credit losses	11,413		13,438		12,900		12,123		9,803
Total non-interest income (loss)	1,011		1,448		1,049		392		602
Total non-interest expense	6,207		6,240		6,432		6,211		5,576
Income before provision for taxes	6,217		8,646		7,517		6,304		4,829
Provision for taxes on income	1,800		2,521		2,175		1,837		1,394
Net income	$	4,417	$	6,125	$	5,342	$	4,467	$	3,435


United Security Bancshares
Nonperforming Assets (unaudited)
(Dollars in thousands)	June 30, 2023			December 31, 2022


Real estate - construction and development	$	13,142		$	14,436
Agricultural	73			108

Total nonaccrual loans	13,215			14,544
Loans past due 90 days and still accruing	171			252

Total nonperforming loans	13,374			14,937
Other real estate owned	4,582			4,582
Total nonperforming assets	$	17,956		$	19,519

Nonperforming loans to total gross loans	1.39		%	1.52		%
Nonperforming assets to total assets	1.39		%	1.49		%
Allowance for credit losses to nonperforming loans	120.46		%	68.17		%


United Security Bancshares
Selected Financial Data (unaudited)
	Three Months Ended June 30,				Six months ended June 30,
(Dollars in thousands, except per share amounts)	2023		2022		2023			2022
Return on average assets	1.40	%	1.03	%	1.68		%	0.89		%
Return on average equity	16.49	%	12.12	%	19.32		%	10.19		%
Efficiency ratio (1)	45.76	%	50.91	%	44.59		%	56.45		%
Annualized net charge-offs (recoveries) to average loans	0.20	%	(0.01)	%	0.19		%	0.01		%

					June 30, 2023			December 31, 2022
Shares outstanding - period end					17,129,938			17,067,253
Book value per share					$	6.75		$	6.59
Tangible book value per share					$	6.49		$	6.33
Individually evaluated loans					$	13,677		$	15,629
Net loan-to-deposit ratio					90.20		%	83.23		%
Allowance for credit losses to total loans					1.68		%	1.04		%
Tier 1 capital to adjusted average assets (leverage ratio):
Company					11.16		%	10.10		%
Bank					11.18		%	9.64		%


United Security Bancshares
Net Income before Non-Core Reconciliation
Non-GAAP Information (unaudited)
	Six months ended June 30,
(Dollars in thousands)	2023		2022		Change $		Change %
Net income	$	10,542	$	5,878	$	4,664	79.3	%
Junior subordinated debenture (1) fair value adjustment	258		(1,869)



Income tax effect	(75)		542
Non-core items net of taxes	183		(1,327)
Non-GAAP core net income	$	10,359	$	7,205	$	3,154	43.8	%