Business Overview and History
United Security Bancshares (UBFO) is a California-based bank holding company that has demonstrated remarkable resilience in the face of an ever-changing economic landscape. Founded in 1987, the company's wholly-owned subsidiary, United Security Bank, has established itself as a trusted financial institution, serving the needs of businesses and individuals across the Central Valley region.
United Security Bancshares, established in 1987, is the parent company of United Security Bank, which was founded in the same year. Headquartered in Fresno, California, the bank operates 13 full-service branch offices across Central California, including locations in Fresno, Bakersfield, Campbell, and Oakhurst. The company's initial focus was on serving the banking needs of small- to medium-sized businesses and individuals in the local Fresno market, building a reputation for responsive customer service and tailored financial solutions.
As the Central California economy grew, United Security Bank expanded its footprint by opening additional branches in surrounding communities to meet the increasing demand for its products and services. Over the decades, the company has successfully navigated various challenges common to community banks, such as economic cycles, regulatory changes, and increased competition from larger regional and national institutions. United Security Bancshares has overcome these hurdles through prudent risk management, diversification of its loan portfolio, and investments in technology to improve operational efficiency and enhance the customer experience.
A significant milestone in the company's history was its initial public offering in 2001, which provided access to public capital markets and enabled United Security Bancshares to fund organic growth and strategic acquisitions. The company's stock trades on the Nasdaq exchange under the ticker symbol UBFO. Through prudent management and a steadfast commitment to its local markets, United Security Bancshares has grown to become one of the leading community banking organizations in Central California, serving the diverse financial needs of businesses and individuals across the region.
Financial Performance and Ratios
United Security Bancshares has consistently demonstrated strong financial performance, with a track record of steady growth in both revenue and net income. In the most recent fiscal year (2023), the company reported annual net income of $19.80 million and annual revenue of $54.81 million, showcasing its ability to generate consistent profitability. The company's annual operating cash flow for 2023 was $21.38 million, with annual free cash flow of $20.59 million.
For the most recent quarter (Q3 2024), United Security Bancshares reported revenue of $16.86 million and net income of $3.83 million. The company's primary source of income is net interest income, which amounted to $35.05 million for the first nine months of 2024, slightly down from $37.37 million in the same period of 2023. Noninterest income, including service fees and gains/losses on securities and junior subordinated debt valuations, contributed an additional $4.59 million year-to-date.
The company's balance sheet remains robust, with a debt-to-equity ratio of 0.37 and a current ratio of 0.56 as of September 30, 2024, indicating a healthy liquidity position. United Security Bancshares' capital ratios, including a Tier 1 Leverage Ratio of 12.44% as of September 30, 2024, further underscore the company's financial stability and ability to withstand economic challenges. This ratio is well above the 9% minimum requirement to be considered well-capitalized.
As of September 30, 2024, the company held $47.91 million in cash and cash equivalents. United Security Bancshares also maintained strong liquidity with $604.40 million in available secured lines of credit and $86.00 million in available unsecured lines of credit.
Diversified Loan Portfolio and Asset Quality
United Security Bancshares' loan portfolio is well-diversified, with a balanced mix of commercial and industrial loans (5.8%), real estate mortgage loans (70.3%), real estate construction and development loans (13.9%), agricultural loans (5.4%), and installment and student loans (4.6%) as of December 31, 2023. This diversification has allowed the bank to mitigate concentration risks and maintain relatively low levels of nonperforming assets, which stood at 1.36% of total assets as of the same date.
The company's proactive approach to credit risk management has been a key factor in its ability to navigate economic challenges. United Security Bancshares' allowance for credit losses, which stood at 1.70% of total loans as of December 31, 2023, provides a robust buffer against potential loan defaults and credit-related losses.
Product Segments and Business Lines
United Security Bancshares operates in several key business segments:
Commercial and Industrial Loans: This segment provides loans to support the ongoing operations of small- to medium-sized commercial businesses. These loans are generally secured by accounts receivable, inventory, leases, or other collateral and are used to fund working capital, equipment purchases, or business expansions. The performance of this loan portfolio is closely tied to economic conditions and business activity levels in UBFO's local markets.
Real Estate Mortgage Loans: Comprising over 70% of the total loan portfolio, this segment includes commercial real estate loans secured by income-producing properties such as office buildings, shopping centers, apartments, and hotels, as well as residential mortgage loans secured by single-family homes. The repayment of these loans depends on the cash flows generated by the underlying real estate collateral and the overall health of the local real estate market.
Real Estate Construction and Development Loans: This segment finances residential and commercial construction projects, land acquisition and development, and land held for future development. While these loans carry higher risk due to construction issues and market value fluctuations, they are secured by real estate collateral. Repayment typically comes from long-term mortgages obtained upon project completion or the sale of constructed homes.
Agricultural Loans: UBFO provides financing to agricultural businesses, including farmers and ranchers, secured by land, equipment, inventory, and receivables. This portfolio is subject to risks such as weather, pests, commodity prices, and water availability that can impact the cash flows and creditworthiness of borrowers.
Installment and Student Loans: The installment loan portfolio primarily consists of student loans made to medical and pharmacy school students. These unsecured loans have higher risk profiles, but the bank expects repayment from the students' future high income earning potential upon graduation and entry into their professions.
Community Involvement and ESG Initiatives
United Security Bancshares' commitment to its local community extends beyond its banking services. The company has a long-standing tradition of supporting various charitable organizations and community development initiatives throughout the Central Valley. This focus on social responsibility has earned the bank a reputation as a trusted partner and corporate citizen.
In addition, United Security Bancshares has been actively integrating environmental, social, and governance (ESG) principles into its operations. The company has implemented energy-efficient practices in its branch locations, and it is exploring opportunities to expand its investments in renewable energy projects and sustainable lending programs.
Navigating Challenges and Adapting to Change
Like many financial institutions, United Security Bancshares has faced its share of challenges in recent years. The COVID-19 pandemic, for instance, put significant strain on the regional economy, leading to increased loan deferrals and elevated credit risks. However, the bank's proactive risk management strategies and strong capital position allowed it to weather the storm and maintain its profitability during this challenging period.
More recently, the company has navigated the ongoing economic uncertainty stemming from factors such as high inflation, rising interest rates, and global geopolitical tensions. United Security Bancshares has demonstrated its ability to adapt to these evolving circumstances, adjusting its lending practices and deposit strategies to optimize its performance and preserve its financial strength.
Geographic Focus
United Security Bancshares primarily conducts its banking operations in California's Central Valley, with a focus on Fresno, Madera, Kern, and Santa Clara counties. The company's strategic decision to concentrate on this geographic area has allowed it to develop deep relationships with local businesses and communities, leveraging its understanding of the region's unique economic dynamics and needs.
Outlook and Conclusion
As United Security Bancshares looks to the future, the company remains cautiously optimistic. While specific forward-looking guidance is not available, the bank's management team has consistently focused on growth in both its loan portfolio and deposit base, supported by the region's economic recovery and the company's strategic initiatives.
The company's financial performance, including its most recent quarterly results and year-to-date figures, demonstrates its ability to generate consistent revenue and maintain profitability despite challenging economic conditions. With a strong capital position, diverse loan portfolio, and deep roots in its local markets, United Security Bancshares appears well-positioned to capitalize on future opportunities and navigate potential headwinds.
Overall, United Security Bancshares' track record of consistent performance, prudent risk management, and community-focused approach positions the company as a resilient and adaptable community bank. With a strong foundation in place and a clear focus on its core Central Valley market, the company appears well-equipped to navigate the challenges and opportunities that lie ahead, further solidifying its position as a trusted financial partner in the region.