8-K: United Security Bancshares Reports Mixed 2025 Results

United Security Bancshares announced its 2025 financial results, reporting a decrease in annual net income despite strong fourth-quarter performance and ongoing merger plans with Community West Bancshares.

Summary

• Annual net income for 2025 was $12.3 million ($0.70 per share), a decrease from $14.8 million ($0.85 per share) in 2024.
• Fourth-quarter 2025 net income increased 36.83% to $3.4 million ($0.19 per share) compared to $2.5 million ($0.14 per share) in Q4 2024.
• The company signed a definitive merger agreement with Community West Bancshares on December 16, 2025, an all-stock transaction expected to close in 2026.
• Net interest margin expanded to 4.36% in Q4 2025 from 4.22% in Q4 2024.
• Total assets increased 3.02% to $1.248 billion at December 31, 2025, from $1.211 billion at December 31, 2024.
• Total deposits increased 2.95% to $1.09 billion at December 31, 2025.
• Non-performing assets decreased to $13.9 million (1.12% of total assets) at December 31, 2025, from $17.2 million (1.42%) at December 31, 2024.

Sentiment

Score: 5

Explanation: While the fourth quarter showed strong performance with increased net income, NIM expansion, and improved ROAA/ROAE, the full-year results reflect a significant decline in net income and earnings per share compared to the previous year. The efficiency ratio also deteriorated. The pending merger with Community West Bancshares is a strategic positive for future scale but introduces integration risks and immediate merger-related expenses.

Positives

• Fourth-quarter 2025 net income increased 36.83% to $3.4 million compared to Q4 2024.
• Net interest margin expanded to 4.36% for Q4 2025, up from 4.22% in Q4 2024.
• Annualized average cost of deposits decreased to 0.99% for Q4 2025 from 1.11% in Q4 2024.
• Annualized return on average assets (ROAA) increased to 1.12% for Q4 2025 from 0.81% in Q4 2024.
• Annualized return on average equity (ROAE) increased to 9.67% for Q4 2025 from 7.47% in Q4 2024.
• Noninterest income increased 1020.83% to $1.3 million for Q4 2025, primarily due to a change in the fair value of junior subordinated debentures (TruPS).
• Provision for credit losses decreased to $468,000 for Q4 2025 from $1.2 million in Q4 2024.
• Total deposits increased 2.95% to $1.09 billion at December 31, 2025.
• Non-performing assets decreased $3.3 million to $13.9 million at December 31, 2025, representing 1.12% of total assets, down from 1.42% at December 31, 2024.
• Unfunded loan commitments increased by $69.4 million to $273.4 million at December 31, 2025, indicating a robust loan pipeline.
• Shareholders' equity increased by $9.3 million to $139.7 million at December 31, 2025.
• The company remains well-capitalized.

Negatives

• Annual net income for 2025 decreased 16.88% to $12.3 million from $14.8 million in 2024.
• Annual earnings per basic and diluted share decreased to $0.70 in 2025 from $0.85 in 2024.
• Loan interest and fees decreased 2.36% to $13.5 million for Q4 2025 due to reductions in loan balances.
• Total loans, net of unearned fees, decreased 1.40% to $915.4 million at December 31, 2025.
• Noninterest expense increased 18.55% to $8.8 million for Q4 2025, primarily due to merger-related expenses and increased salaries and employee benefits.
• Annual provision for credit losses increased to $5.6 million for 2025 from $3.0 million in 2024, primarily due to deterioration within the student loan portfolio.
• Net loan charge-offs totaled $6.1 million for 2025, up from $2.6 million in 2024.
• The efficiency ratio deteriorated, increasing to 65.09% for Q4 2025 (from 60.79% in Q4 2024) and to 58.76% for the full year 2025 (from 54.82% in 2024).
• OREO balances increased from $4.6 million to $8.2 million at December 31, 2025, due to a $3.3 million foreclosure on nonaccrual loans.

