Document

Dennis Woods, President and Chief Executive Officer, stated: "We continued our positive earnings momentum in the second quarter as we again posted increased earnings when compared to prior quarter and second quarter 2021 results. Core net income, which is a non-GAAP measure, grew 57% over the prior year as a result of the successful execution of our 2021 and 2022 cash deployment strategies. We realized robust organic loan growth in our real estate construction and commercial real estate portfolios during the second quarter. Our credit quality, capital, and liquidity levels remain strong and position us well for potential economic headwinds over the coming quarters."

Net income for the six months ended June 30, 2022 increased 27.0% to $3.4 million, compared to the six months ended June 30, 2021. The increase is the result of increases of $2.0 million in loan interest income and fees, $754,000 in investment income, and $590,000 decrease in provision for credit losses, partially offset by an increase of $1.2 million in loss on fair value of junior subordinated debentures. ROAE for the six months ended June 30, 2022 was 10.19%, compared to 7.00% for the six

Net interest income, before the provision for credit losses, for the six months ended June 30, 2022 totaled $19.85 million, an increase of $2.83 million, or 16.7%, from $17.01 million for the same period ended June 30, 2021. The impact of the Company's 2021 and 2022 cash deployment strategies, which included over $350 million in investment and mortgage loan purchases, are reflected in the increase in net interest income. The Company's net interest margin increased from 3.20% for the six months ended June 30, 2021 to 3.23% for the six months ended June 30, 2022. The increase in the net interest margin was due to increases in loan and investment balances, yields on investment securities, and yields on interest-bearing deposits at Federal Reserve Bank, partially offset by decreases in loan yields and increases in average deposit balances. Loan yields decreased from 4.75% to 4.28% between the two periods. The yield on interest-bearing liabilities decreased from 0.32% to 0.31% between the two periods. Included in interest income for the six months ended June 30, 2022 were $123,000 in fees related to Small Business Administration Paycheck Protection Program loans, compared to $544,000 for the same period ended June 30, 2021.

Noninterest income for the six months ended June 30, 2022 totaled $395,000, a decrease of $767,000 when compared to the $1.16 million reported for the six months ended June 30, 2021. For the six months ended June 30, 2022, a loss on the fair value of junior subordinated debentures (TRUPs) of $1.87 million was recorded, compared to a loss of $656,000 for the same period in 2021. The change in the fair value of TRUPs reflected in noninterest income was caused by fluctuations in the LIBOR yield curve. Generally, an increase in the three month LIBOR yield curve will result in negative fair value adjustments. Conversely, a decrease in the three month LIBOR yield curve will result in positive fair value adjustments. Customer service fees totaled $1.4 million for the six months ended June 30, 2022 and $1.35 million for the six months ended June 30, 2021. Also included in noninterest income for the six months ended June 30, 2022 was $566,000 in nonrecurring income received from The Central Valley Fund II (SBIC), Limited Partnership.

For the six months ended June 30, 2022, noninterest expense totaled $11.39 million, an increase of $145,000 compared to $11.25 million for the six months ended June 30, 2021. On a year-over-year comparative basis, noninterest expense increased due to increases in professional fees of $102,000 and increases in regulatory assessments of $128,000 related to higher FDIC assessment rates and was partially offset by a decrease of $91,000 in salaries and employee benefits, and a decrease of $65,000 in occupancy expense.

Net interest income, before the provision for credit losses was $10.4 million for the quarter ended June 30, 2022, representing a $1.5 million, or 16.5%, increase from the $8.9 million reported at June 30, 2021. The increase in net interest income was driven by growth in the loan and investment portfolios. The Company's net interest margin increased from 3.22% to 3.38% between the quarters ended June 30, 2021 and June 30, 2022, respectively. The increase in the net interest margin was due to increases in loan and investment balances, yields on investment securities, and yields on interest-bearing deposits at FRB, partially offset by decreases in loan yields and increases in average deposit balances. Net interest income during the quarter ended June 30, 2022 increased to $9.8 million, or 21.0%, from the $8.1 million reported during the quarter ended June 30, 2021.

on the fair value of junior subordinated debentures for the quarter ended June 30, 2022 compared to a gain of $377,000 recorded for the quarter ended June 30, 2021. Additionally, the decrease in noninterest income is attributed to the loss on equity securities of $127,000 for the quarter ended June 30, 2022, compared to none for the same period in 2021, and was partially offset by $566,000 in income received from an investment in a limited partnership for the quarter ended June 30, 2022. Noninterest income increased $808,000 from the $206,000 loss reported for the quarter ended March 31, 2022. This was primarily due to the $566,000 income received from the limited partnership and an increase in customer service fees of $122,000.

