Quarterly Report (10-q)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 requirements for the past 90 days.

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 Regulations 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).

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, United Security Bancshares, Inc. (“USBI” and, together with its subsidiaries, the “Company”), through its senior management, from time to time makes forward-looking statements concerning its expected future operations and performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based upon current information and involve a number of risks and uncertainties, and various factors could cause results to differ materially from those contemplated by such forward-looking statements. Such factors could include those identified from time to time in USBI’s Securities and Exchange Commission (“SEC”) filings and other public announcements, including the risk factors described in Part I, Item 1A of USBI’s Annual Report on Form 10-K for the year ended December 31, 2014. Specifically, with respect to statements relating to loan demand, growth and earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas, the availability of quality loans in the Company’s service areas, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and collateral values. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to revise forward-looking statements to reflect circumstances or events that occur after the dates on which the forward-looking statements are made, except as required by law.

	June 30,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Cash and due from banks	$	9,227		$	9,697
Interest bearing deposits in banks		15,826			24,469
Total cash and cash equivalents		25,053			34,166
Investment securities available-for-sale, at fair value		202,247			204,966
Investment securities held-to-maturity, at amortized cost		43,929			29,120
Federal Home Loan Bank stock, at cost		740			738
Loans, net of allowance for loan losses of $5,008 and $6,168, respectively		244,993			259,516
Premises and equipment, net		10,929			9,764
Cash surrender value of bank-owned life insurance		14,133			13,975
Accrued interest receivable		1,931			2,235
Other real estate owned		7,168			7,735
Other assets		9,527			10,394
Total assets	$	560,650		$	572,609
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	471,141		$	483,659
Accrued interest expense		198			221
Other liabilities		7,543			8,131
Short-term borrowings		985			436
Long-term debt		5,000			5,000
Total liabilities		484,867			497,447
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,329,060 shares issued; 6,034,059 shares outstanding		73			73
Surplus		9,691			9,577
Accumulated other comprehensive income, net of tax		968			1,829
Retained earnings		85,950			84,582
Less treasury stock: 1,295,001 shares at cost		(20,886	)		(20,886	)
Noncontrolling interest		(13	)		(13	)
Total shareholders’ equity		75,783			75,162
Total liabilities and shareholders’ equity	$	560,650		$	572,609

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015		2014			2015			2014
	(Unaudited)					(Unaudited)
Interest income:
Interest and fees on loans	$	6,520	$	6,845		$	12,655		$	13,642
Interest on investment securities		1,215		1,085			2,401			2,134
Total interest income		7,735		7,930			15,056			15,776
Interest expense:
Interest on deposits		557		617			1,164			1,254
Interest on borrowings		8		13			15			21
Total interest expense		565		630			1,179			1,275
Net interest income		7,170		7,300			13,877			14,501
Provision (reduction in reserve) for loan losses		45		(264	)		(121	)		150
Net interest income after provision (reduction in reserve) for loan losses		7,125		7,564			13,998			14,351
Non-interest income:
Service and other charges on deposit accounts		472		491			926			991
Credit insurance income		114		93			189			233
Other income		482		901			1,244			1,408
Total non-interest income		1,068		1,485			2,359			2,632
Non-interest expense:
Salaries and employee benefits		4,215		4,141			8,407			8,223
Net occupancy and equipment		780		775			1,603			1,590
Other real estate/foreclosure expense, net		347		325			567			425
Other expense		1,765		1,982			3,507			3,869
Total non-interest expense		7,107		7,223			14,084			14,107
Income before income taxes		1,086		1,826			2,273			2,876
Provision for income taxes		312		608			663			884
Net income	$	774	$	1,218		$	1,610		$	1,992
Basic net income per share	$	0.13	$	0.20		$	0.26		$	0.33
Diluted net income per share	$	0.12	$	0.20		$	0.25		$	0.33
Dividends per share	$	0.02	$	—		$	0.04		$	—

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
	(Unaudited)					(Unaudited)
Net income	$	774		$	1,218	$	1,610		$	1,992
Other comprehensive income:
Change in unrealized holding gains (losses) on available-for-sale securities arising during period, net of tax expense (benefit) of $(386), $393, $(382) and $638, respectively		(641	)		653		(638	)		1,179
Reclassification adjustment for net gains realized on available-for-sale securities realized in net income, net of tax of $31, $0, $136 and $34, respectively		(50	)		—		(223	)		(58	)
Other comprehensive income (loss)		(691	)		653		(861	)		1,121
Total comprehensive income	$	83		$	1,871	$	749		$	3,113

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

	Six Months Ended
	June 30,
	2015			2014
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,610		$	1,992
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		428			364
Provision (reduction in reserve) for loan losses		(121	)		150
Deferred income tax provision		648			1,588
Net gain on sale of securities		(359	)		(103	)
Stock-based compensation expense		189			75
Net amortization of securities		837			489
Net loss on premises and equipment and other real estate		494			171
Changes in assets and liabilities:
Decrease in accrued interest receivable		304			359
Decrease in other assets		859			1,860
Decrease in accrued interest expense		(23	)		(28	)
Decrease in other liabilities		(662	)		(660	)
Net cash provided by operating activities		4,204			6,257
Cash flows from investing activities:
Purchase of investment securities, available-for-sale		(40,185	)		(48,963	)
Purchase of investment securities, held-to-maturity		(17,538	)		(5,978	)
Proceeds from sales of investment securities, available-for-sale		15,754			1,095
Proceeds from maturities and prepayments of investment securities, available-for-sale		25,399			15,925
Proceeds from maturities and prepayments of investment securities, held-to-maturity		2,625			187
Proceeds from redemption of Federal Home Loan Bank stock		—			168
Proceeds from the sale of premises and equipment and other real estate		1,520			3,107
Purchase of Federal Home Loan Bank stock		(3	)		—
Net change in loan portfolio		13,181			24,439
Purchase of premises and equipment		(1,859	)		(881	)
Net cash used in investing activities		(1,106	)		(10,901	)
Cash flows from financing activities:
Net decrease in customer deposits		(12,518	)		(1,025	)
Increase (decrease) in short-term borrowings		549			(608	)
Dividends paid		(242	)		—
Net cash used in financial activities		(12,211	)		(1,633	)
Net decrease in cash and cash equivalents		(9,113	)		(6,277	)
Cash and cash equivalents, beginning of period		34,166			47,720
Cash and cash equivalents, end of period	$	25,053		$	41,443
Supplemental disclosures:
Cash paid for:
Interest	$	1,202		$	1,303
Income taxes		28			52
Non-cash transactions:
Foreclosed assets acquired in settlement of loans	$	1,463		$	4,252
Reissuance of treasury stock as compensation		—			24

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

The accompanying unaudited interim condensed consolidated financial statements include the accounts of United Security Bancshares, Inc. (“USBI”) and its subsidiaries (collectively, the “Company”). USBI is the parent holding company of First US Bank (the “Bank” or “FUSB”). The Bank operates a finance company, Acceptance Loan Company, Inc. (“ALC”). All significant intercompany transactions and accounts have been eliminated.

