UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM              TO             .

Commission file number: 000-32987

UNITED SECURITY BANCSHARES

(Exact name of registrant as specified in its charter)

CALIFORNIA	91-2112732
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2126 Inyo Street, Fresno, California	93721
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code    (559) 490-6261

Securities registered pursuant to Section 12(b) of the Act:  Common Stock, no par value    UBFO        Nasdaq

                             (Title of Class)     (Trading Symbol) (Exchange)

Securities registered pursuant to Section 12(g) of the Act:   NONE

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐  No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.

Yes ☐ No  ☒ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Yes ☒  No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒
Small reporting company ☒		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒ 

Aggregate market value of the Common Stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter - June 30, 2023: $104,165,322

Shares outstanding as of February 29, 2024:  17,255,505

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K will be found in the Company’s definitive proxy statement for its 2024 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and such information is incorporated herein by this reference.

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UNITED SECURITY BANCSHARES

TABLE OF CONTENTS

PART I:
	Item 1 - Business	4
	Item 1A - Risk Factors	18
	Item 1B – Unresolved Staff Comments	17
	Item 1C - Cybersecurity	18
	Item 2 - Properties	18
	Item 3 - Legal Proceedings	19
	Item 4 – Mine Safety Disclosures	19
PART II:
	Item 5 - Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	19
	Item 6 - [Reserved]	21
	Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 7A - Quantitative and Qualitative Disclosures about Market Risk	43
	Item 8 - Financial Statements and Supplementary Data	43
	Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	88
	Item 9A – Controls and Procedures	88
	Item 9B – Other Information	89
	Item 9C – Disclosures Regarding Foreign Jurisdictions that Prevent Inspections	89
PART III:
	Item 10 – Directors, Executive Officers, and Corporate Governance	89
	Item 11 - Executive Compensation	89
	Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	89
	Item 13 - Certain Relationships and Related Transactions, and Director Independence	89
	Item 14 – Principal Accounting Fees and Services	89
PART IV:
	Item 15 – Exhibits and Financial Statement Schedules	90

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 PART 1

Certain matters discussed or incorporated by reference in this Annual Report on Form 10-K (this “Report”) including, but not limited to, those described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. All statements contained in this Report that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these statements as they involve risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those expressed in them. Actual results could differ materially from those anticipated in such forward-looking statements as a result of risks and uncertainties. Factors that might cause such differences include, but are not limited to:

•the impacts on the Company’s markets and customers of severe weather or natural disasters, such as wildfires, earthquakes, drought, or flood;

•the impacts of supply chain disruption and inflation on our customers, employees, and suppliers;

•asset/liability matching risks and liquidity risks;

•volatility and devaluation in the securities markets;

•our ability to compete effectively against other financial service providers in our markets;

•the effect of the current interest rate environment or impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolio;

•economic deterioration or a recession that may affect the ability of borrowers to make contractual payments on loans and may affect the value of real property or other property held as collateral for such loans, including the value of other real estate owned;

•changes in credit quality and the effect of credit quality on our allowance for credit losses;

•our ability to attract and retain deposits and other sources of funding or liquidity;

•the need to retain capital for strategic or regulatory reasons;

•the impact of the Dodd-Frank Act and other legislation on our business, business strategies, and cost of operations;

•compression of the net interest margin due to changes in the interest rate environment, forward yield curves, loan products offered, spreads on newly originated loans, and leases and/or asset mix;

•reduced demand for our services due to strategic or regulatory reasons;

•our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications;

•information security breaches;

•legislative or regulatory requirements or changes, including an increase to capital requirements, change in tax policy, and increased political and regulatory uncertainty;

•the impact on our reputation and business from our interactions with business partners, counterparties, service providers, and other third parties;

•higher than anticipated increases in operating expenses;

•inability of the Bank to pay dividends to the Holding Company;

•a deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge;

•the effectiveness of our risk management framework and quantitative models;

•the costs and effects of legal, compliance, and regulatory actions, changes, and developments, including the impact of adverse judgments or settlements in litigation, the initiation and resolution of regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;

•the impact of the changes in tax laws or regulations on our business and business strategies, or if other changes are made to tax laws or regulations affecting our business, including the disallowance of tax benefits by tax authorities and/or changes in tax filing jurisdictions or entity classifications;

•conflicts both foreign and domestic and civil unrest including current conflicts in the Middle East and Europe; and

•our success at managing risks involved in the foregoing items and all other risk factors described in our audited consolidated financial statements, and other risk factors described in this Report and other documents filed or furnished by the Company with the SEC.

Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Company.

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Item 1 - Business

General

United Security Bancshares is a California corporation incorporated in March 2001 and is registered with the Board of Governors of the Federal Reserve System (FRB) as a bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA). The common stock of United Security Bancshares is listed on Nasdaq under the symbol “UBFO.”

United Security Bank was chartered under the laws of the State of California in 1987 as a commercial bank. On June 12, 2001, United Security Bank reorganized into the bank holding company form of ownership and thereby became the wholly-owned subsidiary of United Security Bancshares and each share of United Security Bank stock was exchanged for a share of United Security Bancshares stock on a one-for-one basis. The principal business of United Security Bancshares is to serve as the holding company for United Security Bank.

References to the “Bank” refer to United Security Bank together with its wholly-owned subsidiary, York Monterey Properties. References to “we,” “us,” or the “Company” refer to United Security Bancshares together with its subsidiaries on a consolidated basis. References to the “Holding Company,” refer to United Security Bancshares, the parent company, on a stand-alone basis.

United Security Bank

The Bank is a California state-chartered bank headquartered in Fresno, California. At December 31, 2023, the Bank operates three branches (including its main office), one construction lending office, and one commercial lending office in Fresno, California and one branch each in Oakhurst, Caruthers, San Joaquin, Firebaugh, Coalinga, Bakersfield, Taft, Campbell, and Mendota California. The Bank has Interactive Teller Machines (ITMs) at all branch locations and nine off-site ITMs at non-branch locations. In addition, the Holding Company and the Bank have administrative headquarters located at 2126 Inyo Street, Fresno, California, 93721.

York Monterey Properties, Inc.

York Monterey Properties, Inc. (YMP) was incorporated in California on April 17, 2019, for the purpose of holding specific parcels of real estate acquired by the Bank through, or in lieu of, foreclosures in Monterey County. These properties exceeded the 10-year regulatory holding period for other real estate owned, or “OREO.” YMP was funded with a $250,000 cash investment and the transfer of those parcels by the Bank to YMP. In December 2021, $805,000 in additional funding was transferred to YMP to fund estimated expenses over a five-year period. As of December 31, 2023, these properties are included within the consolidated balance sheets as part of “other real estate owned.”

USB Capital Trust II

During July 2007, the Company formed USB Capital Trust II as a wholly-owned special purpose entity for the purpose of issuing Trust Preferred Securities. USB Capital Trust II is a Variable Interest Entity and a deconsolidated entity pursuant to current accounting standards related to variable interest entities. On July 23, 2007, USB Capital Trust II issued $15 million in Trust Preferred Securities. These securities have a thirty-year maturity and bear a floating rate of interest (repricing quarterly) of 1.29% over the forward 3-month SOFR rate. Interest is payable quarterly.

Concurrent with the issuance of the Trust Preferred Securities, USB Capital Trust II used the proceeds of the Trust Preferred Securities offering to purchase a like amount of junior subordinated debentures issued by the Company. The Company pays interest on the junior subordinated debentures to USB Capital Trust II, which represents the sole source of dividend distributions to the holders of the Trust Preferred Securities. During 2015, $3.0 million of the $15.0 million principal balance of the subordinated debentures related to the Trust Preferred Securities was purchased by the Bank and subsequently purchased by the Company from the Bank. The Company redeemed the $3.0 million in par value of the subordinated debentures, resulting in a remaining contractual principal balance of $12.0 million since year-end 2015. The Company may redeem the junior subordinated debentures at any time at par.

The following discussion of services should be read in conjunction with “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Bank Services

The Bank offers a full range of commercial banking services primarily to the business and professional community and individuals located in Fresno, Madera, Kern, and Santa Clara Counties, including a variety of deposit instruments including personal and business checking accounts and savings accounts, interest-bearing negotiable order of withdrawal (NOW) accounts, money market accounts, and time certificates of deposit. Most deposits are comprised of accounts from individuals and from small- and medium-sized, business-related sources.

The Bank also offers a full complement of lending products, including real estate loans, real estate construction loans, commercial and industrial loans, agricultural loans, and installment loans.

Real estate mortgage loans are secured by deeds of trust primarily on commercial property. The repayment of real estate mortgage loans generally is from the cash flow of the borrower. Commercial and industrial loans are diversified by industry. Loans may be originated in the Bank’s market area, purchased, or participated with other financial institutions outside the market area. A substantial portion of commercial and industrial loans are secured by accounts receivable, inventory, leases, or other collateral. The remainder are unsecured. However, extensions of credit are predicated on the financial capacity of the borrower to repay. Repayment of commercial loans is generally from the cash flow of the borrower. Real estate construction loans consist of loans to residential and commercial contractors, which are secured by single-family residential or multi-family properties. All real estate loans have established equity requirements. The repayment of real estate construction loans is generally from long-term mortgages with other lending institutions. Agricultural loans are generally secured by land, equipment, inventory, and receivables. Repayment of agricultural loans is generally from the expected cash flow of the borrower.

While the Bank has a high concentration of commercial real estate loans, it is not in the business of making residential mortgage loans to individuals. The residential mortgage loan portfolio is primarily comprised of purchased fixed-rate 30-year residential mortgage pools. The Bank does not originate, or have in the loan portfolio, any subprime, Alt-A, or option adjustable-rate loans. The Bank does originate interest-only loans which are generally revolving lines of credit to commercial and agricultural businesses or for real estate development where the borrowers business may be seasonal or cash flows may be restricted until the completion of the project.

Loan participations are purchased from and sold to other financial institutions. The underwriting standards for loan participations and purchases are the same as non-participated loans, and are subject to the same limitations, collateral requirements, and borrower requirements.

In the normal course of business, the Bank makes various loan commitments, including granting customers collateralized and uncollateralized lines of credit, and incurs certain contingent liabilities. Due to the nature of the business of the Bank’s customers, there is no absolute predictability to the utilization of unused loan commitments, including collateralized and uncollateralized lines of credit, and, therefore, it is not possible to forecast the extent to which these commitments will be exercised within the current year. While no assurance can be provided, it is not believed that any such utilization will constitute a material liquidity demand.

In addition to the loan and deposit services discussed above, the Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and account holders. These services include online banking, mobile banking, safe deposit boxes, wire transfers, ITM services, payroll direct deposit, cashier’s checks, and cash management services. While the Bank does not operate a trust department, arrangements with correspondent banks for trust services can be requested.

