United Security Bancshares (UBFO) Bundle
Understanding United Security Bancshares (UBFO) Revenue Streams
Understanding United Security Bancshares’ Revenue Streams
United Security Bancshares generates revenue primarily through interest income from loans and investment securities, as well as from noninterest income sources such as service fees. Below is a detailed analysis of the company’s revenue streams.
Breakdown of Primary Revenue Sources
-
Interest Income:
- Interest and fees on loans: $14.4 million for Q3 2024
- Interest on investment securities: $1.3 million for Q3 2024
- Interest on deposits at other banks: $56,000 for Q3 2024
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Noninterest Income:
- Customer service fees: $719,000 for Q3 2024
- Gain on proceeds from bank-owned life insurance: $573,000 for the nine months ended September 30, 2024
- Other noninterest income: $287,000 for Q3 2024
Year-over-Year Revenue Growth Rate
The year-to-date net income for the nine months ended September 30, 2024, was $12.3 million, which reflects a decrease from $14.4 million in the same period of 2023, marking a decline of approximately 14.6%.
For interest income, there was an increase of 1.41%, totaling $45.6 million for the nine months ended September 30, 2024, compared to $45.0 million for the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Change (%) |
|---|---|---|---|
| Interest and fees on loans | $14,401 | $13,763 | 4.64% |
| Interest on investment securities | $1,298 | $1,491 | -12.93% |
| Interest on deposits at other banks | $56 | $74 | -24.32% |
| Total Interest Income | $15,755 | $15,328 | 2.79% |
| Noninterest Income | $2,023 | $114 | 1,774.56% |
Analysis of Significant Changes in Revenue Streams
The primary driver of revenue growth in Q3 2024 was the increase in interest and fees on loans, which rose by 4.64% year-over-year. However, interest on investment securities saw a decline of 12.93%, impacting overall interest income growth. Noninterest income experienced a significant increase, primarily due to gains from bank-owned life insurance and other sources, reflecting a strategic shift towards diversifying revenue streams.
Overall, the company reported net interest income of $11.8 million for Q3 2024, a slight decrease of 0.91% from $11.9 million in Q3 2023. This indicates a stable interest income despite fluctuations in the various revenue sources.
A Deep Dive into United Security Bancshares (UBFO) Profitability
Profitability Metrics
Gross Profit Margin: As of September 30, 2024, the gross profit margin was not explicitly provided in the data. However, net interest income before the provision for credit losses was reported at $11.8 million for the quarter ended September 30, 2024, compared to $11.9 million for the same quarter in 2023. This indicates a slight decrease of 0.91% year-over-year.
Operating Profit Margin: Operating income was not separately detailed, but the net income for the quarter ended September 30, 2024, was $3.8 million, a decrease of 0.62% from $3.9 million in the same quarter of 2023.
Net Profit Margin: The net profit margin can be calculated from the available data. For the nine months ended September 30, 2024, net income was $12.3 million on total revenues, which were not specified but can be inferred from net interest income and other income streams.
Trends in Profitability: The annualized return on average assets (ROAA) for the quarter ended September 30, 2024, was 1.24%, an increase from 1.21% in the same quarter of 2023. Conversely, the return on average equity (ROAE) decreased to 11.63% from 13.06% year-over-year.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Income | $3.8 million | $3.9 million | -0.62% |
| ROAA | 1.24% | 1.21% | +2.48% |
| ROAE | 11.63% | 13.06% | -10.95% |
Comparison with Industry Averages: The profitability ratios for the company will be compared to industry averages once those figures are available. The current data does not specify industry benchmarks for direct comparison.
Operational Efficiency: The net interest margin decreased to 4.27% for the nine months ended September 30, 2024, from 4.32% in the same period of 2023. This decline is attributed to rising deposit and short-term borrowing costs, despite increases in yields on interest-earning assets.
| Period | Net Interest Margin (%) | Average Interest-Earning Assets ($ millions) | Average Interest-Bearing Liabilities ($ millions) |
|---|---|---|---|
| Q3 2024 | 4.27% | 1,096.0 | 714.6 |
| Q3 2023 | 4.32% | 1,157.3 | 723.6 |
For the nine months ended September 30, 2024, total interest income increased by $634,000 or 1.41% compared to the previous year, while total interest expense rose by $2.956 million, leading to a decrease in net interest income.
Conclusion: The profitability metrics demonstrate a mixed performance, with net income showing a slight decline, while returns on assets have improved. The operational efficiency metrics indicate challenges with rising costs affecting the net interest margin.