The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2015. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in USBI’s Annual Report on Form 10-K for the year ended December 31, 2014. The accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in USBI’s Annual Report on Form 10-K for the year ended December 31, 2014. Certain amounts in the 2014 condensed consolidated financial statements have been reclassified to conform to the 2015 method of presentation.

In January 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). ASU 2014-04 clarifies when an “in substance repossession or foreclosure” occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, such that all or a portion of the loan should be derecognized and the real estate property recognized. ASU 2014-04 states that a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon either (i) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments of ASU 2014-04 also require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate properties that are in the process of foreclosure. The amendments of ASU 2014-04 are effective for interim and annual periods beginning after December 15, 2014 and may be applied using either a modified retrospective transition method or a prospective transition method as described in ASU 2014-04. The adoption of ASU 2014-04 did not have a significant impact on the Company’s consolidated balance sheets, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. As amended, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact, if any, that ASU 2014-09 will have on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Residential Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). ASU 2014-14 requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if (1) the loan has a government guarantee that is not separable from the loan before foreclosure; (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under the claim; and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. ASU 2014-14 also provides that, upon foreclosure, the separate other receivable would be measured based on the current amount of the loan balance (principal and interest) expected to be recovered under the guarantee. ASU 2014-14 became effective for the Company on January 1, 2015 and was applied using the prospective transition method as described in ASU 2014-14. The adoption of ASU 2014-14 did not have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability companies and certain entities involved in securitization transactions. ASU 2015-02 focuses on the consolidation criteria for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The new standard simplifies and improves current GAAP by: (i) placing more emphasis on risk of loss when determining a controlling financial interest; (ii) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”); and (iii) changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. ASU 2015-02 will be effective for periods beginning after December 15, 2015. The Company is currently evaluating the impact, if any, that ASU 2015-02 will have on its consolidated financial statements.

In April 2015, the FASB issued new accounting guidance on the accounting for fees paid in a cloud computing arrangement. The standard provides guidance on how customers should evaluate whether such arrangements contain a software license that should be accounted for separately. A customer that determines a cloud computing arrangement contains a software license must account for the license consistently with the acquisition of other software licenses. If an arrangement does not contain a software license, the customer is required to account for it as a service contract. As a result, all software licenses within the scope of this guidance will be accounted for consistently with other licenses of intangible assets. The guidance is effective for annual and interim periods beginning after December 15, 2015. Entities can elect to apply the guidance either retrospectively or prospectively to all cloud computing arrangements entered into or materially modified after the effective date. Early adoption is permitted. The Company is evaluating the potential impact on the Company’s consolidated financial statements.

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Included in basic shares are certain shares that have been accrued as of the balance sheet date as deferred compensation for members of USBI’s Board of Directors. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. The dilutive shares are comprised of nonqualified stock option grants issued to employees and members of USBI’s Board of Directors pursuant to the United Security Bancshares, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) previously approved by USBI’s shareholders. The following table reflects weighted average shares used to calculate basic and diluted net income per share for the periods presented.

Comprehensive income consists of net income and the change in the unrealized gains or losses on the Company’s available-for-sale securities portfolio arising during the period. In the calculation of comprehensive income, certain reclassification adjustments are made for any sale of investment securities to avoid double counting items that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income in that period or earlier periods.

Details of investment securities available-for-sale and held-to-maturity as of June 30, 2015 and December 31, 2014 are as follows:

	Available-for-Sale
	June 30, 2015
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	138,119	$	1,216	$	(566	)	$	138,769
Commercial		45,144		237		(234	)		45,147
Obligations of states and political subdivisions		14,566		907		(12	)		15,461
Obligations of U.S. government-sponsored agencies		1,999		1		—			2,000
Corporate notes		791		—		(1	)		790
U.S. Treasury securities		80		—		—			80
Total	$	200,699	$	2,361	$	(813	)	$	202,247

	Available-for-Sale
	December 31, 2014
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	139,980	$	1,896	$	(192	)	$	141,684
Commercial		35,873		164		(93	)		35,944
Obligations of states and political subdivisions		15,673		1,241		—			16,914
Obligations of U.S. government-sponsored agencies		6,360		5		(1	)		6,364
U.S. Treasury securities		4,153		—		(93	)		4,060
Total	$	202,039	$	3,306	$	(379	)	$	204,966

The scheduled maturities of investment securities available-for-sale and held-to-maturity as of June 30, 2015 are presented in the following table:

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.

Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (i) the length of time and the extent to which fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) whether the Company intends to sell securities, and whether it is more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases. As of June 30, 2015 and December 31, 2014, based on the aforementioned considerations, management did not record an other-than-temporary impairment on any security that was in an unrealized loss position.

The following table reflects gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2015 and December 31, 2014.

	Available-for-Sale
	June 30, 2015
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	80,061	$	(396	)	$	7,014	$	(170	)
Commercial		32,027		(234	)		—		—
Corporate notes		790		(1	)		—		—
Obligations of states and political subdivisions		443		(12	)		—		—
Total	$	113,321	$	(643	)	$	7,014	$	(170	)

	Available-for-Sale
	December 31, 2014
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	24,459	$	(67	)	$	7,630	$	(125	)
Commercial		19,069		(70	)		1,304		(23	)
Obligations of U.S. government-sponsored agencies		1,999		(1	)		—		—
Obligations of states and political subdivisions		269		—			—		—
U.S. Treasury securities		80		—			3,980		(93	)
Total	$	45,876	$	(138	)	$	12,914	$	(241	)

As of June 30, 2015, five debt securities had been in a loss position for more than twelve months, and 92 debt securities had been in a loss position for less than twelve months. The losses for all securities are considered to be a direct result of the effect that the current interest rate environment has on the value of debt securities and not related to the creditworthiness of the issuers. Further, the Company has the current intent and ability to retain its investments in each issuer for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company has not recognized any other-than-temporary impairments.