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Competition and Market Share

The banking business in California as well as the Bank’s market area is highly competitive with respect to both loans and deposits. The Bank competes for loans and deposits with other commercial banks, savings and loan associations, money market funds, credit unions, and other financial institutions. The Bank competes for loans and deposits by offering competitive interest rates and by seeking to provide a higher level of personalized service than is generally offered by larger competitors. Regulatory restrictions on interstate bank branching and acquisitions and on the provision of certain financial services, such as securities underwriting and insurance, have been reduced or eliminated. The availability of online and mobile banking services continues to expand. Changes in laws and regulations governing the financial services industry cannot be predicted; however, past legislation has served to intensify the competitive environment. Many of the major commercial banks operating in the Bank’s market areas offer certain services, such as trust and wealth management services, which the Bank does not offer directly. In addition, banks with larger capitalization have larger lending limits and are thereby able to serve larger customers.

The Bank’s primary market areas are Fresno, Madera, Santa Clara, and Kern County, California. There are 58 FDIC-insured financial institutions competing for business in those areas. The following table sets forth information regarding deposit market share and ranking by county as of June 30, 2023, which is the most current information available.

	Rank	Share
Fresno County	9th	4.24%
Madera County	4th	8.40%
Kern County	14th	0.68%
Santa Clara County	40th	0.01%
Total of Fresno, Madera, Kern, and Santa Clara Counties	20th	0.33%

Supervision and Regulation

Banking is a complex, highly regulated industry. Federal and state laws and the regulations of the federal and state bank regulatory agencies govern most aspects of a bank’s business, including capital adequacy ratios, reserves against deposits, limitations on the nature and amount of loans which may be made, the location of branch offices, borrowings, and dividends. The primary goals of banking laws and regulations are to maintain a safe and sound banking system, to protect depositors and the FDIC’s insurance fund, and to facilitate the conduct of sound monetary policy. In furtherance of these goals, Congress and the States have created several largely autonomous regulatory agencies and enacted numerous laws that govern banks, bank holding companies, and the financial services industry. Consequently, the growth and earnings performance of the Company and the Bank can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes, regulations, and the policies of various governmental regulatory authorities, including:

•The Federal Deposit Insurance Corporation, or FDIC,

•The California Department of Financial Protection and Innovation, or DFPI,

•The Federal Reserve Board, or FRB.

Changes in applicable law or regulations, and in their application by the regulatory agencies, whether as the result of changes in the political climate or otherwise, cannot be predicted and may have a material effect on the business, operations, and financial results of the Company or the Bank.

Described below are elements of selected laws and regulations applicable to the Company and/or the Bank. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described.

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),which was enacted in 2010, significantly revised and expanded the rulemaking, supervisory and enforcement authority of the federal bank regulatory agencies. The numerous rules and regulations being promulgated pursuant to the Dodd-Frank Act are impacting banks’ operations and compliance costs. Provisions of the Dodd-Frank Act include:

•revisions in the deposit insurance assessment base for FDIC insurance and the permanent increase in deposit insurance coverage to $250,000;

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•reduced interchange fees on debit card transactions;

•interest payments on business checking accounts;

•the removal of barriers to interstate branching;

•and required disclosure and shareholder advisory votes on executive compensation.

Other provisions of the Dodd-Frank Act include:

•Capital Requirements. The Dodd-Frank Act: increased the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets; created a new category and required 4.50% of risk-weighted assets ratio for “common equity Tier 1” as a subset of Tier 1 capital limited to common equity; established a minimum non-risk-based leverage ratio set at 4.00%, eliminating a 3.00% exception for higher rated banks; changed the permitted composition of Tier 1 capital to exclude trust preferred securities (unless issued prior to May 19, 2010 by a bank holding company with less than $15 billion in assets), mortgage servicing rights and certain deferred tax assets and included unrealized gains and losses on available for sale debt and equity securities; added an additional capital conservation buffer of 2.5% of risk-weighted assets over each of the required capital ratios, which must be met to avoid limitations on the ability to pay dividends, repurchase shares or pay discretionary bonuses; changed the risk weights of certain assets for purposes of calculating the risk-based capital ratios for high volatility commercial real estate acquisition, development and construction loans, certain past due non-residential mortgage loans and certain mortgage-backed and other securities exposures.

•Deposit Insurance. The Dodd-Frank Act broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund to 1.35% of insured deposits and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds.

•Corporate Governance. The Dodd-Frank Act directed the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion.

•Interstate Branching. The Dodd-Frank Act authorized national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted to branch.

•Consumer Financial Protection Bureau. The Dodd-Frank Act created an independent federal agency called the Consumer Financial Protection Bureau (CFPB), which has been granted broad rulemaking, supervisory, and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial Privacy provisions of the GLBA, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB but are still examined and supervised by their federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd- Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

•Final Volcker Rule. In December 2013, the federal bank regulatory agencies adopted final rules that implemented a part of the Dodd-Frank Act commonly referred to as the “Volcker Rule.” The final rules were amended in October 2019. Under these rules and subject to certain exceptions, banking entities, including the Bank, are restricted from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered “covered funds.” Banks that do not have significant trading activities, such as the Bank, will be assumed to operate under a presumption of compliance.

The Dodd-Frank Act also resulted in the creation of a new systemic risk oversight body, the Financial Stability Oversight Council to oversee and coordinate the efforts of the primary U.S financial regulatory agencies in establishing regulations to address financial stability matters.

The Dodd-Frank Act was enacted under the administration of former President Barack Obama. The subsequent administration under President Donald Trump sought to roll-back key pieces of the Dodd-Frank Act in an effort to loosen regulatory restrictions on financial institutions including, but not limited to, easing the “Volker Rule,” stress tests, and other constraints on

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financial institutions. The Biden administration has expressed a commitment to reemphasize restrictions on financial institutions which were loosened during the previous administration. The Company cannot predict which provisions of the Dodd-Frank Act will be repealed, put in to effect, delayed, or enforced and, therefore, cannot predict the effect, if any, that the Dodd-Frank Act and regulations promulgated thereunder or actions initiated by the Biden administration will have on its future results of operations and financial condition.

The Company

    General

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and is registered with, and regulated and examined by, the Board of Governors of the Federal Reserve System, or FRB. The Company is subject to regulation by the Securities and Exchange Commission (SEC) and to the disclosure and regulatory requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, as the Company lists its common stock on Nasdaq, it is subject to the listing standards and rules of Nasdaq.

    Dodd-Frank Act

The Dodd-Frank Act codified existing FRB policy requiring the Company to act as a source of financial strength to the Bank, and to commit resources to support the Bank in circumstances where it might not otherwise do so. However, because the Gramm-Leach-Bliley Act (GLBA) provides for functional regulation of financial holding company activities by various regulators, the GLBA prohibits the FRB from requiring payment by a holding company to a depository institution if the functional regulator of the depository institution objects to the payment. In those cases, the FRB could instead require the divestiture of the depository institution and impose operating restrictions pending the divestiture. As a result of the Dodd-Frank Act, non-bank subsidiaries of a holding company that engage in activities permissible for an insured depository institution must be examined and regulated in a manner that are at least as stringent as if the activities were conducted by the lead depository institution of the holding company.

    Bank Holding Company Liquidity

As a legal entity, separate and distinct from the Bank, the Company must rely on its own resources to pay its operating expenses and dividends to its shareholders. In addition to raising capital on its own behalf or borrowing from external sources, the Company may also obtain funds from dividends paid by, and fees charged for services provided to, the Bank. However, statutory and regulatory constraints on the Bank may restrict or totally preclude the payment of dividends by the Bank to the Company.

    Transactions with Affiliates and Insiders

The Company and any subsidiaries it may purchase or organize are deemed to be affiliates of the Bank within the meaning of Sections 23A and 23B of the Federal Reserve Act, and the FRB’s Regulation W. Under Sections 23A and 23B and Regulation W, loans by the Bank to affiliates, investments by them in affiliates’ stock, and taking affiliates’ stock as collateral for loans to any borrower is limited to 10% of the Bank’s capital, in the case of any one affiliate, and is limited to 20% of the Bank’s capital, in the case of all affiliates. In addition, transactions between the Bank and any affiliates must be on terms and conditions that are consistent with safe and sound banking practices and substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving non-affiliates. In particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Federal Reserve Act. These restrictions also prevent a bank holding company and a bank subsidiary’s other affiliates from borrowing from the bank subsidiary unless the loans are secured by marketable collateral of designated amounts.

The Company and the Bank are also subject to certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.

The Federal Reserve Act and FRB Regulation O place limitations and conditions on loans or extensions of credit to a bank or bank holding company’s executive officers, directors and principal shareholders; any company controlled by any such executive officer, director or shareholder; or any political or campaign committee controlled by such executive officer, director or principal shareholder. Additionally, such loans or extensions of credit must comply with loan-to-one-borrower limits; require prior full board approval when aggregate extensions of credit to the person exceed specified amounts; must be made on substantially the same and follow credit-underwriting procedures no less stringent than those prevailing at the time for

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comparable transactions with non-insiders; must not involve more than the normal risk of repayment, or present other unfavorable features; and must not exceed the bank’s unimpaired capital and unimpaired surplus in the aggregate.

    Limitations on Business and Investment Activities

Under the BHCA, a bank holding company must obtain the FRB’s approval before: (i) directly or indirectly acquiring more than 5% ownership or control of any voting shares of another bank or bank holding company; (ii) acquiring all or substantially all of the assets of another bank; (iii) or merging or consolidating with another bank holding company.

The FRB may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions however, the FRB must give effect to applicable state laws limiting the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institutions in the state in which the target bank is located, provided that those limits do not discriminate against out-of-state depository institutions or their holding companies, and state laws which require that the target bank have been in existence for a minimum period of time, not to exceed five years, before being acquired by an out-of-state bank holding company.

In addition to owning or managing banks, bank holding companies may own subsidiaries engaged in certain businesses that the FRB has determined to be “so closely related to banking as to be a proper incident thereto.” The Holding Company, therefore, is permitted to engage in a variety of banking-related businesses.

Additionally, qualifying bank holding companies making an appropriate election to the FRB may engage in a full range of financial activities, including insurance, securities, and merchant banking. The Company has not elected to qualify for these financial services.

Federal law prohibits a bank holding company and any subsidiary banks from engaging in certain tie-in arrangements in connection with the extension of credit. Thus, for example, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that:

•the customer must obtain or provide some additional credit, property, or services from or to the Bank other than a loan, discount, deposit or trust services;

•the customer must obtain or provide some additional credit, property, or service from or to the Company or any subsidiaries; or

•the customer must not obtain some other credit, property, or services from competitors, except reasonable requirements to assure soundness of credit extended.

    Capital Adequacy

Bank holding companies must maintain minimum levels of capital under the FRB’s risk-based capital adequacy guidelines. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

The FRB’s risk-based capital adequacy guidelines, discussed in more detail below in the section entitled “The Bank - Capital Standards,” assign various risk percentages or weights to different categories of assets and capital is measured as a percentage of risk-weighted assets. Under the terms of the guidelines, bank holding companies are expected to meet capital adequacy guidelines based both on total risk-weighted assets and on total assets, without regard to risk weights.