Debt vs. Equity: How United Security Bancshares (UBFO) Finances Its Growth
Debt vs. Equity: How United Security Bancshares Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the company's total liabilities amounted to $1.12 billion, with $34.0 million in short-term borrowings and $12.0 million relating to junior subordinated debentures. In comparison, short-term borrowings were $142.0 million at September 30, 2023.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio stands at approximately 8.57, calculated using total liabilities of $1.12 billion and total equity of $130.9 million as of September 30, 2024. This ratio is significantly higher than the industry standard, which typically ranges from 1.0 to 2.0 for banks, indicating a more leveraged position compared to peers.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
The company recorded a fair value gain of $65,000 on its junior subordinated debt for Q3 2024. The rate paid on the junior subordinated debt as of September 30, 2024, was set at 4.63% plus 129 basis points, down from 5.33% plus 129 basis points at the end of 2023. The company maintains a solid credit standing, although specific ratings were not disclosed in the latest report.
How the Company Balances Between Debt Financing and Equity Funding
Management employs a strategy that prioritizes maintaining a mix of low-cost funding sources, balancing between debt and equity. As of September 30, 2024, total deposits were $1.07 billion, reflecting a year-to-date increase of 6.0%. Core deposits, which exclude time deposits over $250,000 and brokered deposits, constituted 87.5% of total deposits. This indicates a strong reliance on stable funding sources, which helps mitigate the risks associated with higher leverage.
| Financial Metric | Amount ($ millions) |
|---|---|
| Total Liabilities | 1,122.52 |
| Total Equity | 130.93 |
| Debt-to-Equity Ratio | 8.57 |
| Short-Term Borrowings | 34.00 |
| Junior Subordinated Debt | 12.00 |
| Total Deposits | 1,065.02 |
| Core Deposits Percentage | 87.5% |
| Fair Value Gain on Junior Subordinated Debt | 0.065 |
Assessing United Security Bancshares (UBFO) Liquidity
Assessing United Security Bancshares' Liquidity
Current Ratio: As of September 30, 2024, the current ratio is 1.12, calculated by dividing current assets of $1,065,021 by current liabilities of $950,000.
Quick Ratio: The quick ratio stands at 0.87, with quick assets totaling $47,915 in cash and cash equivalents, and $975,151 in loans, compared to current liabilities of $950,000.
Analysis of Working Capital Trends
Working capital, calculated as current assets minus current liabilities, is $115,021 as of September 30, 2024. This represents a 9.5% increase from $105,000 at December 31, 2023.
Cash Flow Statements Overview
For the nine months ended September 30, 2024:
| Cash Flow Category | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash Provided by Operating Activities | $15,122 | $14,663 |
| Net Cash Used in Investing Activities | ($34,287) | $23,777 |
| Net Cash Provided by Financing Activities | $26,296 | ($41,738) |
| Net Change in Cash and Cash Equivalents | $7,131 | ($3,298) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company has $47.9 million in cash and cash equivalents, alongside $604.4 million in secured lines of credit and $86.0 million in unsecured lines of credit. Short-term borrowings amount to $34.0 million, down from $62.0 million at December 31, 2023. The loan-to-deposit ratio is 91.56%, indicating a strong liquidity position.
The allowance for credit losses stands at 1.69% of total loans, providing a buffer against potential defaults, which is crucial for liquidity management in the current economic climate.
Is United Security Bancshares (UBFO) Overvalued or Undervalued?
Valuation Analysis
To assess the financial health of the company, we will analyze its valuation using key ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 10.56, calculated based on a trailing twelve-month earnings per share of $0.72 and a stock price of approximately $7.61 as of September 30, 2024.
Price-to-Book (P/B) Ratio
The price-to-book ratio is 0.99, derived from a book value per share of $7.67 against the current stock price of $7.61.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 6.78, based on an enterprise value of $85.67 million and EBITDA of $12.63 million.
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between a low of $6.50 and a high of $9.00. Recent performance has shown stability, with the stock priced at $7.61.
Dividend Yield and Payout Ratio
The current dividend yield is 1.58%, calculated from an annual dividend of $0.12 per share. The payout ratio is approximately 16.67%, indicating a sustainable dividend policy given the company's earnings.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a "Hold" rating, with a target price of $8.00, suggesting a 5.12% upside potential from the current market price.
| Metric | Value |
|---|---|
| P/E Ratio | 10.56 |
| P/B Ratio | 0.99 |
| EV/EBITDA Ratio | 6.78 |
| 12-Month Stock Price Range | $6.50 - $9.00 |
| Current Stock Price | $7.61 |
| Dividend Yield | 1.58% |
| Payout Ratio | 16.67% |
| Analyst Consensus | Hold |
| Target Price | $8.00 |
Key Risks Facing United Security Bancshares (UBFO)
Key Risks Facing United Security Bancshares
Understanding the risk landscape is crucial for evaluating the financial health of any banking institution. United Security Bancshares faces several internal and external risks that could impact its financial performance.
Industry Competition
The banking sector is highly competitive, with numerous financial institutions vying for market share. As of September 30, 2024, total deposits increased by 6.0% to $1.07 billion from $1.00 billion at December 31, 2023. This growth is indicative of a competitive environment where attracting and retaining customers is critical.
Regulatory Changes
Changes in banking regulations can have significant implications for operations. For instance, the Federal Reserve's monetary policy decisions directly affect interest rates and lending practices. The prime rate decreased from 8.50% at September 30, 2023, to 8.00% at September 30, 2024. Such changes can influence both interest income and expense, impacting net interest margins.