Investment securities available-for-sale with a carrying value of $61.6 million and $61.1 million as of June 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits and for other purposes.

Gains realized on sales of securities available-for-sale were approximately $0.4 million and $0.1 million for the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. There were no losses on sales of securities during the six months ended June 30, 2015 or the six months ended June 30, 2014.

The Company has divided the loan portfolio into eight portfolio segments, each with different risk characteristics described as follows:

Construction, land development and other land loans – Commercial construction, land and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.

Secured by 1-4 family residential properties – These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their home.

Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.

Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.

Other real estate loans – Other real estate loans are loans primarily for agricultural production, secured by mortgages on farmland.

Commercial and industrial loans – This portfolio segment includes loans to commercial customers for use in the normal course of business. These credits include loans and lines of credit to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.

Consumer loans – This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.

Other loans – Other loans are comprised of credit cards, overdrawn checking accounts reclassified to loans and overdraft lines of credit.

As of June 30, 2015 and December 31, 2014, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:

	June 30, 2015
	FUSB		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	12,363	$	—	$	12,363
Secured by 1-4 family residential properties		30,564		19,129		49,693
Secured by multi-family residential properties		17,163		—		17,163
Secured by non-farm, non-residential properties		81,621		—		81,621
Other		57		—		57
Commercial and industrial loans		18,198		—		18,198
Consumer loans		6,910		73,342		80,252
Other loans		786		—		786
Total loans		167,662		92,471		260,133
Less: Unearned interest, fees and deferred cost		191		9,941		10,132
Allowance for loan losses		2,449		2,559		5,008
Net loans	$	165,022	$	79,971	$	244,993

	December 31, 2014
	FUSB		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	10,431	$	—	$	10,431
Secured by 1-4 family residential properties		30,795		21,309		52,104
Secured by multi-family residential properties		20,403		—		20,403
Secured by non-farm, non-residential properties		104,883		—		104,883
Other		58		—		58
Commercial and industrial loans		16,838		—		16,838
Consumer loans		7,188		61,833		69,021
Other loans		579		—		579
Total loans		191,175		83,142		274,317
Less: Unearned interest, fees and deferred cost		189		8,444		8,633
Allowance for loan losses		3,486		2,682		6,168
Net loans	$	187,500	$	72,016	$	259,516

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 61.9% and 68.5% of the portfolio was concentrated in loans secured by real estate located primarily within a single geographic region of the United States as of June 30, 2015 and December 31, 2014, respectively.

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with others. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments as of June 30, 2015 and December 31, 2014 were $3.0 million and $3.1 million, respectively. During the six months ended June 30, 2015, there were no new loans to these parties, and repayments by active related parties were $0.1 million. During the year ended December 31, 2014, there were no new loans to these related parties, and repayments by active related parties were $0.5 million.

The following tables present changes in the allowance for loan losses by loan portfolio segment and loan type as of June 30, 2015 and December 31, 2014:

	FUSB
	Six Months Ended June 30, 2015
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	141		$	2,810		$	114		$	421		$	—	$	3,486
Charge-offs		—			(105	)		(14	)		(40	)		—		(159	)
Recoveries		22			11			32			27			—		92
Provision		(46	)		(609	)		(90	)		(225	)		—		(970	)
Ending balance		117			2,107			42			183			—		2,449
Ending balance individually evaluated for impairment		96			886			—			—			—		982
Ending balance collectively evaluated for impairment	$	21		$	1,221		$	42		$	183		$	—	$	1,467
Loan receivables:
Ending balance		18,198			111,204			6,910			30,564			786		167,662
Ending balance individually evaluated for impairment		460			6,394			—			96			—		6,950
Ending balance collectively evaluated for impairment	$	17,738		$	104,810		$	6,910		$	30,468		$	786	$	160,712

	ALC
	Six Months Ended June 30, 2015
	Commercial		Commercial Real Estate		Consumer			Residential Real Estate			Other		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—	$	—	$	2,336		$	346		$	—	$	2,682
Charge-offs		—		—		(1,229	)		(143	)		—		(1,372	)
Recoveries		—		—		390			10			—		400
Provision		—		—		779			70			—		849
Ending balance		—		—		2,276			283			—		2,559
Ending balance individually evaluated for impairment		—		—		—			—			—		—
Ending balance collectively evaluated for impairment	$	—	$	—	$	2,276		$	283		$	—	$	2,559
Loan receivables:														—
Ending balance		—		—		73,342			19,129			—		92,471
Ending balance individually evaluated for impairment		—		—		—			—			—		—
Ending balance collectively evaluated for impairment	$	—	$	—	$	73,342		$	19,129		$	—	$	92,471

	FUSB & ALC
	Six Months Ended June 30, 2015
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	141		$	2,810		$	2,450		$	767		$	—	$	6,168
Charge-offs		—			(105	)		(1,243	)		(183	)		—		(1,531	)
Recoveries		22			11			422			37			—		492
Provision		(46	)		(609	)		689			(155	)		—		(121	)
Ending balance		117			2,107			2,318			466			—		5,008
Ending balance individually evaluated for impairment		96			886			—			—			—		982
Ending balance collectively evaluated for impairment	$	21		$	1,221		$	2,318		$	466		$	—	$	4,026
Loan receivables:
Ending balance		18,198			111,204			80,252			49,693			786		260,133
Ending balance individually evaluated for impairment		460			6,394			—			96			—		6,950
Ending balance collectively evaluated for impairment	$	17,738		$	104,810		$	80,252		$	49,597		$	786	$	253,183