Noninterest expense for the quarter ended June 30, 2022 totaled $5.58 million, reflecting a $69,000 decrease from the $5.65 million reported for the quarter ended June 30, 2021, and a $240,000 decrease from the $5.82 million reported from the quarter ended March 31, 2022. The decrease between the quarters ended June 30, 2022 and 2021 resulted in part due to decreases of $116,000 in salaries and employee benefits, and was partially offset by an increase of $64,000 in regulatory assessments and an increase of $24,000 in director fees.

Total assets increased $8.6 million, or 0.6%, between December 31, 2021 and June 30, 2022. Gross loan balances grew $78.7 million and investment securities increased $33.1 million. Included in the loan growth during the year were purchases of $35.6 million in residential mortgage loans during the first quarter and organic growth in the commercial real estate, real estate construction, and agricultural segments of the portfolio, partly offset by a reduction in the student loan portfolio and SBA PPP balances. Investment portfolio growth included purchases of $81.5 million in investment securities, partially offset by $39.9 million in sales of securities and $20.4 million increase in unrealized loss. In part, as a result of the loan and investment activity, total cash and cash equivalents decreased $112.0 million between December 31, 2021 and June 30, 2022. Unfunded loan commitments decreased from $239.1 million at December 31, 2021 to $169.9 million at June 30, 2022. OREO balances remained at $4.6 million at December 31, 2021 and June 30, 2022.

Total deposits increased $20.1 million, or 1.7%, to $1.2 billion during the six months ended June 30, 2022. This increase was due to increases of $11.3 million in NOW and money market accounts, $6.3 million in time deposits, and $6.2 million in savings accounts, offset by decreases of $3.7 million in noninterest bearing deposits. In total, NOW, money market and savings accounts increased 2.7% to $661.2 million at June 30, 2022, compared to $643.8 million at December 31, 2021. Noninterest bearing deposits decreased 0.8% to $473.0 million at June 30, 2022, compared to $476.7 million at December 31, 2021. 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, increased $19.9 million.

Shareholders’ equity at June 30, 2022 totaled $110.0 million, a decrease of $10.2 million from shareholders’ equity of $120.2 million at December 31, 2021. This decrease in equity was primarily attributed to an increase in accumulated other comprehensive loss and $3.7 million in cash dividends paid, partially offset by $5.9 million in net income. At June 30, 2022, the accumulated other comprehensive loss totaled $13.7 million, compared to $1.2 million at December 31, 2021. The increase in the loss was primarily the result of net unrealized losses on investment securities of $14.6 million and was partially offset by a $1.8 million gain on junior subordinated debentures (TRUPs) caused by a change in market credit spreads during the six months ended June 30, 2022. 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.

The Company recorded a provision for credit losses of $611,000 for the six months ended June 30, 2022, compared to a provision of $1,201,000 for the six months ended June 30, 2021. Net loan charge-offs totaled $37,000 for the six months ended June 30, 2022, as compared to net loan charge-offs of $523,000 for the six months ended June 30, 2021. The reduced provision recorded during the year is attributed to lower net charge-offs on the student loan portfolio, decreases in nonperforming assets and change in portfolio mix, partially offset by a qualitative adjustment for economic uncertainty resulting in an increase in required reserves. The qualitative adjustment is attributed to higher inflation, anticipated magnitude of interest rate hikes in 2022 and 2023, and the increasing likelihood of a recession. For the six months ended June 30, 2021, the provision recorded was attributed to growth of the loan portfolio, agricultural loan downgrades, and net charge-offs recognized in the student loan portfolio.

The Company's allowance for loan loss totaled 1.05% of the loan portfolio at June 30, 2022, compared to 1.07% at December 31, 2021. The decrease in the allowance for credit losses as a percentage of gross loans is primarily the result of a change in loan mix resulting from purchases of residential mortgage loans during the first quarter. The reserve required on the residential mortgage loan segment is lower than reserves required for other loan segments due to lower historical loss rates. Management considers the allowance for credit losses at June 30, 2022 to be adequate.