The risk-based guidelines are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual organizations. For example, the FRB’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Moreover, any banking organization experiencing or anticipating significant growth or expansion into new activities, particularly under the expanded powers under the GLBA, would be expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

    Limitations on Dividend Payments

As applicable to the Company, California Corporations Code Section 500 provides that neither the Company nor any of its subsidiaries shall make a distribution to the Company’s shareholders unless the board of directors has determined in good faith that either:

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•The amount of retained earnings of the Company immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount; or

•Immediately after the distribution, the value of the Company’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount.

Additionally, the FRB’s policy regarding dividends provides that a bank holding company should not pay cash dividends exceeding its net income for the past year or which can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The FRB also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

    Securities Registration and Listing

The Company’s common stock is registered with the SEC under the Exchange Act and, as a result, is subject to the information, proxy solicitation, insider trading, corporate governance, and other disclosure requirements and restrictions of the Exchange Act, as well as the Securities Act, both administered by the SEC. The Company is required to file annual, quarterly and other current reports with the SEC. The SEC maintains an Internet site, http://www.sec.gov, where SEC filings may be accessed. The SEC filings are also available on the Bank’s website at http://investors.unitedsecuritybank.com/Docs.

The Company’s common stock is listed on Nasdaq and trades under the symbol “UBFO.” The Company is subject to Nasdaq standards for listed companies. Nasdaq has adopted corporate governance rules, which are intended to allow shareholders and investors to more easily and efficiently monitor the performance of companies and their directors.

The Bank

General

As a California state-chartered bank and a member of the FRB, the Bank is subject to regulation, supervision and regular examination by the FRB and the DFPI. The Bank is subject to California laws insofar as they are not preempted by federal banking law. Deposits of the Bank are insured by the FDIC up to the applicable limits in an amount up to $250,000 per customer and, as such, the Bank is subject to the applicable provisions of the Federal Deposit Insurance Act and the regulations of the FDIC. As a consequence of the extensive regulation of commercial banking activities in California and the United States, the Bank’s business is particularly susceptible to changes in California and federal legislation and regulation, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.

Capital Standards

Federal regulations require FDIC-insured depository institutions, including the Bank, to maintain adequate capital based on the size, asset composition, and complexity of the institution. Generally, FDIC-insured depository institutions must maintain several minimum capital ratios: a common equity tier 1 capital to risk-based assets ratio; a tier 1 capital to risk-based assets ratio; a total capital to risk-based assets; and a tier 1 capital to total assets leverage ratio. These ratios involve complex calculations of various categories of capital and various categories of assets. Failure to meet minimum capital requirements can initiate certain mandates and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the institution’s financial condition and results of operations.

Effective January 1, 2020, pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in May 2018, the Federal regulatory agencies adopted simplified capital requirements for certain qualifying “community” banking organizations. Depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9 percent, are eligible to opt into the community bank leverage ratio framework. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9 percent are considered to have satisfied the applicable risk-based and leverage capital requirements in the agencies’ capital rules and are considered to have met the “well capitalized” ratio requirements. Institutions that cease meeting the qualifying criteria have two calendar quarters within which to re-qualify, so long as the institution maintains a leverage ratio of greater than 8 percent during the grace period.

The Company and the Bank met the criteria and adopted the community bank leverage ratio framework during 2020.

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As of December 31, 2023, the Company and the Bank were “well capitalized” under the applicable standards. The actual capitalization ratios for the Bank and the Company as of December 31, 2023 can be found at “Note 21 - Regulatory Matters” to the consolidated financial statements.

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FRB promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios:

Under the regulations, a bank shall be deemed to be:

•“well capitalized” if it has a total risk-based capital ratio of 10% or more, has a Tier 1 risk-based capital ratio of 8% or more, has a common equity Tier 1 capital ratio of 6.5% or more, has a Tier 1 leverage capital ratio of 5% or more, and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure;

•“adequately capitalized” if it has a total risk-based capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 6% or more and a leverage capital ratio of 4% or more (3% under certain circumstances) and does not meet the definition of “well capitalized”;

•“undercapitalized” if it has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a leverage capital ratio that is less than 4% (3% under certain circumstances);

•“significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage capital ratio that is less than 3%; and

•“critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2%.

A bank’s category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

While these benchmarks have not changed, due to market turbulence, the regulators have strongly encouraged and, in many instances, required, banks and bank holding companies to achieve and maintain higher ratios as a matter of safety and soundness.

Banks are prohibited from paying dividends or management fees to controlling persons or entities if, after making the payment, the bank would be “undercapitalized,” that is, the bank fails to meet the required minimum level for any relevant capital measure. Asset growth and branching restrictions apply to “undercapitalized” banks. Banks classified as “undercapitalized” are required to submit acceptable capital plans guaranteed by its holding company, if any. Broad regulatory authority was granted with respect to “significantly undercapitalized” banks, including forced mergers, growth restrictions, ordering new elections for directors, forcing divestiture by its holding company, if any, requiring management changes, and prohibiting the payment of bonuses to senior management. Even more severe restrictions are applicable to “critically undercapitalized” banks. Restrictions for these banks include the appointment of a receiver or conservator. All of the federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action.

A bank, based upon its capital levels, that is classified as “well capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. Further, a bank that otherwise meets the capital levels to be categorized as “well capitalized,” will be deemed to be “adequately capitalized,” if the bank is subject to a written agreement requiring that the bank maintain specific capital levels. At each successive lower capital category, an insured bank is subject to more restrictions. The federal banking agencies, however, may not treat an institution as “critically undercapitalized” unless its capital ratios actually warrant such treatment.

Banking organizations that meet the criteria and have adopted the community bank leverage ratio framework, such as the Company and the Bank, are deemed to be “well capitalized” for “prompt corrective action” purposes.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations, such as the Bank, may be subject to potential enforcement actions by the federal or state banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease‑and‑desist order that can be judicially enforced, the termination of insurance for deposits (in the case of a

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depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, and the issuance of removal and prohibition orders against institution‑affiliated parties.

Brokered Deposit Restrictions

Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the rate paid on such deposits. Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits. As of December 31, 2023, the Bank was deemed to be “well-capitalized” and, therefore, eligible to accept brokered deposits.

Limitations on Dividend Payments

California law restricts the amount available for cash dividends the Bank may pay to the Company. Under California law, funds available for cash dividend payments by a bank are restricted to the lesser of: (1) retained earnings; or (2) the bank’s net income for its last three fiscal years (less any distributions to shareholders made during such period). Cash dividends may also be paid out of the greater of: (i) net income for a bank’s last preceding fiscal year; (ii) a bank’s retained earnings; or (iii) net income for a bank’s current fiscal year, upon the prior approval of the DFPI. If the DFPI finds that the stockholders’ equity of a bank is not adequate or that the payment of a dividend would be unsafe or unsound for the bank, the DFPI may order the bank not to pay any dividends.

Premiums for Deposit Insurance

The FDIC insures deposits up to $250,000 per qualified account. The FDIC utilizes a risk-based assessment system to set quarterly insurance premium assessments which categorizes banks into four risk categories based on capital levels and supervisory “CAMELS” ratings and names them Risk Categories I, II, III and IV. The CAMELS rating system is based upon an evaluation of the six critical elements of an institution’s operations: Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to risk. This rating system is designed to take into account and reflect all significant financial and operational factors financial institution examiners assess in their evaluation of an institution’s performance.

The Federal Deposit Insurance Act required the FDIC to maintain a reserve ratio of the FDIC’s deposit insurance fund at not less than 1.35% of insured deposits and to adopt a restoration plan to achieve the statutory minimum within 8 years if the ratio falls below 1.35%. During 2020 the reserve ratio fell below 1.35% to 1.30% due to extraordinary growth in insured deposits and, accordingly, in September 2020, the FDIC adopted a restoration plan providing for FDIC monitoring deposit balance trends, potential losses, and other factors that affect the reserve ratio, while maintaining the current schedule of assessment rates for all insured institutions. Under the restoration plan, the FDIC is to provide updates at least semi-annually. In setting the assessments, the FDIC is required to offset the effect of the higher reserve ratio against insured depository institutions with total consolidated assets of less than $10 billion. Assessments are based on the average consolidated total assets less average tangible equity capital of a financial institution rather than on its insured deposits. The semi-annual update as of March 31, 2022, showed a decline of four basis points to 1.23%. As a result, on October 20, 2022, the FDIC adopted an amendment to the restoration plan resulting in a uniform increase in the base deposit insurance assessment of two basis points beginning with the first quarter of 2023 in order to meet the requirement of 1.35% by September 30, 2028. On November 16, 2023, the FDIC adopted a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank. Under the final rule, the assessment base for an insured depository institution will be equal to the institution’s estimated uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits.

The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance would result in the forced closure of the Bank which would have a material adverse effect on the Company’s business, financial condition, and results of operations.

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and benefits. In addition, the federal

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banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide nine standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank of San Francisco (FHLB-SF). Among other benefits, each Federal Home Loan Bank (FHLB) serves as a reserve or central bank for its members within its assigned region. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. The FHLB-SF utilizes a single class of stock with a par value of $100 per share, which may be issued, exchanged, redeemed and repurchased only at par value. As an FHLB member, the Bank is required to own FHLB –SF capital stock in an amount equal to the greater of:

•a membership stock requirement with an initial cap of $25 million (100% of “membership asset value” as defined), or

•an activity-based stock requirement (based on percentage of outstanding advances).

The FHLB – SF capital stock is redeemable with five year’s written notice, subject to certain conditions. At December 31, 2023, the Bank owned 67,374 shares of the FHLB-SF capital stock valued at $6,737,400.

Federal Reserve Bank

The FRB no longer requires depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts and non-personal time deposits.

As a member of the Federal Reserve Bank, the Bank is required to subscribe to the stock of the Federal Reserve Bank of San Francisco in an amount equal to 6% of the Bank’s capital and surplus of which 3% must be paid in and 3% is subject to call by the Board of Governors of the Federal Reserve System. Capital stock shares may not be transferred or hypothecated. The capital stock of the Federal Reserve Bank is divided into shares of $100 each.

At December 31, 2023, the Bank owned 38,567 shares of FRB-SF stock with paid-in capital totaling $1,929,850.

Consumer Regulation

The Company is subject to a number of federal and state consumer protection laws that extensively govern relationships with customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate, and civil money penalties. Failure to comply with consumer protection regulations may result in the failure to obtain required bank regulatory approval for merger or acquisition transactions or other transactions where approval is not required.

The CFPB has broad rulemaking, supervisory, and enforcement powers under various federal consumer financial protection laws. The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. The CFPB has broad supervisory, examination, and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. State regulation of financial products and potential enforcement actions could also adversely affect business, financial condition, or results of operations. For example, on November 29, 2021, the DFPI proposed rules under the California Consumer Financial Protection Law to allow the DFPI to require businesses that provide financial products such as debt settlement, student debt relief, education financing, and wage-based advances to register with the DFPI and provide records to facilitate the oversight of the registrants in their interaction

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with consumers in California. The DFPI’s expanding its authority to have an increased emphasis on consumer protection that may be viewed as an effort to create a state-run equivalent of the CFPB.