	FUSB
	Year Ended December 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	592		$	4,852		$	180		$	635		$	13		$	6,272
Charge-offs		(289	)		(1,329	)		(147	)		(176	)		—			(1,941	)
Recoveries		307			587			129			51			1			1,075
Provision		(469	)		(1,300	)		(48	)		(89	)		(14	)		(1,920	)
Ending balance		141			2,810			114			421			—			3,486
Ending balance individually evaluated for impairment		—			762			—			—			—			762
Ending balance collectively evaluated for impairment	$	141		$	2,048		$	114		$	421		$	—		$	2,724
Loan receivables:
Ending balance		16,838			135,775			7,188			30,795			579			191,175
Ending balance individually evaluated for impairment		—			10,509			—			96			—			10,605
Ending balance collectively evaluated for impairment	$	16,838		$	125,266		$	7,188		$	30,699		$	579		$	180,570

	ALC
	Year Ended December 31, 2014
	Commercial		Commercial Real Estate		Consumer			Residential Real Estate			Other		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—	$	—	$	2,667		$	457		$	—	$	3,124
Charge-offs		—		—		(2,778	)		(311	)		—		(3,089	)
Recoveries		—		—		772			29			—		801
Provision		—		—		1,675			171			—		1,846
Ending balance		—		—		2,336			346			—		2,682
Ending balance individually evaluated for impairment		—		—		—			—			—		—
Ending balance collectively evaluated for impairment	$	—	$	—	$	2,336		$	346		$	—	$	2,682
Loan receivables:
Ending balance		—		—		61,833			21,309			—		83,142
Ending balance individually evaluated for impairment		—		—		—			—			—		—
Ending balance collectively evaluated for impairment	$	—	$	—	$	61,833		$	21,309		$	—	$	83,142

	FUSB & ALC
	Year Ended December 31, 2014
	Commercial			Commercial Real Estate			Consumer			Residential Real Estate			Other			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	592		$	4,852		$	2,847		$	1,092		$	13		$	9,396
Charge-offs		(289	)		(1,329	)		(2,925	)		(487	)		—			(5,030	)
Recoveries		307			587			901			80			1			1,876
Provision		(469	)		(1,300	)		1,627			82			(14	)		(74	)
Ending balance		141			2,810			2,450			767			—			6,168
Ending balance individually evaluated for impairment		—			762			—			—			—			762
Ending balance collectively evaluated for impairment	$	141		$	2,048		$	2,450		$	767		$	—		$	5,406
Loan receivables:
Ending balance		16,838			135,775			69,021			52,104			579			274,317
Ending balance individually evaluated for impairment		—			10,509			—			96			—			10,605
Ending balance collectively evaluated for impairment	$	16,838		$	125,266		$	69,021		$	52,008		$	579		$	263,712

The Bank utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded, based on pre-determined risk metrics, and categorized into one of nine risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.

At ALC, because the loan portfolio is more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that are either not paying as contractually agreed or that have demonstrated characteristics that indicate a probability of loss.

The tables below illustrate the carrying amount of loans by credit quality indicator as of June 30, 2015.

	FUSB
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	10,388	$	—	$	1,975	$	—	$	12,363
Secured by 1-4 family residential properties		29,284		236		1,044		—		30,564
Secured by multi-family residential properties		14,813		—		2,350		—		17,163
Secured by non-farm, non-residential properties		75,431		3,158		3,032		—		81,621
Other		57		—		—		—		57
Commercial and industrial loans		16,658		780		760		—		18,198
Consumer loans		6,810		—		100		—		6,910
Other loans		786		—		—		—		786
Total	$	154,227	$	4,174	$	9,261	$	—	$	167,662

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, 2014.

	FUSB
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	5,326	$	2,515	$	2,590	$	—	$	10,431
Secured by 1-4 family residential properties		27,956		638		2,201		—		30,795
Secured by multi-family residential properties		18,033		—		2,370		—		20,403
Secured by non-farm, non-residential properties		86,812		10,905		7,166		—		104,883
Other		58		—		—		—		58
Commercial and industrial loans		14,915		1,222		701		—		16,838
Consumer loans		6,744		105		339		—		7,188
Other loans		577		—		2		—		579
Total	$	160,421	$	15,385	$	15,369	$	—	$	191,175

The following tables provide an aging analysis of past due loans by class as of June 30, 2015.

	FUSB
	As of June 30, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	430	$	86	$	516	$	11,847	$	12,363	$	—
Secured by 1-4 family residential properties		151		103		405		659		29,905		30,564		—
Secured by multi-family residential properties		—		—		—		—		17,163		17,163		—
Secured by non-farm, non-residential properties		—		—		762		762		80,859		81,621		—
Other		—		—		—		—		57		57		—
Commercial and industrial loans		52		—		—		52		18,146		18,198		—
Consumer loans		45		19		—		64		6,846		6,910		—
Other loans		—		—		—		—		786		786		—
Total	$	248	$	552	$	1,253	$	2,053	$	165,609	$	167,662	$	—

	ALC
	As of June 30, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		34		40		472		546		18,583		19,129		—
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans		637		373		1,280		2,290		71,052		73,342		—
Other loans		—		—		—		—		—		—		—
Total	$	671	$	413	$	1,752	$	2,836	$	89,635	$	92,471	$	—

The following tables provide an aging analysis of past due loans by class as of December 31, 2014.

	FUSB
	As of December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	41	$	—	$	86	$	127	$	10,304	$	10,431	$	—
Secured by 1-4 family residential properties		200		20		852		1,072		29,723		30,795		—
Secured by multi-family residential properties		—		—		—		—		20,403		20,403		—
Secured by non-farm, non-residential properties		268		159		1,743		2,170		102,713		104,883		—
Other		—		—		—		—		58		58		—
Commercial and industrial loans		—		8		—		8		16,830		16,838		—
Consumer loans		12		3		24		39		7,149		7,188		—
Other loans		4		—		12		16		563		579		11
Total	$	525	$	190	$	2,717	$	3,432	$	187,743	$	191,175	$	11

	ALC
	As of December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		182		147		501		830		20,479		21,309		401
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans		671		558		1,346		2,575		59,258		61,833		1,335
Other loans		—		—		—		—		—		—		—
Total	$	853	$	705	$	1,847	$	3,405	$	79,737	$	83,142	$	1,736

The following table provides an analysis of non-accruing loans by class as of June 30, 2015 and December 31, 2014.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. Impaired loans, or portions thereof, are charged off when deemed uncollectable.