Non-performing assets, comprised of nonaccrual loans, troubled debt restructures (TDRs), other real estate owned through foreclosure, and loans more than 90 days past due and still accruing interest, decreased $586,000 between December 31, 2021 and June 30, 2022 to $16.1 million. Nonperforming assets as a percentage of total assets decreased from 1.25% at December 31, 2021 to 1.20% at June 30, 2022. The decrease in nonperforming assets is attributed to decreases of $344,000 in 90 day delinquent loans and $209,000 in nonaccrual loans between December 31, 2021 and June 30, 2022. OREO balances remained at $4.6 million at December 31, 2021 and June 30, 2022.

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 tables, 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 (loss) 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 and labor

shortages, (2) the COVID-19 global pandemic, including the effects of the steps being taken to address the pandemic and its impact on the Company’s markets, customers and employees, (3) changes in general economic and financial market conditions, either nationally or locally, (4) interest rate policies of the Board of Governors of the Federal Reserve System, (5) changes in banking laws or regulations, (6) increased competition in the Company's markets, impacting the ability to execute its business plans, (7) loss of key personnel, (8) unanticipated credit losses, (9) drought, earthquakes or other natural disasters impacting the local economy and/or the condition of real estate collateral, (10) the impact of technological changes and the ability to develop and maintain secure and reliable electronic systems, (11) uncertainty regarding the replacement of LIBOR, and (12) changes in accounting policies or procedures.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. 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, 2021, 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, 2022		December 31, 2021		June 30, 2021
Assets
Cash and non-interest-bearing deposits in other banks	$	33,701	$	31,057	$	43,240
Due from Federal Reserve Bank ("FRB")	73,545		188,162		117,668

Cash and cash equivalents	107,246		219,219		160,908


Investment securities (at fair value)
Available-for-sale ("AFS") securities	212,338		178,902		166,976
Marketable equity securities	3,436		3,744		3,791
Total investment securities	215,774		182,646		170,767
Loans	948,031		869,314		841,103
Unearned fees and unamortized loan origination costs - net	1,960		2,219		946
Allowance for credit losses	(9,907)		(9,333)		(9,200)
Net loans	940,084		862,200		832,849

Premises and equipment - net	9,069		8,950		8,877
Accrued interest receivable	8,265		7,530		8,600
Other real estate owned ("OREO")	4,582		4,582		4,753
Goodwill	4,488		4,488		4,488
Deferred tax assets - net	9,428		3,615		3,063

Cash surrender value of life insurance	22,591		22,338		21,904

Operating lease right-of-use assets	2,290		2,594		2,600
Other assets	15,700		12,782		12,246
Total assets	$	1,339,517	$	1,330,944	$	1,231,055

Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing	$	473,013	$	476,749	$	442,140
Interest-bearing	735,181		711,357		648,302
Total deposits	1,208,194		1,188,106		1,090,442

Operating lease liabilities	2,401		2,705		2,707
Other liabilities	8,432		8,737		8,288
Junior subordinated debentures (at fair value)	10,489		11,189		11,253
Total liabilities	1,229,516		1,210,737		1,112,690

Shareholders' Equity
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 17,040,549 at June 30, 2022, 17,028,239 at December 31, 2021, and 17,010,288 at June 30, 2021.	59,836		59,636		59,496
Retained earnings	63,874		61,745		59,507
Accumulated other comprehensive loss	(13,709)		(1,174)		(638)
Total shareholders' equity	110,001		120,207		118,365
Total liabilities and shareholders' equity	$	1,339,517	$	1,330,944	$	1,231,055


United Security Bancshares
Consolidated Statements of Income (unaudited)
(in thousands - except share data)
	Three Months Ended						Six Months Ended
	June 30, 2022		March 31, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Interest Income:
Interest and fees on loans	$	9,731	$	9,119	$	8,748	$	18,849	$	16,855
Interest on investment securities	1,004		790		654		1,795		1,041
Interest on deposits in FRB	258		82		42		340		104

Total interest income	10,993		9,991		9,444		20,984		18,000

Interest Expense:
Interest on deposits	515		508		468		1,023		895
Interest on other borrowed funds	69		45		45		114		92
Total interest expense	584		553		513		1,137		987
Net Interest Income	10,409		9,438		8,931		19,847		17,013
Provision for Credit Losses	606		5		826		611		1,201
Net Interest Income after Provision for Credit Losses	9,803		9,433		8,105		19,236		15,812