USA PATRIOT Act

The PATRIOT Act, designed to deny terrorists and others the ability to obtain access to the United States financial system, has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The PATRIOT Act, as implemented by various federal regulatory agencies, requires the Company and the Bank to establish and implement policies and procedures with respect to, among other matters, anti‑money laundering, compliance, suspicious activity and currency transaction reporting and due diligence on customers and prospective customers. The PATRIOT Act and its underlying regulations permit information sharing for counter‑terrorist purposes between federal law enforcement agencies and financial institutions, as well as among financial institutions, subject to certain conditions, and require the FRB, the FDIC and other federal banking agencies to evaluate the effectiveness of an applicant in combating money laundering activities when considering a bank holding company acquisition and/or a bank merger.

The Bank regularly evaluates and continues to enhance the systems and procedures to continue to comply with the PATRIOT Act and other anti‑money laundering initiatives. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, strategic, and reputational consequences for the institution and result in material fines and sanctions.

ANTI-MONEY LAUNDERING ACT OF 2020

The Anti-Money Laundering Act of 2020 (AML Act) was enacted effective January 1, 2021 and presents the most comprehensive revisions and enhancements to anti-money laundering and counter terrorism laws since the Currency and Foreign Transactions Reporting Act of 1970 and the USA PATRIOT Act of 2001 (BSA). The impact of the new legislation will not be fully known until required regulations are adopted and implemented, but the AML Act represents significant changes and reaffirms and broadens the government’s oversight and commitment to addressing the illicit activities and financing of terrorism.

Many of the provisions of the AML Act deal with the operations of the federal agencies primarily responsible for addressing terrorism financing and the safeguarding of the national security of the United States, such as the U.S. Treasury and its Financial Crimes Enforcement Network (FinCEN), including the requirement for FinCEN to engage anti-money laundering (AML) and terrorist financing investigations experts and the requirement to facilitate information sharing with other federal and state and even foreign law enforcement agencies. On June 30, 2021, FinCEN issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism to encourage banks to incorporate the priorities into their risk-based BSA compliance programs. The priorities identified were:

•(i) corruption;

•(ii) cybercrime and cybersecurity;

•(iii) terrorist financing;

•(iv) fraud;

•(v) transnational crime organizations;

•(vi) drug trafficking;

•(vii) human trafficking; and

•(viii) proliferation financing through support networks.

The AML Act also expands the reach of federal AML laws by extending their applicability to a broader range of industries, such as entities involved in futures, precious metals, precious stones and jewels, antiquities, and cryptocurrency. On September 24, 2021, FinCEN issued proposed rules to include a person engaged in the trade of antiquities under the definition of “financial institution” subjecting such person to regulations prescribed by the Secretary of the Treasury.

The AML Act aims to balance the burdens imposed by reporting on financial institutions and the benefits derived by Federal law enforcement agencies. The AML Act requires a review of currency transaction and suspicious activity reports submitted by financial institutions to determine to what extent the reporting can be streamlined and made more useful. Included is the obligation to review the dollar thresholds for reporting currency transactions and to establish automated processes for filing simple, non-complex categories of reports. It calls for greater integration between financial institution systems and the electronic filing system to allow for automatic population of report fields and the submission of transaction data.

Other provisions of the AML Act enhance enforcement. The Act provides protection for financial institutions keeping open a customer’s account or transaction at the request of a federal law enforcement agency or at the request of a state or local agency with the concurrence of FinCEN and increases civil penalties for financial institutions and persons violating the recordkeeping

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and reporting obligations. Persons found to have committed repeated “egregious violations” may be barred from serving on boards of directors of financial institutions and fined in an amount that is equal to the profit gained by such person by reason of such violation. If that person is a partner, director, officer or employee of a financial institution, that person may be ordered to repay any bonus paid to that person, irrespective of the amount of the bonus or how it was calculated. New criminal penalties have been created for concealing from or misrepresenting to a financial institution any material facts concerning:

•(i) the ownership or control of assets involved in a monetary transaction involving a senior foreign political figure in amounts exceeding $1 million; or

•(ii) the source of funds in a monetary transaction involving an entity found to be a primary money laundering concern.

The AML Act also authorize the Treasury to pay whistleblower awards leading to fines or forfeitures of at least $50,000 up to the lower of $150,000 or 25% of the fine or forfeiture and allows for the payment to whistleblowers of up to 30% of the fine or forfeiture.

One of the most significant portions of the AML Act is The Corporate Transparency Act (CTA), which will requires the reporting of certain information regarding “beneficial owners” of “reporting companies” to a confidential FinCEN database. Reporting companies are defined as any corporation, limited liability company or other entity formed in the U.S. under the laws of a state or Indian Tribe or registered as a foreign entity to do business in the U.S., other than those specifically excluded, such as:

•(i) companies reporting or with a class of securities registered with the SEC under the Securities Act of 1934;

•(ii) banks, bank holding companies, and credit unions;

•(iii) money transmitters, registered broker‑dealers, registered investment advisors, and investment companies;

•(iv) public utilities and insurance companies;

•(v) 503(c)(3) entities;

•(vi) entities that employ more than 20 employees, have reported gross receipts or sales to the Internal Revenue Service in excess of $5.0 million in the prior year, and have an operating presence in the U.S.; and

•(vii) certain “inactive” entities.

A beneficial owner is any individual who directly, or indirectly exercises substantial control over an entity or owns or controls 25% or more of the ownership interest of an entity. The reporting company is required to provide FinCEN with the legal name, date of birth, current resident or business address, and an acceptable identification number of the beneficial owner. In 2022, FinCEN issued a final rule requiring the reporting of beneficial ownership information by entities “created” or “doing business” in the United States before January 1, 2024, beginning January 1, 2025.

Under the CTA, the Treasury is to minimize the burden on reporting companies and ensure the information deposited in the database is maintained in the strictest confidence and made available for inspection or disclosure by FinCEN only for the purposes set forth in the AML Act and only to:

•(i) federal agencies engaged in national security, intelligence or law enforcement;

•(ii) state, local or Tribal law enforcement agencies, subject to authorization by a court of competent jurisdiction;

•(iii) financial institutions subject to customer due diligence requirements with the consent of the reporting company;

•(iv) requests by a federal or other appropriate regulatory agency;

•(v) certain Treasury officials for tax administration purposes;

•(vi) authorized federal agencies on behalf of a properly recognized foreign authority.

During 2022, FinCEN issued proposed regulations for a pilot program to permit financial institutions to share suspicious activity information with their foreign branches, subsidiaries and affiliates to combat illicit finance risks under the AML Act.

The foregoing is only a summary of selected provisions of the AML Act. Given that regulations implementing the new AML Act are being proposed but have not yet been adopted or implemented, the Company cannot determine at this time the effect, if any, the AML Act will have on the Company’s future results of operations or financial condition.

Office of Foreign Assets Control (“OFAC”) Regulation

The United States has imposed economic sanctions that affect transactions with designated foreign countries, designated nationals, and others. These rules are based on their administration by OFAC. The OFAC‑administered sanctions targeting designated countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment‑related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in

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which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal, strategic, and reputational consequences, and result in civil money penalties on the Company and the Bank.

Community Reinvestment Act

The Community Reinvestment Act (CRA) generally requires the Bank to identify the communities it serves and to make loans and investments, offer products, make donations in, and provide services designed to meet the credit needs of these communities. The CRA also requires the Bank to maintain comprehensive records of its CRA activities to demonstrate how we are meeting the credit needs of the Bank’s communities. These documents are subject to periodic examination by the FRB. During these examinations, the FRB rates such institutions’ compliance with CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The CRA requires the FRB to take into account the record of a bank in meeting the credit needs of all of the communities served, including low‑ and moderate‑income neighborhoods, in determining such rating. Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from undertaking certain activities, including acquisitions. The Bank received a CRA rating of “Satisfactory” as of its most recent examination. In the case of a bank holding company, such as the Company, when applying to acquire a bank, savings association, or a bank holding company, the FRB will assess the CRA record of each depository institution of the applicant bank holding company in considering the application.

Customer Information Privacy and Cybersecurity

The FRB and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, and non‑public customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. We have adopted a customer information security program to comply with these requirements.

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

In July 2023, the SEC adopted new rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incidents by public companies. There are two main components:

•Material cybersecurity incidents must be filed on Form 8-K within four business days of a determination that a cybersecurity incident is material.

•Annual disclosure of cybersecurity risk management, strategy, and governance must be disclosed on Form 10-K. The Company’s cybersecurity disclosure can be found in Item 1C. Cybersecurity.

Privacy

The GLBA and the California Financial Information Privacy Act require financial institutions to implement policies and procedures regarding the disclosure of non-public personal information about consumers to non‑affiliated third parties. In general, the statutes require disclosures to consumers on policies and procedures regarding the disclosure of such non-public personal information and, except as otherwise required by law, prohibit disclosing such information except as provided in the Bank’s policies and procedures. We have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.

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Other Aspects of Banking Law

The Bank is subject to federal statutory and regulatory provisions covering, among other things, security procedures, management interlocks, funds availability and truth-in-savings. There are also a variety of federal statutes that regulate acquisitions of control and the formation of bank holding companies, and the activities beyond owning banks that are permissible.

Moreover, additional initiatives may be proposed or introduced before Congress, the California Legislature, and other government bodies in the future which, if enacted, may further alter the structure, regulation, and competitive relationship among financial institutions and may subject the bank holding companies and banks to increased supervision and disclosure, compliance costs and reporting requirements. In addition, the various bank regulatory agencies often adopt new rules and regulations and policies to implement and enforce existing legislation. Bank regulatory agencies have been very aggressive in responding to concerns and trends identified in examinations, and this has resulted in the increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity and risk management, capital adequacy, compliance with the Bank Secrecy Act, as well as other safety and soundness concerns.

It cannot be predicted whether, or in what form, any such legislation or regulatory changes in policy may be enacted or the extent to which the Bank’s businesses would be affected thereby. In addition, the outcome of examinations, any litigation, or any investigations initiated by state or federal authorities may result in necessary changes in the Bank’s operations and increased compliance costs.

Human Capital

The Company employed 114 full-time equivalent staff as of December 31, 2023. The employees are not represented by a collective bargaining unit, and the Company believes its relationship with its employees is good.

The Company’s ability to attract, retain, and develop employees is a key to its success. We provide competitive pay that is consistent with the employee’s position and experience. Annual increases in compensation are based on merit, which is documented throughout internal systems and communicated at the time of review and upon promotion or transfer. Certain employees participate in the Company’s performance-based incentive programs, which may include additional bonus and incentive compensation and equity-based awards. Certain benefits are subject to eligibility, vesting, and performance requirements. Employee performance is measured formally at least annually.