As of June 30, 2015, the carrying amount of impaired loans consisted of the following:

	June 30, 2015
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		749		749		—
Secured by non-farm, non-residential properties		1,135		1,135		—
Commercial and industrial		—		—		—
Total loans with no related allowance recorded	$	1,980	$	1,980	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	1,445	$	1,445	$	95
Secured by 1-4 family residential properties		—		—		—
Secured by multi-family residential properties		1,601		1,601		691
Secured by non-farm, non-residential properties		1,464		1,464		100
Commercial and industrial		460		460		96
Total loans with an allowance recorded	$	4,970	$	4,970	$	982

Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	1,445	$	1,445	$	95
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		2,350		2,350		691
Secured by non-farm, non-residential properties		2,599		2,599		100
Commercial and industrial		460		460		96
Total impaired loans	$	6,950	$	6,950	$	982

As of December 31, 2014, the carrying amount of impaired loans consisted of the following:

	December 31, 2014
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	1,445	$	1,445	$	—
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		755		1,146		—
Secured by non-farm, non-residential properties		6,091		6,091		—
Commercial and industrial		—		—		—
Total loans with no related allowance recorded	$	8,387	$	8,778	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	603	$	603	$	71
Secured by 1-4 family residential properties		—		—		—
Secured by multi-family residential properties		1,615		1,615		691
Secured by non-farm, non-residential properties		—		—		—
Commercial and industrial		—		—		—
Total loans with an allowance recorded	$	2,218	$	2,218	$	762

Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	2,048	$	2,048	$	71
Secured by 1-4 family residential properties		96		96		—
Secured by multi-family residential properties		2,370		2,761		691
Secured by non-farm, non-residential properties		6,091		6,091		—
Commercial and industrial		—		—		—
Total impaired loans	$	10,605	$	10,996	$	762

The average net investment in impaired loans and interest income recognized and received on impaired loans during the six months ended June 30, 2015 and the year ended December 31, 2014 were as follows:

Loans on which the accrual of interest has been discontinued amounted to $3.8 million and $4.8 million as of June 30, 2015 and December 31, 2014, respectively. If interest on those loans had been accrued, there would have been $33 thousand and $0.1 million accrued for the periods ended June 30, 2015 and December 31, 2014, respectively. Interest income recorded related to these loans as of June 30, 2015 and December 31, 2014 was $0.3 million and $0.2 million, respectively.

Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would not have otherwise been considered had the borrowers not been experiencing financial difficulty. The concessions granted may include payment schedule modifications, interest rate reductions, maturity date extensions, modification of note structure, principal balance reductions or some combination of these concessions. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on non-accrual. As of June 30, 2015 and 2014, respectively, the Company had $1.2 million and $3.4 million of non-accruing loans that were previously restructured and that remained on non-accrual status. For the six months ended June 30, 2015 and the year ended December 31, 2014, the Company had no restructured loans that were restored to accrual status based on a sustained period of repayment performance.

The following table provides the number of loans that the Bank had modified in a troubled debt restructuring by loan portfolio as of June 30, 2015 and December 31, 2014, as well as the pre- and post-modification principal balance as of June 30, 2015 and December 31, 2014.

	June 30, 2015						December 31, 2014
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		3	$	2,220	$	1,755		4	$	3,282	$	2,365
Secured by 1-4 family residential properties		4		200		149		4		200		156
Secured by non-farm, non-residential properties		5		1,368		908		6		1,448		1,299
Commercial loans		3		159		99		4		159		109
Total		15	$	3,947	$	2,911		18	$	5,089	$	3,929

The following table provides the number of loans modified in a troubled debt restructuring that have subsequently defaulted, by loan portfolio, as of June 30, 2015 and December 31, 2014.

Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the Company’s allowance for loan losses resulting from the modifications.

All loans with a principal balance of $0.5 million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan losses. This evaluation resulted in an allowance for loan losses attributable to such restructured loans of $4 thousand and $0.9 million as of June 30, 2015 and December 31, 2014, respectively.

Other real estate and certain other assets acquired in foreclosure are reported at the lower of the investment in the loan or fair value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity as of the six months ended June 30, 2015 and 2014:

Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are a result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. The amount of foreclosed residential real estate that the Company held as of June 30, 2015 was $1.1 million. The Company also held $0.5 million in consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of June 30, 2015.

The Bank holds investments in affordable housing projects for which it provides funding as a limited partner and has received tax credits related to its investments in the projects based on its partnership share. Historically, the Bank’s investments have included both direct investments and investments in funds that invest solely in affordable housing projects. The net assets of the partnerships consist primarily of apartment complexes and the primary liabilities consist of those associated with the operation of the partnerships. The Company has determined that these structures require evaluation as a VIE under Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The Company consolidates one of the funds in which it has a 99.9% limited partnership interest. Assets recorded by the Company as a result of the consolidation were less than $0.1 million as of both June 30, 2015 and December 31, 2014. The remaining limited partnership investments are unconsolidated and are accounted for under the cost method, as allowed under ASC Topic 325, Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects. The Company amortizes the excess of carrying value of the investment over its estimated residual value during the period in which tax credits are allocated to the investors. As of December 31, 2013, approximately $0.8 million was included in other assets, representing the carrying amount of one remaining partnership that was accounted for as a cost method investment. During 2014, this partnership was dissolved, and the Company received $1.0 million, representing its residual interest upon dissolution of the partnership. Accordingly, as of June 30, 2015, the carrying amount of the partnership was reduced to zero, and the difference between the residual interest received and the carrying amount was recorded as other non-interest income.

Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements. Federal funds purchased generally mature within one to four days. There were no federal funds purchased outstanding as of June 30, 2015 or December 31, 2014.

Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements as of June 30, 2015 and December 31, 2014 totaled $1.0 million and $0.4 million, respectively.

As of both June 30, 2015 and December 31, 2014, the Bank had $18.8 million in remaining federal funds lines available from correspondent banks.

The Company uses Federal Home Loan Bank (“FHLB”) advances as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates when compared to other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. The Company had FHLB advances outstanding of $5.0 million as of both June 30, 2015 and December 31, 2014, respectively, and assets pledged associated with these advances of $6.9 million and $5.7 million, respectively.