Noninterest Income:
Customer service fees	776		654		692		1,429		1,348
Increase in cash surrender value of bank-owned life insurance	114		139		138		253		269
Unrealized (loss) gain on fair value of marketable equity securities	(127)		(182)		0		(309)		(60)

(Loss) gain on fair value of junior subordinated debentures	(869)		(999)		377		(1,869)		(656)

Gain on sale of investment securities	—		30		—		30		—
Gain on sale of assets	—		—		—		—		13
Other	708		152		115		861		248
Total noninterest income (loss)	602		(206)		1,322		395		1,162

Noninterest Expense:
Salaries and employee benefits	2,777		3,049		2,893		5,826		5,917
Occupancy expense	849		780		837		1,628		1,693
Data processing	145		115		148		260		235
Professional fees	919		949		905		1,868		1,766
Regulatory assessments	187		231		123		417		289
Director fees	116		118		92		234		184

Correspondent bank service charges	24		25		23		50		42

Net cost on operation and sale of OREO	2		(8)		18		(6)		43
Other	557		557		606		1,114		1,077
Total noninterest expense	5,576		5,816		5,645		11,391		11,246

Income Before Provision for Taxes	4,829		3,411		3,782		8,240		5,728
Provision for Taxes on Income	1,394		968		1,077		2,362		1,613
Net Income	3,435		2,443		2,705		$	5,878	$	4,115

Basic earnings per common share	$	0.20	$	0.14	$	0.16	$	0.35	$	0.24
Diluted earnings per common share	$	0.20	$	0.14	$	0.16	$	0.34	$	0.24
Weighted average basic shares for EPS	17,036,364		17,030,409		17,010,288		17,033,401		17,010,210
Weighted average diluted shares for EPS	17,057,755		17,051,819		17,032,878		17,054,742		17,027,477


United Security Bancshares
Average Balances and Rates (unaudited)
(in thousands)	Three Months Ended									Six Months Ended
	June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Average Balances:
Loans (1)	$	906,396		$	870,851		$	762,090		$	888,722		$	716,162
Investment securities	192,494			187,761			164,908			190,141			134,243

Interest-bearing deposits in FRB	136,898			177,243			180,061			156,959			219,272
Total interest-earning assets	1,235,788			1,235,855			1,107,059			1,235,822			1,069,677
Allowance for credit losses	(9,302)			(9,514)			(8,552)			(9,408)			(8,535)
Cash and due from banks	34,904			37,288			48,415			36,089			45,051
Other real estate owned	4,579			4,582			4,965			4,581			5,019
Other non-earning assets	71,529			65,384			71,387			68,576			66,048
Total average assets	$	1,337,498		$	1,333,595		$	1,223,274		$	1,335,660		$	1,177,260

Interest-bearing deposits	$	737,149		$	727,132		$	637,444		$	732,168		$	608,141
Junior subordinated debentures	10,863			11,156			10,961			11,009			10,929

Total interest-bearing liabilities	748,012			738,288			648,405			743,177			619,070

Noninterest-bearing deposits	465,926			466,062			446,352			466,097			429,513
Other liabilities	9,583			9,970			9,657			9,774			9,773
Total liabilities	1,223,521			1,214,320			1,104,414			1,219,048			1,058,356
Total equity	113,977			119,275			118,860			116,612			118,904
Total liabilities and equity	$	1,337,498		$	1,333,595		$	1,223,274		$	1,335,660		$	1,177,260

Average Rates:
Loans (1)	4.31		%	4.25		%	4.60		%	4.28		%	4.75		%
Investment securities	2.09		%	1.71		%	1.59		%	1.90		%	1.56		%

Interest-bearing deposits in FRB	0.76		%	0.19		%	0.09		%	0.44		%	0.10		%
Earning assets	3.57		%	3.28		%	3.42		%	3.42		%	3.39		%
Interest bearing deposits	0.28		%	0.28		%	0.29		%	0.28		%	0.30		%
Total deposits	0.17		%	0.17		%	0.17		%	0.17		%	0.17		%
Junior subordinated debentures	2.55		%	1.64		%	1.65		%	2.09		%	1.70		%
Total interest-bearing liabilities	0.31		%	0.30		%	0.32		%	0.31		%	0.32		%
Net interest margin (2)	3.38		%	3.10		%	3.22		%	3.23		%	3.20		%