Our employees’ health, wellness, and safety are a priority to the Company. Employees receive a comprehensive benefits package that includes paid time off, sick time, Company matching contributions of 100% up to 4% of salary contributions to a qualified retirement plan, and other health and wellness benefits including participation in Company paid or subsidized medical, dental, term-life, accidental death and dismemberment, long-term disability insurance, and employee assistance programs.

The Company’s code of ethics prohibits discrimination or harassment. The Company requires all employees to agree to the code of ethics and participate in harassment prevention training annually.

Available Information

The Company files periodic reports and other reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission. These reports, as well as the Company’s Code of Ethics, are posted and are available at no cost on the Company’s website at http://www.unitedsecuritybank.com as soon as reasonably practical after the Company files such reports with the SEC. The Company’s periodic and other reports filed with the SEC are also available at the SEC’s website (http://www.sec.gov).

Item 1A - Risk Factors

Not required for smaller reporting companies.

Item 1B - Unresolved Staff Comments

The Company had no unresolved staff comments at December 31, 2023.

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Item 1C - Cybersecurity

•Management of the Company’s wholly-owned subsidiary, United Security Bank (Bank), reports to the Board of Directors, or an appropriate committee of the board, at least annually. This report describes the overall status of the information security program and the Bank’s compliance with these guidelines.

•The report discusses material matters related to the information security program, addressing issues such as: risk assessment; risk management and control decisions; service provider arrangements; results of testing; security breaches or violations and management’s responses; and recommendations for changes in the information security program.

•The intent of this report is to communicate the overall status of the information security program, including any updates to the program components.

•In regard to cybersecurity threats and controls, the information security program addresses the Bank’s cybersecurity strategy.

•Cybersecurity is an element of information security. Information security deals with information, regardless of its format – paper documents, digital and intellectual property, and verbal or visual communications.

•Cybersecurity focuses on protecting digital assets from intentional attacks. These assets include networks, computer hardware/software, and information that is processed, stored, or transported by networked systems and devices.

•The Information Security Program was initially designed, and is regularly updated, to comply with the following laws and regulations:

◦The Gramm-Leach-Bliley Act (GLBA) regarding protection of nonpublic personal information,

◦The Federal Financial Institutions Examination Council’s “Interagency Guidelines Establishing Information Security Standards,”

◦Supplemental federal and state banking regulations and guidelines regarding protection of nonpublic customer information, as applicable to this program.

•Oversight of the Bank’s cybersecurity program is the responsibility of the IT Committee of the Board of Directors. This committee is also responsible for approving the program’s budget and staffing. Management of the program is the responsibility of the Bank’s information security officer.

•To ensure appropriate segregation of duties, the information security officer is independent of IT operations staff and reports to the Bank’s chief risk officer. The information security officer is responsible for responding to security events by ordering emergency actions to protect the institution and its customers from imminent loss of information; managing the negative effects on the confidentiality, integrity, availability, or value of information; and minimizing the disruption or degradation of critical services.

•The IT Committee of the Board of Directors meets bi-monthly, or as needed, to review risks resulting from cybersecurity threats.

•Testing is conducted annually using external third-party penetration testing and internal vulnerability assessments.

While cybersecurity risks have the potential to materially affect the Company’s business, financial condition, and results of operations, the Company does not believe that risks from cybersecurity threats or attacks, including as a result of any previous cybersecurity incidents, have materially affected the Company, including its business strategy, results of operations or financial condition. However, the sophistication of cyber threats continues to increase, and the Company’s cybersecurity risk management and strategy may be insufficient or may not be successful in protecting against all cyber incidents. Accordingly, no matter how well designed or implemented the Company’s controls are, it will not be able to anticipate all cyber security breaches, preventative measures cannot provide absolute security and may not be sufficient in all circumstances or mitigate all potential risks, and the Company may not be able to implement effective preventive measures against cyber security breaches in a timely manner.

Item 2 - Properties

The Company provides traditional banking services through twelve branches and two loan production offices located primarily throughout California’s Central Valley. Bank branches are located in Fresno, Madera, Kern, and Santa Clara Counties. The Company also has nine remote ITM locations. Both loan production offices are housed at branch facilities in Fresno County. The administration building is located in Fresno, California, and does not provide branch services.

At December 31, 2023, the Company held leases for six of the branches and the nine remote ITM locations, and owned the remaining six branches. The Company also owns its headquarters in Fresno, California. Most of the leases have renewal options and, in management’s opinions, all properties are adequately covered by insurance. The Company considers its existing facilities to be sufficient for current and future use. Please see “Note 5 - Premises and equipment” and “Note 9 - Leases” in the “Notes to Consolidated Financial Statements” for further detail.

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Item 3 - Legal Proceedings

From time to time, the Company is party to claims and legal proceedings arising in the ordinary course of business. At this time, the Company is not aware of any pending legal proceedings to which it is a party or of which any of its property is the subject, nor is the Company aware of any such proceedings known to be contemplated by governmental entities, which proceedings will have a material adverse effect on the financial condition or results of operations of the Company.

Item 4 - Mine Safety Disclosures

Not applicable.

PART II

Item 5 - Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Trading History

The Company’s common stock trades on The Nasdaq Global Select Market and is traded under the symbol UBFO. At December 31, 2023, there were approximately 502 record holders of common stock. This does not reflect the number of persons or entities who hold their stock in nominee or street name through various brokerage firms.

The following table sets forth the high and low closing sales prices by quarter for the common stock, for the years ended December 31, 2023 and 2022.

	Closing Prices
Quarter	High		Low		Volume
4th Quarter 2023	$	8.65	$	7.10	1,587,900
3rd Quarter 2023	$	7.61	$	6.46	1,456,200
2nd Quarter 2023	$	6.87	$	5.52	1,308,300
1st Quarter 2023	$	8.32	$	6.16	1,978,100
4th Quarter 2022	$	7.44	$	6.51	894,800
3rd Quarter 2022	$	7.73	$	6.50	1,203,500
2nd Quarter 2022	$	8.67	$	7.24	453,300
1st Quarter 2022	$	8.74	$	8.03	678,400

Dividends

The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors out of funds legally available therefore. Dividends paid to shareholders are subject to restrictions set forth in the California General Corporation Law, which provides that a California corporation may make a distribution, including paying dividends on its capital stock, from retained earnings to the extent that the retained earnings exceed (a) the amount of the proposed distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights. Alternatively, a California corporation may make a distribution, if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. As a bank holding company without significant assets other than its equity position in the Bank, the ability to pay dividends to shareholders depends primarily upon dividends received from the Bank. Such dividends paid by the Bank to the Company are subject to certain limitations. See “Item 7 - Management’s Discussion and Analysis of Financial and Results of Operations - Regulatory Matters.”

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Cash dividends declared during 2023 and 2022 are as follows:

2023			2022
Date Declared	Date Paid	Dividend Amount	Date Declared	Date Paid	Dividend Amount
March 28, 2023	April 21, 2023	$0.11	March 22, 2022	April 18, 2022	$0.11
June 27, 2023	July 24, 2023	$0.12	June 28, 2022	July 22, 2022	$0.11
September 26, 2023	October 25, 2023	$0.12	September 27, 2022	October 25, 2022	$0.11
December 18, 2023	January 19, 2024	$0.12	December 20, 2022	January 19, 2023	$0.11

The amount and payment of dividends to our shareholders are set by the Board of Directors with numerous factors being taken into consideration including but not limited to earnings, financial condition, and the need for capital for expanded growth and general economic conditions. No assurance can be given that cash or stock dividends will be paid in the future.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under equity compensation plans as of December 31, 2023. All of our equity compensation plans have been approved by the shareholders.

Plan Category	Number of securities to be issued upon exercise of outstanding options,warrants and rights (column (a))		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	75,000	(1)	$	9.54	411,590
Equity compensation plans not approved by security holders	N/A		N/A		N/A
Total	75,000		$	9.54	411,590

Under the United Security Bancshares 2015 Equity Incentive Award Plan (2015 Plan), we are authorized to issue restricted stock awards and units. Restricted stock awards and restricted stock units are not included in the total in column (a). At December 31, 2023, there were 14,435 unvested restricted stock awards and 7,000 shares of restricted stock units issued and outstanding.

A complete description of the above plans is included in “Item 8 - Note 12 - Stock-Based Compensation to the Consolidated Financial Statements,” and is hereby incorporated by reference.

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

On September 1, 2023, the Company issued 169 fully vested shares of its common stock to a former non-employee director in lieu of cash compensation for directors’ fees. This grant reflects director compensation for a portion of the second quarter of 2023. The number of shares received in lieu of cash was calculated based on the closing price of the Company’s common stock on September 1, 2023, which was $7.21 per share. The shares of common stock issued to the former non-employee director contain a Rule 144 restrictive legend and are exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering.

We believed that Section 4(a)(2) was available because: (i) the issuance did not involve underwriters, underwriting discounts, or commissions, (ii) the shares issued are restricted stock with transfer restrictions, (iii) no sales were made by general solicitation or advertising, and (iv) the sales were made to an accredited investor.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On April 25, 2017, the Company’s Board of Directors approved the repurchase of up to $3 million of the outstanding common stock of the Company. The duration of the program is open-ended and the timing of purchases will depend on market conditions. The Company did not repurchase any common shares under the stock repurchase plan during the years ended December 31, 2023 and 2022.

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Item 6 - [Reserved]

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the consolidated financial statements and related notes included in this report.

Overview

The Company

United Security Bancshares, a California corporation, is a bank holding company registered under the BHCA with corporate headquarters located in Fresno, California. The principal business of United Security Bancshares is to serve as the holding company for its wholly-owned subsidiary, United Security Bank. References to the “Bank” refer to United Security Bank together with its wholly-owned subsidiary, York Monterey Properties, Inc. References to the “Company” refer to United Security Bancshares together with its subsidiaries on a consolidated basis. References to the “Holding Company” refer to United Security Bancshares, the parent company, on a stand-alone basis. The Bank currently has twelve banking branches, which provide banking services in Fresno, Madera, Kern, and Santa Clara counties in the state of California. In addition to full-service branches, the Bank has several stand-alone ITM machines within its geographic footprint.

Executive Summary

During 2023, the Company focussed on its strategy of serving the banking needs of its customers and retaining deposit balances in a competitive deposit rate environment.

2023 Financial Summary and 2022 Comparison

▪Net income increased to $19.8 million for the year ended December 31, 2023 compared to $15.7 million during the year ended December 31, 2022.

▪Loan interest income increased $11.1 million to $54.2 million for the year ended December 31, 2023.

▪Total assets decreased 6.8% to $1.21 billion, compared to $1.30 billion at December 31, 2022.

▪Total loans, net of unearned fees, decreased 6.1% to $920.0 million, compared to $980.2 million at December 31, 2022.

▪Total investments decreased 12.4%, or $26.2 million, to $184.6 million, compared to $210.9 million at December 31, 2022.

▪Total deposits decreased 13.8% to $1.00 billion, compared to $1.17 billion at December 31, 2022.

▪The total fair value of the junior subordinated debentures (TRUPs) changed by $270,000 during the year ended December 31, 2023. A gain of $274,000 was recorded through the income statement and a loss of $544,000 was recorded through accumulated other comprehensive income.