As of June 30, 2015 and December 31, 2014, the Bank had $168.1 million and $166.8 million, respectively, in remaining credit from the FHLB (subject to available collateral).

The provision for income taxes was $0.7 million and $0.9 million for the six-month periods ended June 30, 2015 and 2014, respectively. The Company’s effective tax rate was 29.2% and 30.7% for the same periods. The effective tax rate is impacted by recurring permanent differences, such as those associated with bank-owned life insurance and tax-exempt investment and loan income.

The Company had a net deferred tax asset of $7.8 million and $7.9 million as of June 30, 2015 and December 31, 2014, respectively. The reduction in the net deferred tax asset resulted primarily from a decrease in the allowance for loan losses, partially offset by the impact of changes in the fair value of securities available-for-sale.

As of June 30, 2015 and June 30, 2014, the Company had outstanding stock options granted by USBI to certain employees and non-employee directors under the 2013 Incentive Plan. The stock option awards were granted with an exercise price equal to the market price of USBI’s common stock on the date of the grant. The awards granted were either fully vested or had a vesting period of one year, with a contractual 10-year term. The Company recognizes the cost of services received in exchange for stock options based on the grant date fair value of the award. The fair value is determined using the Black-Scholes option pricing model, and the compensation cost is recognized on a straight-line basis over the vesting period of the award. Stock-based compensation expense related to stock options was $0.1 million for the six-month period ended June 30, 2015, and less than $0.1 million for the six-month period ended June 30, 2014. The following table summarizes the Company’s stock option activity for the periods presented.

	Six Months Ended
	June 30, 2015				June 30, 2014
	Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price
Options:
Outstanding, beginning of period		83,400	$	8.09		—	$	—
Granted		96,150		8.23		10,750		8.00
Exercised		—		—		—		—
Expired		—		8.09		—		—
Forfeited		2,500		—		—		—
Options outstanding, end of period		177,050	$	8.16		10,750	$	8.00
Options exercisable, end of period		81,900	$	8.09		—	$	—

The awards granted in 2015 have a vesting period of one year, with a contractual 10-year term. To calculate the fair value of these awards, the Company used a risk-free interest rate of 1.5%, an expected option life of 7.5 years and a dividend rate of 1.5%. Stock price volatility was calculated using a three-year stock price history. The aggregate intrinsic value (calculated as the amount by which the market value of the underlying stock exceeds the exercise price of the option) was less than $0.1 million as of both June 30, 2015 and 2014.

Under ASC Topic 280, Segment Reporting, certain information is disclosed for the two reportable operating segments of the Company: FUSB and ALC. The reportable segments were determined using the internal management reporting system. These segments are comprised of the Company’s and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the tables below.

						All
	FUSB			ALC		Other			Eliminations			Consolidated
	(Dollars in Thousands)
For the three months ended June 30, 2015:
Net interest income	$	3,991		$	3,176	$	3		$	—		$	7,170
Provision (reduction in reserve) for loan losses		(445	)		490		—			—			45
Total non-interest income		861			235		1,093			(1,121	)		1,068
Total non-interest expense		4,386			2,477		386			(142	)		7,107
Income before income taxes		911			444		710			(979	)		1,086
Provision for income taxes		264			153		(105	)		—			312
Net income	$	647		$	291	$	815		$	(979	)	$	774
Other significant items:
Total assets	$	562,900		$	84,139	$	81,816		$	(168,205	)	$	560,650
Total investment securities		246,096			—		80			—			246,176
Total loans, net		237,357			79,971		—			(72,335	)		244,993
Investment in subsidiaries		5			—		76,488			(76,488	)		5
Fixed asset addition		639			87		—			—			726
Depreciation and amortization expense		155			61		—			—			216
Total interest income from external customers		3,640			4,095		—			—			7,735
Total interest income from affiliates		918			—		3			(921	)		—

For the six months ended June 30, 2015:
Net interest income	$	7,835		$	6,037	$	5		$	—		$	13,877
Provision (reduction in reserve) for loan losses		(970	)		849		—			—			(121	)
Total non-interest income		2,011			455		2,206			(2,313	)		2,359
Total non-interest expense		8,667			4,970		743			(296	)		14,084
Income before income taxes		2,149			673		1,468			(2,017	)		2,273
Provision for income taxes		635			239		(211	)		—			663
Net income	$	1,514		$	434	$	1,679		$	(2,017	)	$	1,610
Other significant items:
Fixed asset addition	$	1,610		$	249	$	—		$	—		$	1,859
Depreciation and amortization expense		308			120		—			—			428
Total interest income from external customers		7,217			7,838		1			—			15,056
Total interest income from affiliates		1,801			—		4			(1,805	)		—

						All
	FUSB			ALC		Other		Eliminations			Consolidated
	(Dollars in Thousands)
For the three months ended June 30, 2014:
Net interest income	$	4,101		$	3,197	$	2	$	—		$	7,300
Provision (reduction in reserve) for loan losses		(325	)		61		—		—			(264	)
Total non-interest income		1,286			286		1,425		(1,512	)		1,485
Total non-interest expense		4,767			2,443		193		(180	)		7,223
Income before income taxes		945			979		1,234		(1,332	)		1,826
Provision for income taxes		230			377		1		—			608
Net income	$	715		$	602	$	1,233	$	(1,332	)	$	1,218
Other significant items:
Total assets	$	572,377		$	71,303	$	79,408	$	(152,396	)	$	570,692
Total investment securities		209,865			—		80		—			209,945
Total loans, net		262,533			68,488		—		(58,935	)		272,086
Investment in subsidiaries		5			—		74,262		(74,262	)		5
Fixed asset addition		159			1		—		—			160
Depreciation and amortization expense		131			53		—		—			184
Total interest income from external customers		3,935			3,995		—		—			7,930
Total interest income from affiliates		799			—		2		(801	)		—