United Security Bancshares
Condensed - Consolidated Balance Sheets (unaudited)
(in thousands)
	June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021
Cash and cash equivalents	$	107,246	$	224,934	$	219,219	$	259,428	$	160,908
Investment securities	215,774		183,527		182,646		165,508		170,767
Loans	949,991		879,379		871,533		809,114		842,049
Allowance for credit losses	(9,907)		(9,276)		(9,333)		(9,144)		(9,200)
Net loans	940,084		870,103		862,200		799,970		832,849
Other assets	76,413		71,238		66,879		67,875		66,531
Total assets	$	1,339,517	$	1,349,802	$	1,330,944	$	1,292,781	$	1,231,055

Non-interest-bearing	$	473,013	$	465,043	$	476,749	$	455,584	$	442,140
Interest-bearing	735,181		749,289		711,357		695,131		648,302
Total deposits	1,208,194		1,214,332		1,188,106		1,150,715		1,090,442
Other liabilities	21,322		21,896		22,631		22,938		22,248
Total liabilities	1,229,516		1,236,228		1,210,737		1,173,653		1,112,690
Total shareholders' equity	110,001		113,574		120,207		119,128		118,365
Total liabilities and shareholder's equity	$	1,339,517	$	1,349,802	$	1,330,944	$	1,292,781	$	1,231,055


United Security Bancshares
Condensed - Consolidated Statements of Income (unaudited)
(in thousands)	For the Quarters Ended:
	June 30, 2022		March 30, 2022		December 31, 2021		September 30, 2021		June 30, 2021
Total interest income	$	10,993	$	9,991	$	9,930	$	9,877	$	9,444
Total interest expense	584		553		552		540		513
Net interest income	10,409		9,438		9,378		9,337		8,931
Provision for credit losses	606		5		453		453		826
Net interest income after provision for credit losses	9,803		9,433		8,925		8,884		8,105

Total non-interest income (loss)	602		(206)		1,291		930		1,322
Total non-interest expense	5,576		5,816		6,282		6,164		5,645
Income before provision for taxes	4,829		3,411		3,934		3,650		3,782
Provision for taxes on income	1,394		968		564		1,039		1,077
Net income	$	3,435	$	2,443	$	3,370	$	2,611	$	2,705


United Security Bancshares
Nonperforming Assets (unaudited)
(dollars in thousands)
	June 30, 2022			December 31, 2021			June 30, 2021


Real estate construction & development	$	11,068		$	11,226		10,940
Agricultural	161			212			325

Total nonaccrual loans	$	11,229		$	11,438		$	11,265

Loans past due 90 days and still accruing	109			453			156
Restructured loans	143			176			412
Total nonperforming loans	$	11,481		$	12,067		$	11,833
Other real estate owned	4,582			4,582			4,753
Total nonperforming assets	$	16,063		$	16,649		$	16,586

Nonperforming loans to total gross loans	1.21		%	1.39		%	1.41		%
Nonperforming assets to total assets	1.20		%	1.25		%	1.35		%
Allowance for credit losses to nonperforming loans	86.29		%	77.34		%	77.75		%


United Security Bancshares
Selected Financial Data (unaudited)
(dollars in thousands, except per share amounts)
	Three Months Ended June 30,				Six months ended June 30,
	2022		2021		2022	2021

Return on average assets	1.03	%	0.89	%	0.89%	0.71%
Return on average equity	12.12	%	9.15	%	10.19%	7.00%
Annualized net charge-off (recoveries) to average loans	(0.01)	%	0.09	%	0.01%	0.15%


	June 30, 2022		December 31, 2021
Shares outstanding - period end	17,040,549		17,028,239
Book value per share	$6.46		$7.06
Efficiency ratio (1)	55.51	%	58.89	%
Total impaired loans	$11,882		$12,034
Net loan to deposit ratio	77.81	%	72.57	%
Allowance for credit losses to total loans	1.05	%	1.07	%
Tier 1 capital to adjusted average assets (leverage)
Company	9.70	%	9.79	%
Bank	9.69	%	9.64	%


United Security Bancshares
Net Income before Non-Core Reconciliation
Non-GAAP Information (dollars in thousands)
(unaudited)
	Six Months Ended June 30,
	2022		2021		Change $		Change %
Net income	$	5,878	$	4,115	$	1,763	42.8	%

Junior subordinated debenture (1) fair value adjustment	(1,869)		(656)




Income tax effect	542		190
Non-core items net of taxes	(1,327)		(466)


Non-GAAP core net income	$	7,205	$	4,581	$	2,624	57.3	%