Risks

• Inability to complete the proposed merger with Community West Bancshares.
• Government approval for the merger may not be obtained, or adverse regulatory conditions may be imposed.
• Shareholder approval from either Community West Bancshares or United Security Bancshares may not be obtained.
• Failure to successfully integrate United Security Bancshares' operations or achieve expected beneficial synergies and/or operating efficiencies within expected timeframes or at all.
• Personnel changes/retention may not proceed as planned.
• Changes in real estate markets and general economic conditions, nationally or locally.
• Impact on financial markets from geopolitical conflicts.
• Inflation, interest rate, market, and monetary fluctuations.
• Increases in competitive pressures among financial institutions.
• Higher than anticipated defaults in the loan portfolio, particularly the student loan portfolio.
• Changes in management's estimate of the adequacy of the allowance for credit losses.
• Legislative or regulatory changes or changes in accounting principles, policies, or guidelines.
• The proposed merger may be more expensive to complete than anticipated.
• Dilution caused by Community West Bancshares' issuance of additional shares in connection with the merger.
• Diversion of management's attention from ongoing business operations due to the proposed merger.
• Challenges of integrating and retaining key employees post-merger.
• Effect of the merger announcement on customer and employee relationships and operating results.

Future Outlook

The pending merger with Community West Bancshares remains on track to close in 2026, positioning the combined entity to scale its impact and deliver enhanced value to customers, employees, and shareholders. The company enters 2026 with a robust loan pipeline and a significant increase in unfunded commitments, suggesting future lending growth. Management expects to maintain adequate capital levels.

Management Comments

• Our fourth quarter results reflect strong execution, highlighted by net income growth compared to the fourth quarter of 2024 and net interest margin (NIM) expansion to 4.36%.
• Effective deposit cost management as rates shifted in 2025 drove our fourth-quarter cost of deposits to a low of 0.99%, outpacing the decrease in loan yields and expanding our net interest margin.
• We enter 2026 with a robust loan pipeline and a $69.4 million increase in unfunded commitments compared to the end of 2024.
• Furthermore, our pending merger with Community West Bancshares remains on track to close in 2026, positioning us to scale our impact and deliver enhanced value to our customers, employees, and shareholders.
• Management considers the allowance for credit losses at December 31, 2025, to be adequate.
• The Company continues to be well-capitalized and expects to maintain adequate capital levels.
• The Company does not intend to sell, and it is more likely than not that it will not be required to sell, any securities held at an unrealized loss.

Industry Context

The banking sector continues to navigate a dynamic interest rate environment, with United Security Bancshares demonstrating effective deposit cost management to expand its net interest margin. The announced merger with Community West Bancshares reflects a broader trend of consolidation within the regional banking industry, aiming for increased scale and efficiency to compete more effectively. While loan balances saw a slight decrease, the robust loan pipeline and increased unfunded commitments suggest potential for future growth, aligning with a cautious but optimistic outlook for lending in 2026.

Stakeholder Impact

• Shareholders: Potential for enhanced value from the merger in the long term, but immediate dilution risk from the all-stock transaction. Received a $0.12 per share dividend.
• Employees: Integration challenges and potential personnel changes related to the merger.
• Customers: Expected enhanced value and scaled impact from the combined entity post-merger.
• Creditors: The company remains well-capitalized, suggesting continued financial stability.

Next Steps

• Completion of the merger with Community West Bancshares in 2026.
• Community West Bancshares to file a registration statement on Form S-4 with the SEC, including a joint proxy statement/prospectus.
• Shareholders of both companies will vote on the proposed merger.

Key Dates

Recommendation

The company presents a mixed financial picture with a strong fourth quarter showing improved profitability metrics and NIM expansion, but a notable decline in full-year net income and earnings per share. The pending merger with Community West Bancshares is a significant strategic move that could unlock long-term value through scale and synergies, but it also introduces integration risks and immediate merger-related expenses. Given the blend of positive quarterly momentum, negative annual trends, and the uncertainties inherent in a large merger, a 'hold' recommendation is appropriate. Investors should monitor the merger's progress, integration success, and future financial performance for clearer direction.

Keywords

Banking, Financial Results, Merger, Community West Bancshares, Net Income, Net Interest Margin, Loan Portfolio, Deposits, Non-performing Assets, Credit Quality, Shareholders Equity, UBFO, SEC Filing, Earnings Report, Bank Acquisition