Assessing United Security Bancshares' Profitability and Revenue Growth: A Deep Dive into GAAP EPS Consistency and Scaling Challenges

For regional banks like United Security Bancshares (UBFO), consistent profitability and scalable revenue growth are critical to maintaining investor confidence in a volatile economic environment. This analysis evaluates the company's ability to deliver stable GAAP earnings per share (EPS) and sustain revenue expansion, drawing on historical financial data and recent performance trends.

Revenue Growth: A Tale of Volatility and Recent Setbacks

United Security Bancshares' revenue trajectory from 2020 to 2024 reveals a mix of resilience and vulnerability. In 2021, the company reported $36.93 million in revenue, a 6.48% increase from 2020's $34.68 million, which itself had declined 19.58% from 2019, according to the company's annual reports. This rebound was followed by a robust 24.83% year-over-year surge in 2022, pushing revenue to $46.10 million. The momentum continued in 2023, with revenue climbing to $53.43 million-a 15.91% increase-before reversing sharply in 2024, when revenue fell to $48.60 million, a 9.04% decline.

The 2024 drop underscores the fragility of the company's revenue model. While the 2023 peak demonstrated strong growth potential, the subsequent contraction raises questions about the sustainability of its business strategy. Factors such as rising interest rates, increased competition, and macroeconomic headwinds likely contributed to the decline, though the company has not explicitly attributed the drop to external pressures in its filings.

GAAP EPS: A Decline Amidst Historical Volatility

GAAP EPS, a key metric for assessing a company's profitability, has shown significant fluctuations over the past decade. In 2024, United Security Bancshares reported a GAAP EPS of $0.86, down from $1.16 in 2023-a 25.86% decline, according to Last10K SEC filings. The drop was even more pronounced in the fourth quarter of 2024, where net income fell to $2.5 million ($0.15 per share), a 53.8% decrease from the $0.31 per share recorded in the same period of 2023, as reported in those filings.

The decline in GAAP EPS was driven by three primary factors:
1. A $1.6 million reduction in the fair value of Trust Preferred Securities (TRUPs), which negatively impacted net income.
2. Higher deposit interest expenses, likely due to rising benchmark rates.
3. An increased credit loss provision, reflecting tighter lending standards or higher default risks, as detailed in those filings.

Historically, the company's GAAP EPS has been volatile. For instance, in 2011, it reported a negative EPS of -$0.66, but by 2024, it had rebounded to $0.86, according to Macrotrends' EPS data. While this long-term improvement is encouraging, the recent 2024 drop suggests that the company's earnings model remains susceptible to external shocks.

Basic EPS vs. GAAP EPS: A Critical Distinction

Investors must also distinguish between basic EPS and GAAP EPS when evaluating United Security Bancshares' performance. Basic EPS, calculated using the number of basic shares outstanding, differs from GAAP EPS, which incorporates adjustments for non-core items and one-time events, as explained in an EPS primer on Wall Street Oasis. For example, in a specific reporting period, the company's GAAP EPS was $0.26, while its basic EPS was higher, illustrating the impact of accounting adjustments on reported earnings.

This distinction is crucial for understanding the company's true profitability. While basic EPS may appear stable, GAAP EPS provides a more comprehensive view of financial health, including the effects of fair value adjustments and credit provisions. The 2024 GAAP EPS decline, therefore, signals a meaningful deterioration in core profitability, not just a temporary accounting anomaly.

Conclusion: A Mixed Outlook for Investors

United Security Bancshares' revenue growth and GAAP EPS performance present a mixed picture for investors. On the positive side, the company demonstrated strong growth in 2022 and 2023, with revenue increasing by 24.83% and 15.91%, respectively, per the company's annual reports. However, the 2024 revenue decline and GAAP EPS drop highlight structural vulnerabilities, particularly in a high-interest-rate environment.

For the company to regain investor confidence, it must address the root causes of its 2024 performance, including the impact of TRUPs and credit loss provisions. Additionally, scaling revenue effectively will require navigating macroeconomic challenges while maintaining cost discipline. While the long-term trajectory of GAAP EPS has improved since 2011, the recent volatility underscores the need for caution.

Investors should monitor the company's next quarterly reports for signs of stabilization and strategic adjustments. Until then, United Security Bancshares remains a high-risk, high-reward proposition in the regional banking sector.