▪A nontaxable gain of $907,000 was realized on the proceeds of a bank-owned life insurance policy during the year ended December 31, 2023.

▪The allowance for credit losses as a percentage of gross loans increased to 1.70%, compared to 1.04% at December 31, 2022. The increase is primarily the result of an accounting adjustment of $6.6 million related to the adoption of a new accounting standard referred to as the Current Expected Credit Loss methodology (CECL) which was adopted on January 1, 2023.

▪The Company had available secured lines of credit of $532.4 million, unsecured lines of credit of $78.0 million, unpledged investment securities of $98.4 million, and cash and cash equivalents of $40.8 million as of December 31, 2023. Short-term borrowings totaled $62.0 million at December 31, 2023. There were no short-term borrowings at December 31, 2022.

▪Net interest income before the provision for credit losses increased 7.1% to $49.3 million for the year ended December 31, 2023, compared to $46.1 million for the year ended December 31, 2022.

▪The Company recorded a provision for credit losses of $1.5 million for the year ended December 31, 2023, compared to a provision for credit losses of $1.8 million for the previous year.

▪Net interest margin increased to 4.29% at December 31, 2023 compared to 3.72% at December 31, 2022.

▪Annualized cost of deposits increased to 0.64% compared to 0.23% at December 31, 2022.

▪Book value per share increased to $7.14, compared to $6.59 at December 31, 2022.

▪Net charge-offs totaled $2.3 million, compared to net charge-offs of $1.0 million for the year ended December 31, 2022.

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▪Capital position remains well-capitalized with a 11.82% Tier 1 Leverage Ratio compared to 10.10% as of December 31, 2022.

▪Return on average assets (“ROAA”) was 1.57%, compared to 1.16% for the year ended December 31, 2022.

▪Return on average equity (“ROAE”) was 17.05%, compared to 13.75% for the year ended December 31, 2022.

Current Trends Affecting Results of Operations and Financial Position

The Company’s overall operations are impacted by a number of factors, including not only interest rates and margin spreads, which impact the results of operations, but also the composition of the Company’s balance sheet. One of the primary strategic goals of the Company is to maintain a mix of assets that will generate a reasonable rate of return without undue risk, and to finance those assets with a low-cost and stable source of funds. Liquidity and capital resources must also be considered in the planning process to mitigate risk and allow for growth.

Because the Bank primarily conducts banking operations in California’s Central Valley, its operations and cash flows are subject to changes in the economic condition of the Central Valley. Our business results are dependent in large part upon the business activity, population, income levels, deposits and real estate activity in the Central Valley, and declines in economic conditions can have adverse material effects upon the Bank. In addition, the Central Valley remains largely dependent on agriculture. A downturn in agriculture and agricultural-related business could indirectly and adversely affect the Company as many borrowers and customers are involved in, or are impacted to some extent by, the agricultural industry. While a great number of our borrowers are not directly involved in agriculture, they would likely be impacted by difficulties in the agricultural industry since many jobs in our market areas are ancillary to the regular production, processing, marketing and sale of agricultural commodities. The agricultural industry has been affected by declines in prices and changes in yields of various crops and other agricultural commodities. Weaker prices could reduce the cash flows generated by farms and the value of agricultural land in our local markets and thereby increase the risk of default by our borrowers or reduce the foreclosure value of agricultural land and equipment that serve as collateral of our loans. In particular, farm income has seen recent declines, and in line with the downturn in farm income, farmland prices are coming under pressure.

The state of California periodically experiences severe droughts resulting in significantly reduced water allocations for farmers in the Central Valley. Due to these water issues, the impact on businesses and consumers located in the Company’s market areas is not possible to quantify. In response, the California state legislature passed the Sustainable Groundwater Management Act with the purpose of promoting better local and regional management of groundwater use and sustainable groundwater management in California by 2042. The local districts began to develop, prepare, and implement the Groundwater Sustainability Plans in 2020. The effect of such plans on Central Valley agriculture, if any, is still unknown.

The Company’s earnings are impacted by monetary and fiscal policies of the United States government and its agencies. The FRB has, and is likely to continue to have, an important impact on the operating results of depository institutions through its power to implement national monetary policy, among other things, to curb inflation or combat a recession. The FRB affects the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks, and its influence over reserve requirements to which member banks are subject. The FOMC has indicated that due to elevated inflation it expects to continue to raise interest rates in the near term, albeit at a reduced pace. While it had been expected that the FRB would continue to raise short-term interest rates in 2023, it is unknown what effects the recent banking turmoil and current international instability will have on inflation, the FRB’s monetary policies, and the elevated potential for a recession in the US economy. It is possible that interest rates will hold at current levels or decline.

Inflation may negatively affect the market value of investment securities and lead to increased interest expense on deposits and higher costs for borrowings as well as increased labor costs due to higher wages. Additionally, increased inflation levels could lead to higher oil and gas prices, which may negatively impact the net operating income of borrowers and affect their ability to repay their loans.

Elevated inflation and expectations for elevated future inflation can adversely impact economic growth, consumer and business confidence, and our financial condition and results. In addition, elevated inflation may cause unexpected changes in monetary policies and actions which may adversely affect consumer confidence, the economy, and our financial condition and results.

Supply chain constraints and a tightening of labor markets could potentially exacerbate inflation and sustain it at elevated levels, even as growth slows. The risk of sustained high inflation would likely be accompanied by monetary policy tightening with potential negative effects on various elevated asset classes.

The Company continually evaluates its strategic business plan as economic and market factors change in its market area. Balance sheet management, enhancing revenue sources, and maintaining market share will continue to be of primary importance.

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Results of Operations

The following table sets forth selected historical consolidated financial information for each of the years in the three‑year period ended December 31, 2023. The selected financial data should be read in conjunction with the consolidated financial statements as of December 31, 2023 and 2022, and the related Notes to Consolidated Financial Statements contained in “Item 8 - Financial Statements and Supplementary Data.”

	For the Years Ended December 31,
(In thousands, except per share data and ratios)	2023			2022			2021
Summary of Year-to-Date Earnings:
Interest income	$	60,377		$	49,257		$	37,730
Interest expense	11,056			3,195			2,079
Net interest income	49,321			46,062			35,651
Provision for credit losses	1,460			1,802			2,107
Net interest income after provision for credit losses	47,861			44,260			33,544
Noninterest income	5,569			1,838			3,385
Noninterest expense	25,954			24,039			23,615
Income before provision for income taxes	27,476			22,059			13,314
Provision for income taxes	7,680			6,373			3,216
Net income	$	19,796		$	15,686		$	10,098
Per Share Data:
Net income - Basic	$	1.16		$	0.92		$	0.59
Net income - Diluted	$	1.16		$	0.92		$	0.59
Weighted average common shares outstanding - Basic	17,114,214			17,040,241			17,011,379
Weighted average common shares shares outstanding - Diluted	17,125,186			17,061,833			17,030,874
Book value per share	$	7.14		$	6.59		$	7.06
Financial Position at Year End:
Total assets	$	1,211,045		$	1,299,193		$	1,330,944
Total net loans	904,384			969,996			862,200
Total deposits	1,004,477			1,165,484			1,188,106
Total shareholders’ equity	122,542			112,463			120,207
Selected Financial Ratios:
Return on average assets	1.57		%	1.16		%	0.82		%
Return on average equity	17.05		%	13.75		%	8.47		%
Average equity to average assets	9.20		%	8.46		%	9.69		%
Net interest margin (1)	4.29		%	3.69		%	3.16		%
Allowance for credit losses as a percentage of total nonperforming assets	95.15		%	52.16		%	56.06		%
Net charge-offs to net loans	0.25		%	0.39		%	0.15		%
Net loan-to-deposit ratio	90.04		%	83.23		%	72.57		%
Net charge-offs to average loans	0.24		%	0.10		%	0.17		%
Nonaccrual loans to total loans	1.24		%	1.48		%	1.32		%
Allowance for credit losses as a percentage of nonaccrual loans	136.77		%	70.01		%	81.60		%
Allowance for credit losses as a percentage of period-end loans	1.70		%	1.04		%	1.07		%
Dividend payout ratio	40.67		%	47.82		%	74.16		%

(1) Fully taxable-equivalent

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Net income for the year ended December 31, 2023 was $19.8 million, or $1.16 per basic and diluted share, compared to $15.7 million, or $0.92 per basic and diluted share, for the year ended December 31, 2022. The increase of $4.1 million between December 31, 2022 and December 31, 2023 is primarily the result of increases in net interest income, offset by increases in interest paid on deposits and short-term borrowings. Interest income increased by $11.1 million, or 22.6%, between December 31, 2022 and December 31, 2023. The provision for income taxes increased by $1.3 million, or 20.5%.

Return on average assets was 1.57% for the year ended December 31, 2023 compared to 1.16% for the year ended December 31, 2022. Return on average equity was 17.05% for the year ended December 31, 2023 compared to 13.75% for the year ended December 31, 2022.

The higher return on average assets experienced by the Company between 2023 and 2022 resulted from increases in income due to the higher interest rates reflected in the loan and investment portfolios, and a decrease in average assets. Increases in the return on average equity were the result of growth in net income outpacing growth in shareholder’s equity. The growth in equity is affected by our dividend payout ratio as well as changes in accumulated other comprehensive income.

Net Interest Income

Net interest income, the most significant component of earnings, is the difference between the interest and fees received on earning assets and the interest paid on interest-bearing liabilities. Earning assets consist primarily of loans and, to a lesser extent, investments in securities issued by federal, state and local authorities, and corporations, as well as interest-bearing deposits and overnight investments in federal funds loaned to other financial institutions. These earning assets are funded by a combination of interest-bearing and noninterest-bearing liabilities, primarily customer deposits, and may include short-term and long-term borrowings.

Net interest income before provision for credit losses was $49.3 million for the year ended December 31, 2023, representing an increase of $3.3 million, or 7.1%, compared to net interest income before provision for credit losses of $46.1 million for the year ended December 31, 2022. Market rate increases and disciplined deposit pricing saw the net interest margin, as shown in Table 1 below, increase to 4.29% for the year ended December 31, 2023. The net interest margin was 3.72% for the year ended December 31, 2022.