For the six months ended June 30, 2014:
Net interest income	$	8,188		$	6,308	$	5	$	—		$	14,501
Provision (reduction in reserve) for loan losses		(500	)		650		—		—			150
Total non-interest income		2,217			572		2,468		(2,625	)		2,632
Total non-interest expense		9,097			4,999		402		(391	)		14,107
Income before income taxes		1,808			1,231		2,071		(2,234	)		2,876
Provision for income taxes		406			476		2		—			884
Net income	$	1,402		$	755	$	2,069	$	(2,234	)	$	1,992
Other significant items:
Fixed asset addition	$	867		$	14	$	—	$	—		$	881
Depreciation and amortization expense		259			105		—		—			364
Total interest income from external customers		7,904			7,872		—		—			15,776
Total interest income from affiliates		1,564			—		4		(1,568	)		—

The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments. For interest rate swap transactions and commitments to purchase or sell securities for forward delivery, the contract or notional amounts do not represent exposure to credit loss. The Bank controls the credit risk of these derivative instruments through credit approvals, limits and monitoring procedures. Certain derivative contracts have credit risk for the carrying value plus the amount to replace such contracts in the event of counterparty default. All of the Bank’s financial instruments are held for risk management and not for trading purposes. During the quarters ended June 30, 2015 and 2014, respectively, there were no credit losses associated with derivative contracts.

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented below:

Standby letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third party. The Bank has recourse against the customer for any amount that it is required to pay to a third party under a standby letter of credit. Revenues are recognized over the lives of the standby letters of credit. As of June 30, 2015 and December 31, 2014, the potential amount of future payments that the Bank could be required to make under its standby letters of credit, which represent the Bank’s total credit risk in this category, is listed in the table above.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates. As of June 30, 2015 and December 31, 2014, there were no outstanding commitments to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.

On December 2, 2013, Wayne Allen Russell filed a lawsuit against the Bank in the Circuit Court of Tuscaloosa County, Alabama, alleging that the Bank wrongfully foreclosed on a parcel of property owned by Russell that was subject to a mortgage in favor of the Bank. Mr. Russell alleges that the loan secured by the mortgage had been satisfied in full from the proceeds of a prior foreclosure of additional properties subject to the same mortgage. Mr. Russell seeks an unspecified amount of damages. The Bank denies Mr. Russell’s allegations and is vigorously defending the lawsuit. At this time, discovery is ongoing, and the Company is unable to assess the likelihood of a resolution or the possibility of an unfavorable outcome in this matter.

The Company is also party to other litigation, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such other litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

The Company follows the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were no such transfers during the six months ended June 30, 2015 or the year ended December 31, 2014.

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange-traded equities. Level 2 securities include U.S. Treasury and agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Interest rate cap agreements were included in other assets at fair value on the Company’s balance sheet as of June 30, 2015. The interest rate caps qualify as derivatives but are not designated as hedging instruments. Accordingly, changes in fair value are included in results of operations. The fair value of these agreements is based on information obtained from third-party financial institutions. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party valuations. The Company classifies these derivative assets within Level 2 of the valuation hierarchy.

The following table presents assets measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014. There were no liabilities measured at fair value on a recurring basis for either period presented.

	Fair Value Measurements as of June 30, 2015 Using
	Totals At June 30, 2015		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential	$	138,769	$	—	$	138,769	$	—
Commercial		45,147		—		45,147		—
Obligations of states and political subdivisions		15,461		—		15,461		—
Obligations of U.S. government-sponsored agencies		2,000		—		2,000		—
Corporate notes		790		—		790		—
U.S. Treasury securities		80		—		80		—
Other assets - derivatives		14		—		14		—

	Fair Value Measurements as of December 31, 2014 Using
	Totals At December 31, 2014		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential	$	141,684	$	—	$	141,684	$	—
Commercial		35,944		—		35,944		—
Obligations of states and political subdivisions		16,914		—		16,914		—
Obligations of U.S. government-sponsored agencies		6,364		—		6,364		—
U.S. Treasury securities		4,060		—		4,060		—
Other assets - derivatives		68		—		68		—

Loans that are considered impaired are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price or the fair value of the collateral less estimated selling cost if the loan is collateral-dependent. For the Company, the fair value of impaired loans was primarily measured based on the value of the collateral (typically real estate) securing the loans. The Company determines the fair value of the collateral based on independent appraisals performed by qualified licensed appraisers. The appraisals may include a single valuation approach or a combination of approaches, including comparable sales and income approaches. Appraised values are discounted for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are evaluated by management for additional impairment at least quarterly and are adjusted accordingly.

OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at the lower of the loan’s carrying amount or the fair value of the property, less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fair value.

The following table presents the balances of impaired loans and OREO measured at fair value on a non-recurring basis as of June 30, 2015 and December 31, 2014.

The following table presents information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of June 30, 2015. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input, as well as the weighted average within the range utilized as of June 30, 2015, are both included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.

OREO under a binding contract for sale is valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, due from banks and federal funds sold: The carrying amount of cash, due from banks and federal funds sold approximates fair value.

Federal Home Loan Bank stock: Based on the redemption provision of the FHLB, the stock has no quoted market value and is carried at cost.

Investment securities: Fair values of investment securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.

Derivative instruments: The fair value of derivative instruments is based on information obtained from a third-party financial institution. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party information.

Accrued interest receivable and payable: The carrying amount of accrued interest approximates fair value.

Loans, net: For variable-rate loans, fair values are based on carrying values. Fixed-rate commercial loans, other installment loans and certain real estate mortgage loans are valued using discounted cash flows. The discount rate used to determine the present value of these loans is based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Demand and savings deposits: The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.

Time deposits: The fair values of relatively short-term time deposits are equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Short-term borrowings: These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase and the floating rate borrowings from the FHLB account. Due to the short-term nature of these borrowings, fair values approximate carrying values.

Long-term debt: The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of June 30, 2015 and December 31, 2014.

Off-balance sheet instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.

