United Security Bancshares (UBFO) is a California-based bank holding company that has weathered the recent economic turbulence with a steady hand. The company's wholly-owned subsidiary, United Security Bank, operates 12 banking branches across the state, providing a range of financial services to individuals and businesses in its local markets.

Business Overview

United Security Bancshares has a long history of serving the communities in which it operates. The bank was founded in 1987 and has since grown to become a respected player in the Central Valley and greater Oakhurst/East Madera County area, as well as the Campbell area of Santa Clara County. The company's primary focus is on commercial and real estate lending, with a particular emphasis on commercial real estate, residential mortgages, and real estate construction and development loans.

The bank's loan portfolio is well-diversified, with commercial and industrial loans accounting for 6.1% of the total, real estate mortgage loans making up 70.4%, real estate construction and development loans at 13.8%, agricultural loans at 5.3%, and installment and student loans comprising the remaining 4.4%. This diversification helps to mitigate the bank's exposure to any single industry or sector.

Financial Performance

In the latest fiscal year, United Security Bancshares reported annual net income of $19.8 million, annual revenue of $65.4 million, annual operating cash flow of $21.4 million, and annual free cash flow of $20.6 million. These figures demonstrate the bank's ability to generate consistent profitability and strong cash flows, even in the face of economic challenges.

For the first quarter of 2024, the company reported net income of $4.2 million, a decrease of 32.07% compared to the same period in 2023. This decline was primarily attributable to increases in deposit and short-term borrowing costs, as well as a decrease in net interest income. The bank's net interest margin decreased to 4.35% for the quarter, down from 4.51% in the prior-year period.

Loan Portfolio and Asset Quality

United Security Bancshares' loan portfolio has remained relatively stable, with total loans increasing 1.0% to $929.4 million as of March 31, 2024, compared to $920.0 million at the end of 2023. The bank's real estate mortgage loan portfolio, which accounts for the largest portion of the loan book at 70.4%, grew by 1.2% during the first quarter.

Asset quality remains a key focus for the bank. Nonperforming assets, which are primarily related to the real estate loan and other-real-estate-owned portfolio, decreased slightly to $16.3 million as of March 31, 2024, from $16.5 million at the end of 2023. The allowance for credit losses as a percentage of gross loans stood at 1.66% at the end of the first quarter, down from 1.70% at the end of 2023.

Liquidity and Capital Position

United Security Bancshares maintains a strong liquidity position, with cash and cash equivalents totaling $43.0 million as of March 31, 2024. The bank also has access to secured lines of credit with the Federal Reserve Bank and Federal Home Loan Bank, totaling $610.3 million in unused capacity at the end of the first quarter.

The company's capital ratios remain well above regulatory requirements, with a Tier 1 Leverage Ratio of 12.47% as of March 31, 2024, compared to 11.82% at the end of 2023. This solid capital position provides the bank with the flexibility to navigate the current economic environment and pursue growth opportunities as they arise.

Risks and Challenges

Like all financial institutions, United Security Bancshares faces a variety of risks and challenges. The bank's operations are heavily concentrated in California's Central Valley, making it vulnerable to economic conditions in that region. A downturn in the agricultural industry or a prolonged drought could have a material impact on the bank's loan portfolio and financial performance.

Additionally, the company operates in a highly competitive environment, with pressure on loan pricing and the need to attract and retain deposits. Regulatory changes and the potential for increased credit losses due to the economic environment also pose risks that the bank must actively manage.

Outlook and Conclusion

Despite the challenges facing the banking industry, United Security Bancshares has demonstrated its ability to navigate turbulent times. The bank's diversified loan portfolio, strong liquidity position, and well-capitalized balance sheet provide a solid foundation for weathering the current economic conditions.

Looking ahead, the bank's management team remains focused on maintaining asset quality, managing costs, and exploring opportunities for growth. While the near-term outlook may be uncertain, United Security Bancshares' long-standing commitment to its local communities and prudent risk management practices position the company well for the future.

Overall, United Security Bancshares is a resilient community bank that has proven its ability to adapt and thrive in the face of economic adversity. With its strong financial position and experienced management team, the company is well-equipped to continue serving the needs of its customers and creating value for its shareholders.