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Distribution of Average Assets, Liabilities and Shareholders’ Equity:

The following table summarizes the distribution of average assets, liabilities and shareholders’ equity, as well as interest income and yields earned on average interest‑earning assets and interest expense and rates paid on average interest‑bearing liabilities, presented on a tax-equivalent basis for the years indicated:

			2023						2022
(Dollars in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
Assets:
Interest-earning assets:
Loans and leases (1) (2)	$	942,135	$	54,183	5.75	%	$	912,343	$	43,039	4.72	%
Securities:
Taxable securities	199,406		5,820		2.92	%	199,154		4,563		2.29	%
Tax-exempt securities (3)	2,552		50		1.96	%	2,569		50		1.95	%
Total investment securities	201,958						201,723
Interest-bearing deposits in FRB	6,187		324		5.24	%	122,575		1,605		1.31	%
Total interest-earning assets	1,150,280		$	60,377	5.25	%	1,236,641		$	49,257	3.98	%
Allowance for credit losses	(15,759)						(9,708)
Noninterest-earning assets:
Nonaccrual loans	13,300						11,937
Cash and due from banks	34,811						36,689
Premises and equipment, net	9,390						9,295
Accrued interest receivable	7,329						7,590
Other real estate owned	4,582						4,579
Other assets	60,927						54,159
Total average assets	$	1,264,860					$	1,351,182
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
NOW accounts	$	137,007	$	307	0.22	%	$	136,568	$	175	0.13	%
Money market accounts	311,654		4,244		1.36	%	398,379		2,125		0.53	%
Savings accounts	119,312		132		0.11	%	123,396		137		0.11	%
Time deposits	83,126		2,075		2.50	%	69,741		378		0.54	%
Other borrowings	63,183		3,499		5.54	%	—		—		0.00	%
Junior subordinated debentures	10,793		799		7.40	%	10,682		380		3.56	%
Total interest-bearing liabilities	725,075		$	11,056	1.52	%	738,766		$	3,195	0.43	%
Noninterest-bearing liabilities:
Noninterest-bearing checking	410,673						488,053
Accrued interest payable	274						146
Other liabilities	12,441						9,864
Total average liabilities	1,148,463						1,236,829
Total average shareholders’ equity	116,397						114,353
Total average liabilities and shareholders’ equity	$	1,264,860					$	1,351,182
Interest income as a percentage of average earning assets					5.25	%					3.98	%
Interest expense as a percentage of average earning assets					0.96	%					0.26	%
Net interest margin					4.29	%					3.72	%

(1) Loan interest income includes loan costs of approximately $297 for the year ended December 31, 2023 and loan fees of approximately $505 for the year ended December 31, 2022.

(2) Average loans do not include nonaccrual loans but do include interest income recovered from previously charged-off loans.

(3) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $14 for both 2022 and 2023.

The prime rate increased from 7.50% for the year ended 2022 to 8.50% for the year ended 2023. Future increases or decreases will affect rates for both interest income and expense and the resultant net interest margin.

Both net interest income and net interest margin are affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” Both are also affected by changes in yields on interest-earning

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assets and rates paid on interest-bearing liabilities, referred to as “rate change.” The following table sets forth the changes in interest income and interest expense for each major category of interest-earning asset and interest-bearing liability, and the amount of change attributable to volume and rate changes for the years ended December 31, indicated.

Rate and Volume Analysis:

	2023 compared to 2022
(In thousands)	Total		Rate		Volume
Increase (decrease) in interest income:
Loans	$	11,144	$	9,651	1,493
Investment securities	1,257		1,252		5
Interest-bearing deposits in FRB	(1,281)		5,913		(7,194)
Total interest income	11,120		16,816		(5,696)
Increase (decrease) in interest expense:
Interest-bearing demand accounts	2,251		2,675		(424)
Savings accounts	(5)		—		(5)
Time deposits	1,697		1,611		86
Other borrowings	3,499		—		3,499
Subordinated debentures	419		415		4
Total interest expense	7,861		4,701		3,160
Increase in net interest income	$	3,259	$	12,115	(8,856)

The net interest margin increased in 2023 due to increases in loan portfolio yields, yields on overnight investments with the Federal Reserve Bank (FRB), and investment securities yields. The increases in yields are a result of repricing of variable-rate loans, floating-rate investment securities, and higher rates on interest-bearing deposits at FRB. The yield on the loan portfolio was 5.8% for the year ended December 31, 2023, compared to 4.7% for the year ended December 31, 2022. For the year ended December 31, 2023, total interest income increased approximately $11.1 million, or 22.6%, compared to the year ended December 31, 2022, reflective of increases of $11.1 million in loan interest income and $1.3 million in investment income, offset by decreases of $1.3 million in interest-bearing deposits held at FRB. Average interest-earning assets decreased approximately $86.4 million between 2023 and 2022 and the rate on interest-earning assets increased 127 basis points between the two periods. The decrease in average earning assets between 2023 and 2022 was the result of a decrease of $116.4 million in interest-bearing deposits held with the FRB, partially offset by increases of $29.8 million in loans.

For the year ended December 31, 2023, total interest expense increased approximately $7.9 million, or 246.0%, as compared to the year ended December 31, 2022, due to increased expenses on deposits and short-term borrowings. Between the two periods, average interest-bearing liabilities decreased by $13.7 million, and the average rates paid on these liabilities increased by 109 basis points. While the Company may utilize brokered deposits as an additional source of funding, the Company held no brokered deposits at December 31, 2023 or December 31, 2022.

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The following table summarizes the year-to-date averages of the components of interest-earning assets as a percentage of total interest-earning assets, and the components of interest-bearing liabilities as a percentage of total interest-bearing liabilities:

	Year-to-Date Average
	2023		2022
Loans	82.11	%	74.02	%
Investment securities available for sale	17.36	%	16.16	%
Interest-bearing deposits in FRB	0.53	%	9.82	%
Total earning assets	100.00	%	100.00	%
NOW accounts	18.90	%	18.49	%
Money market accounts	42.98	%	53.92	%
Savings accounts	16.46	%	16.70	%
Time deposits	11.46	%	9.44	%
Subordinated debentures	1.49	%	1.45	%
Total interest-bearing liabilities	100.00	%	100.00	%

Provision for Credit Losses

Provisions for credit losses are determined on the basis of management’s periodic credit review of the loan portfolio, consideration of past loan loss experience, current and future economic conditions, and other pertinent factors. After reviewing these factors, management, at times, makes adjustments in order to maintain an allowance for credit losses adequate for the coverage of estimated losses inherent in the loan portfolio. Based on the condition of the loan portfolio, management believes the allowance is appropriate to cover risk elements in the loan portfolio.

For the year ended December 31, 2023, a $1.5 million provision was made to the allowance for credit losses. A provision totaling $1.8 million was made for the year ended December 31, 2022.

The allowance for credit losses increased to 1.70% of total loans at December 31, 2023, as compared to 1.04% at December 31, 2022. The provision of $1.8 million recorded in 2022, and the provision of $1.5 million recorded during 2023, are a result of charge-offs recognized primarily within the student loan portfolio and adjustment in qualitative factors related to economic uncertainties. For further discussion, refer to “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality and Allowance for Credit Losses.”

The increase in the allowance for credit losses was primarily due to the adoption of the current expected credit loss (CECL) accounting standard, which was effective as of January 1, 2023. The adoption resulted in an increase of $6.4 million to the balance of the allowance for credit losses. The increase in the provision during the year, is primarily the result of charge-offs in the student loan portfolio, offset by decreases in loan balances.

Noninterest Income

The following table summarizes significant components of noninterest income for the years indicated:

(In thousands)	2023		% of Total		2022		% of Total
Customer service fees	$	2,918	52.40	%	$	3,027	164.69	%
Increase in cash surrender value of bank-owned life insurance	557		10.00	%	555		30.20	%
Gain (loss) on fair value of marketable equity securities	39		0.70	%	(429)		(23.34)	%
Gain on proceeds from bank-owned life insurance	907		16.29	%	—		—
Gain (loss) on fair value of junior subordinated debentures	274		4.92	%	(2,533)		(137.81)	%
Gain on sale of investment securities	—		—	%	30		1.63	%
Loss on sale of assets	—		—	%	(10)		(0.55)	%
Other	874		15.69	%	1,198		65.18	%
Total	$	5,569	100.00	%	$	1,838	100.00	%

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Noninterest income consists primarily of fees and commissions earned on services provided to banking customers, fair value adjustments to the value of the junior subordinated debentures, and, to a lesser extent, loss on sales of Company assets and other miscellaneous income.

Noninterest income for the year ended December 31, 2023 increased $3.7 million, or 203.0%, when compared to 2022. Customer service fees, the primary component of noninterest income, decreased $109,000, or 3.6%, between the two periods. The increase in noninterest income of $3.7 million between the two periods is primarily the result of changes in the fair value of junior subordinated debentures. A gain of $274,000 was recorded during the year ended 2023 as compared to a loss of $2.5 million during 2022. The change in the fair value of junior subordinated debentures was primarily caused by fluctuations in the SOFR yield curve. Also adding to the increase, were proceeds of $907,000 from bank-owned life insurance and a positive change in the market value of equity securities of $468,000.

 Noninterest Expense

The following table sets forth the components of total noninterest expense in dollars and as a percentage of average earning assets for the years ended December 31, 2023 and 2022:

	2023				2022
(Dollars in thousands)	Amount		% of Average Earning Assets		Amount		% of Average Earning Assets
Salaries and employee benefits	$	13,157	1.14	%	$	11,833	0.96	%
Occupancy expense	3,739		0.33	%	3,467		0.28	%
Data processing	784		0.07	%	686		0.06	%
Professional fees	4,366		0.38	%	4,058		0.33	%
Regulatory assessments	727		0.06	%	794		0.06	%
Director fees	438		0.04	%	452		0.04	%
Correspondent bank service charges	80		0.01	%	93		0.01	%
Net cost of operation of OREO	201		0.02	%	102		0.01	%
Other	2,462		0.21	%	2,554		0.21	%
Total	$	25,954	2.26	%	$	24,039	1.94	%

Noninterest expense increased $1.9 million, or 8.0%, between the years ended December 31, 2023 and 2022. The net increase in noninterest expense between the comparative periods is primarily the result of increases in salaries and employee benefits, professional fees, and occupancy expense. The increase in salaries and employee benefits for the year are related to increased salary expense, group insurance costs, and bonus accruals. Increases in professional fees are related to increases in service contracts while increases in occupancy expense are related to increased depreciation expense. Included in net costs of operations of OREO for the years ended December 31, 2023 and 2022, are OREO operating expenses totaling $126,000 and $102,000, respectively.

During the years ended December 31, 2023 and 2022, the Company recognized stock-based compensation expense of $141,000 and $185,000 respectively. This expense is included in noninterest expense under salaries and employee benefits.

Income Taxes

The provision for income taxes is impacted to some degree by permanent taxable differences between income reported for book purposes and income reported for tax purposes, as well as certain tax credits which are not reflected in the statements of operations and comprehensive income. As pretax income or loss amounts become greater, the impact of these differences becomes less significant and is reflected as variances in the effective tax rate for the periods presented. In general, the permanent differences and tax credits affecting tax expense have a positive impact and tend to reduce the effective tax rates shown in the statements of income and comprehensive income. The effective tax rate for the year ended December 31, 2023 was 28.0% compared to 28.9% for the year ended December 31, 2022. The decrease is primarily due to non-taxable proceeds from bank-owned life insurance received during 2023.