Market Conditions
Economic downturns can adversely affect the bank's loan portfolio. The allowance for credit losses was 1.69% of outstanding loan balances as of September 30, 2024, compared to 1.70% at December 31, 2023. This slight decrease indicates a cautious approach to potential credit risks amid uncertain economic conditions.
Operational Risks
Operational risks include failures in internal processes or systems. Noninterest expenses increased by 7.8% year-over-year to $7.1 million for the quarter ended September 30, 2024. Significant increases in data processing expenses, which rose by 128.9%, highlight potential vulnerabilities in operational efficiency.
Financial Risks
Financial risks involve exposure to fluctuations in interest rates and credit quality. Interest expense increased by 15.7% to $3.9 million due to rising short-term borrowing costs. This trend raises concerns over net interest income, which decreased by 0.91% to $11.8 million for the quarter ended September 30, 2024.
Strategic Risks
Strategic risks arise from inadequate or failed internal processes. The company recorded a provision for credit losses of $1.6 million for the quarter ended September 30, 2024, compared to no provision in the same period last year. This reflects a proactive stance on potential loan defaults, which may indicate a shift in strategic focus due to changing market conditions.
Mitigation Strategies
The company employs several strategies to mitigate risks. As of September 30, 2024, it had remaining available secured lines of credit totaling $604.4 million and available unsecured lines of credit amounting to $86.0 million. Such liquidity measures are designed to enhance financial stability and ensure operational resilience.
| Risk Type | Current Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | Total deposits increased 6.0% to $1.07 billion | Enhanced marketing and customer retention strategies |
| Regulatory Changes | Prime rate decreased to 8.00% | Adapting lending practices to comply with regulations |
| Market Conditions | Allowance for credit losses at 1.69% | Monitoring economic indicators and adjusting credit policies |
| Operational Risks | Noninterest expenses increased to $7.1 million | Improving operational efficiencies and cost control measures |
| Financial Risks | Interest expense rose to $3.9 million | Interest rate hedging and diversified funding sources |
| Strategic Risks | Provision for credit losses of $1.6 million | Regular reviews of loan portfolios and risk assessment |
| Liquidity Risks | Available secured lines of credit of $604.4 million | Maintaining robust liquidity positions |
These risk factors present ongoing challenges for United Security Bancshares, necessitating vigilant management and strategic adjustments to navigate the complex financial landscape.
Future Growth Prospects for United Security Bancshares (UBFO)
Future Growth Prospects for United Security Bancshares (UBFO)
The growth opportunities for United Security Bancshares are influenced by several key factors that could enhance its financial health and market position moving forward.
Key Growth Drivers
- Product Innovations: The company has been focusing on enhancing its loan portfolio, which totaled $975.2 million as of September 30, 2024, an increase of 6.0% from $920.0 million at December 31, 2023.
- Market Expansions: The bank operates in California’s Central Valley, exploring opportunities to expand its footprint in nearby counties, potentially increasing its customer base and deposit growth.
- Acquisitions: Future strategic acquisitions may allow the bank to enhance its asset base and diversify its offerings, as indicated by its recent growth in loan and deposit volumes.
Future Revenue Growth Projections
Revenue growth projections suggest a stable outlook, with net income reported at $12.3 million for the nine months ended September 30, 2024, compared to $14.4 million for the same period in 2023. The annualized return on average assets (ROAA) increased to 1.36% for the same period.
Earnings Estimates
The earnings estimates reflect a cautious optimism, with earnings per share at $0.72 for the nine months ended September 30, 2024. The net interest margin has also shown resilience, reported at 4.20% for the quarter ended September 30, 2024.
Strategic Initiatives and Partnerships
United Security Bancshares continues to enhance its strategic initiatives by managing credit risks and maintaining liquidity. The bank has secured lines of credit totaling $503.4 million from the Federal Reserve Bank, which can be pivotal in supporting growth.
Competitive Advantages
- Core Deposits: Core deposits account for 87.5% of total deposits as of September 30, 2024, providing a stable funding source.
- Strong Loan Performance: The bank has seen growth in its commercial and agricultural loan segments, with agricultural loans increasing by 33.6%.
- Capital Position: The Tier 1 leverage ratio stands at 12.44%, indicating a well-capitalized status which is conducive for growth.
| Category | September 30, 2024 | December 31, 2023 | Change |
|---|---|---|---|
| Total Loans | $975.2 million | $920.0 million | +6.0% |
| Total Deposits | $1.07 billion | $1.00 billion | +6.0% |
| Net Interest Margin | 4.20% | 4.09% | +0.11% |
| ROAA | 1.36% | 1.52% | -0.16% |
| Book Value per Share | $7.67 | $7.14 | +7.4% |
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Updated on 16 Nov 2024
Resources:
- United Security Bancshares (UBFO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of United Security Bancshares (UBFO)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View United Security Bancshares (UBFO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.