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Financial Condition

The following table sets forth key financial data as of and for the years ended:

	December 31,
(dollars in thousands)	2023		2022		$ Change		% Change
Due from Federal Reserve Bank (FRB)	$	207	$	6,945	$	(6,738)	(97.0)	%
Loans, net of unearned income	$	904,384	$	969,996	$	(65,612)	(6.2)	%
Investment securities	$	184,620	$	210,860	$	(26,240)	(12.4)	%
Total assets	$	1,211,045	$	1,299,193	$	(88,148)	(6.8)	%
Total deposits	$	1,004,477	$	1,165,484	$	(161,007)	(13.8)	%
Total liabilities	$	1,088,503	$	1,186,730	$	(98,227)	(8.3)	%
Average interest-earning assets	$	1,150,280	$	1,236,641	$	(86,361)	(7.0)	%
Average interest-bearing liabilities	$	725,075	$	738,766	$	(13,691)	(1.9)	%

Net loans decreased due to loan paydowns and payoffs. Investment securities decreased due to principal repayments and treasury-security maturities. Both overnight interest-bearing deposits in the Federal Reserve Bank and federal funds sold and total deposits decreased due to declines in interest- and non-interest bearing deposits.

Loans

The Company’s primary business is that of acquiring deposits and making loans, with the loan portfolio representing the largest component of earning assets. Gross loans totaled $921.3 million at December 31, 2023, a decrease of $60.5 million, or 6.2%, from $981.8 million at December 31, 2022. During 2023, average loans increased 3.3% when compared to the year ended December 31, 2022. Average loans totaled $955.4 million and $924.3 million for the years ended December 31, 2023 and 2022, respectively.

The following table sets forth the amounts of loans, net of unearned income, outstanding by category and the category percentages as of the year-end dates indicated:

	2023				2022
(In thousands)	Dollar Amount		% of Loans		Dollar Amount		% of Loans		Change
Commercial and industrial	$	53,347	5.8	%	$	57,902	5.9	%	$	(4,555)
Real estate mortgage	646,709		70.3	%	671,521		68.5	%	$	(24,812)
RE construction & development	127,944		13.9	%	153,374		15.6	%	$	(25,430)
Agricultural	49,795		5.4	%	52,722		5.4	%	$	(2,927)
Installment and student loans	42,247		4.6	%	44,659		4.6	%	$	(2,412)
Total loans	$	920,042	100.0	%	$	980,178	100.0	%	$	(60,136)

Loan volume continues to be highest in what has historically been the Bank’s primary lending emphasis: real estate mortgage and construction lending. Total loans decreased 6.1% during 2023. Real estate construction and development loans decreased 16.6%, commercial and industrial loans decreased 7.9%, agricultural loans decreased 5.6%, installment loans decreased 5.4%, and real estate mortgage loans decreased 3.7%.

The real estate mortgage loan portfolio, totaling $646.7 million at December 31, 2023, consists of commercial real estate, residential mortgages, and home equity loans. Commercial real estate loans have remained a significant percentage of total loans over the past year, amounting to 42.0% and 40.6%, of the total loan portfolio at December 31, 2023 and December 31, 2022, respectively. Commercial real estate balances decreased to $386.1 million at December 31, 2023 from $398.1 million at December 31, 2022. Commercial real estate loans are generally a mix of short- to medium-term, fixed and floating rate instruments and are mainly secured by commercial income and multi-family residential properties. Residential mortgage loans are generally 30-year amortizing loans with an average life of six to eight years. These loans totaled $260.5 million or 28.3% of the portfolio at December 31, 2023, and $273.4 million, or 27.9% of the portfolio at December 31, 2022. Real estate

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mortgage loans in total decreased $24.8 million or 3.7% during 2023. The home equity loan portfolio totaled $36,000 at December 31, 2023, and $49,000 at December 31, 2022.

Real estate construction and development loans, representing 13.9% and 15.6% of total loans at December 31, 2023 and December 31, 2022, respectively, consist of loans for residential and commercial construction projects, as well as land acquisition and development, or land held for future development. Loans in this category are secured by real estate including improved and unimproved land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment of construction loans generally comes from long-term mortgages with other lending institutions obtained at completion of the project or from the sale of the constructed homes to individuals.

Purchased loan participations totaled $9.2 million at December 31, 2023 compared to $9.4 million at December 31, 2022. Loan participations sold decreased from $9.7 million, or 1.0%, of the portfolio at December 31, 2022, to $4.2 million, or 0.5%, at December 31, 2023.

At December 31, 2023, approximately 52.7% of commercial and industrial loans have floating rates and, although some may be secured by real estate, many are secured by accounts receivable, inventory, and other business assets. Construction loans are generally short-term, floating-rate obligations, which consist of both residential and commercial projects. Agricultural loans, are primarily short-term, floating-rate loans for crop financing.

Included within the installment loan portfolio are $38.5 million of student loans as of December 31, 2023, as compared to $42.1 million at December 31, 2022, a decrease of $3.6 million. The student loan portfolio consists of unsecured loans to medical and pharmacy school students in the U.S. and Caribbean. Upon graduation, the loan is placed in a grace period for six months. This may be extended as a deferment to 48 months for graduates enrolling in internship, medical residency, or fellowship. The student may receive additional deferment for hardship or administrative reasons in the form of forbearance for a maximum of 36 months throughout the life of the loan. The outstanding balance of student loans that are in school or grace and have not entered repayment status totaled $1.7 million at December 31, 2023. Accrued interest on student loans that are in school or grace and totaled $1.0 million at December 31, 2023. At December 31, 2023, there were 779 loans within repayment, deferment, and forbearance which represented $20.8 million, $10.2 million, and $5.8 million in outstanding balances, respectively. Student loans have not been purchased or originated since 2019.

Repayment of the unsecured student loans is premised on the medical and pharmacy students graduating and becoming high-income earners. Under program guidelines, repayment terms can vary per borrower; however, repayment occurs on average within 10 to 20 years. Additionally, there are non-student, co-borrowers for roughly one-third of the portfolio, providing additional repayment capacity. The average student loan balance per borrower as of December 31, 2023, was approximately $107,000. Loan interest rates are variable and currently range from 6.00% to 13.25%.

At December 31, 2023, $20.8 million of student loans were in repayment compared to $23.4 million as of December 31, 2022. Accrued interest on student loans totaled $3.5 million and $4.1 million as of December 31, 2023 and 2022, respectively. At December 31, 2023, the reserve against the student loan portfolio totaled $6.3 million. Additionally, during the year ended December 31, 2023, $252,000 in accrued interest receivable was reversed, due to charge-offs of $2.6 million. At December 31, 2022, the reserve totaled $2.6 million and $141,000 in accrued interest was reversed due to charge-offs of $1.3 million.

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The following table sets forth the Bank’s student loan portfolio with activity from December 31, 2022 and December 31, 2023:

(In thousands)
Balance as of December 31, 2021	$	48,456
Capitalized Interest	2,622
Payments Received	(1,024)
Loan Consolidations/Payoffs	(6,586)
Loans Charged-off	(1,337)
Balance as of December 31, 2022	42,131
Capitalized Interest	3,712
Payments Received	(1,660)
Loan Consolidations/Payoffs	(3,102)
Loans Charged-off	(2,588)
Balance as of December 31, 2023	$	38,493

Student Loan Finance Corporation (ZuntaFi) is the third-party servicer for the student loan portfolio. ZuntaFi provides servicing for the student loan portfolio, including application administration, processing, approval, documenting, funding, and collection of current and charged off balances. They also provide file custodial responsibilities. Except in cases where applicants/loans do not meet program requirements, or extreme delinquency, ZuntaFi provides complete program management. ZuntaFi is paid a monthly servicing fee based on the principal balance outstanding. This servicing fee is presented as part of professional fees within noninterest expense.

The following table sets forth the maturities of the Bank’s loan portfolio, net of unearned fees, at December 31, 2023. Amounts presented are shown by maturity dates rather than repricing periods:

(In thousands)	Due in one year or less		Due between one to five years		Due between five to fifteen years		Due after fifteen years		Total
Commercial and agricultural	$	48,722	$	45,116	$	9,304	$	—	$	103,142
Real estate construction & development	104,507		21,286		2,151		—		127,944
Real estate – mortgage	21,763		243,889		137,932		243,125		646,709
All other loans	533		3,220		38,494		—		42,247
Total loans	$	175,525	$	313,511	$	187,881	$	243,125	$	920,042

For the years ended December 31, 2023 and 2022, the average yield on loans was 5.8% and 4.7%, respectively. Rate floors are occasionally used to mitigate interest rate risk if interest rates fall, as well as to compensate for additional credit risk under current market conditions. The loan portfolio is generally comprised of short-term or floating-rate loans that adjust in alignment to changes in market rates of interest.

At December 31, 2023 and 2022, approximately 31.7% and 37.1%, respectively, of the loan portfolio consisted of floating rate instruments, with the majority of those tied to the prime rate.

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The following table sets forth the contractual maturities of the Bank’s fixed- and floating-rate loans at December 31, 2023. Amounts presented are shown by maturity dates rather than repricing periods, and do not consider renewals or prepayments of loans:

(In thousands)	Due in one year or less		Due between one to five years		Due between five to fifteen years		Due after fifteen years		Total
Loans with fixed rates:
Commercial and industrial	$	711	$	22,654	$	1,910	$	—	$	25,275
Real estate mortgage	15,562		224,103		80,869		232,252		552,786
Real estate construction & development	15,233		12,403		2,151		—		29,787
Agricultural	2,458		15,038		3,507		—		21,003
Installment and student loans	60		3,204		—		—		3,264
Total loans with fixed rates	34,024		277,402		88,437		232,252		632,115
Loans with variable rates:
Commercial and industrial	24,725		3,280		67		—		28,072
Real estate mortgage	6,201		19,786		57,063		10,873		93,923
Real estate construction & development	89,273		8,884		—		—		98,157
Agricultural	20,827		4,144		3,821		—		28,792
Installment and student loans	475		15		38,493		—		38,983
Total loans with variable rates	141,501		36,109		99,444		10,873		287,927
Total Loans	$	175,525	$	313,511	$	187,881	$	243,125	$	920,042

Securities

The following table sets forth certain information regarding carrying values and percentage of total carrying value of available-for-sale securities for the years indicated:

	December 31, 2023					December 31, 2022
(In thousands)		Carrying Value		Percent of Total		Carrying Value		Percent of Total
Available-for-sale:
U.S. Government agencies		$	6,156	3.4	%	$	8,231	4.0	%
U.S. Government sponsored entities and agencies collateralized by mortgage obligations		88,184		49.3	%	97,218		47.5	%
Corporate bonds		32,122		17.9	%	32,702		16.0	%
Municipal bonds		40,116		22.4	%	36,798		18.0	%
U.S. Treasury securities		12,438		6.8	%	29,224		14.3	%
Total available-for-sale		$	179,016	99.8	%	$	204,173	99.8	%

As of December 31, 2023 and 2022, there were no securities classified as held-to-maturity.

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The contractual maturities of investment securities as well as yields based on carrying value of those securities at December 31, 2023 are shown below. Actual cash flows may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

	One year or less		Between one to five years		Between five to ten years	After ten years	Total
(Dollars in thousands)	Amount	Yield (1)	Amount	Yield (1)	Amount