The estimated fair value and related carrying or notional amounts, as well as the level within the fair value hierarchy, of the Company’s financial instruments as of June 30, 2015 and December 31, 2014, were as follows:

	June 30, 2015
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	25,053	$	25,053	$	25,053	$	—	$	—
Investment securities available-for-sale		202,247		202,247		—		202,247		—
Investment securities held-to-maturity		43,929		43,629		—		43,629		—
Federal Home Loan Bank stock		740		740		—		—		740
Loans, net of allowance for loan losses		244,993		246,865		—		—		246,865
Other assets – derivatives		14		14		—		14		—
Liabilities:
Deposits		471,141		471,692		—		471,692		—
Short-term borrowings		985		985		—		985		—
Long-term debt		5,000		5,002		—		5,002		—

	December 31, 2014
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	34,166	$	34,166	$	34,166	$	—	$	—
Investment securities available-for-sale		204,966		204,966		—		204,966		—
Investment securities held-to-maturity		29,120		29,154		—		29,154		—
Federal Home Loan Bank stock		738		738		—		—		738
Loans, net of allowance for loan losses		259,516		259,337		—		—		259,337
Other assets – derivatives		68		68		—		68		—
Liabilities:
Deposits		483,659		484,108		—		484,108		—
Short-term borrowings		436		436		—		436		—
Long-term debt		5,000		5,007		—		5,007		—

United Security Bancshares, Inc., a Delaware corporation (“USBI”), is a bank holding company with its principal office in Thomasville, Alabama. USBI operates one commercial banking subsidiary, First US Bank (the “Bank” or “FUSB”). As of June 30, 2015, the Bank operated and served its customers through nineteen banking offices located in Brent, Bucksville, Butler, Calera, Centreville, Coffeeville, Columbiana, Fulton, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama.

The Bank owns all of the stock of Acceptance Loan Company, Inc., an Alabama corporation (“ALC”). ALC is a finance company organized for the purpose of making and purchasing consumer loans. The Bank is the funding source for ALC. As of June 30, 2015, ALC operated twenty-two finance company offices located in Alabama and southeast Mississippi. During the first quarter of 2015, ALC’s headquarters were relocated to Mobile, Alabama. In addition, subsequent to June 30, 2015, ALC closed one of its finance company offices.

The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals, while ALC’s business is consumer-oriented.

FUSB Reinsurance, Inc., an Arizona corporation and a wholly owned subsidiary of the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policies sold to the Bank’s and ALC’s consumer loan customers. FUSB Reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount, and a primary third-party insurer retains the remaining risk. The third-party insurer is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.

Delivery of the best possible financial services to customers remains an overall operational focus of USBI and its subsidiaries (collectively, the “Company”). We recognize that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 287 full-time equivalent employees, to ensure customer satisfaction and convenience.

The preparation of the Company’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America and general banking practices. These estimates include accounting for the allowance for loan losses, other real estate owned, valuation of deferred tax assets and fair value measurements. A description of these estimates, which significantly affect the determination of consolidated financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in USBI’s Annual Report on Form 10-K for the year ended December 31, 2014.

The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of June 30, 2015 to December 31, 2014, while comparing income and expense for the three- and six-month periods ended June 30, 2015 and 2014.

All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

This information should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in USBI’s Annual Report on Form 10-K for the year ended December 31, 2014.

Consolidated net income of the Company was $0.8 million, or $0.12 per diluted share, for the three months ended June 30, 2015, compared to $1.2 million, or $0.20 per diluted share, for the three months ended June 30, 2014. The second quarter of 2015 represented the thirteenth consecutive quarter in which the Company recorded positive net income. For the six months ended June 30, 2015, consolidated net income of the Company was $1.6 million, or $0.25 per diluted share, compared with $2.0 million, or $0.33 per diluted share, for the six months ended June 30, 2014. A significant portion of the difference in net income between the three-and six-month periods ended June 30, 2015 and the comparative periods of 2014 resulted from two transactions that increased non-interest income in the second quarter of 2014 that were not repeated in 2015. These transactions, which included the dissolution of one of the Bank’s limited partnership investments and a reimbursement from a vendor related to a discontinued product, resulted in non-recurring gains of approximately $0.5 million in 2014.

On a consolidated basis, loans, net of the allowance for loan losses, increased $5.8 million during the second quarter of 2015, driven by growth at ALC. However, for the six months ended June 30, 2015, loans, net of the allowance for loan losses, declined $14.5 million to $245.0 million, compared with $259.5 million as of December 31, 2014. As a result of the loan volume reductions during the first half of 2015, management continued to supplement interest income by increasing investments in the securities portfolio. The average balance of investment securities increased by approximately $36.1 million comparing the first six months of 2015 to the first six months of 2014. Management remains focused on closely monitoring the duration of the investment portfolio to ensure that appropriate cash flows are available through investment maturities to fund future loan growth.

The Company’s asset quality continued to improve during the second quarter and first six months of 2015. On a consolidated basis, the allowance for loan losses as a percentage of loans was reduced to 2.00% as of June 30, 2015, compared with 2.21% as of March 31, 2015, and 2.32% as of December 31, 2014. Nonperforming assets, which include loans in non-accrual status and other real estate owned, decreased to 1.96% of total assets as of June 30, 2015, compared to 2.27% and 2.50% as of March 31, 2015 and December 31, 2014, respectively.

As a result of continued improvement in asset quality, during the second quarter of 2015, Bank management began shifting more strategic focus to loan generation. However, in the Bank’s primary service areas, the lending environment continued to be highly competitive with respect to the generation of new loans of sufficient credit quality. Operating in this lending environment, the Bank’s loan production did not keep pace with loan payoffs and paydowns during the second quarter or the first six months of 2015. Loans, net of the allowance for loan losses, declined to $165.0 million as of June 30, 2015, compared to $168.4 million as of March 31, 2015, and $187.5 million as of December 31, 2014. Management’s focus on loan generation will continue to include efforts within our existing service areas, as well as consideration of potential expansion into contiguous metropolitan areas that have greater commercial loan potential.

During the first six months of 2015, the Bank made substantial technological and capital investments intended to improve customer service and operating efficiencies and to provide a platform for future growth. These capital investments included the renovation of the Bank’s Thomasville, Alabama main office, as well as renovation of an existing building in Tuscaloosa, Alabama, that will house the commercial lending staff and a new retail branch. Both of these projects are expected to be completed during the second half of 2015.

At ALC, management continued to implement a strategy, which began in early 2014, designed to shift the mix of loans at ALC away from real estate lending and into consumer lending, with a focus on point-of-sale consumer lending through arrangements with prominent retailers. These dealer-type consumer loans were the primary driver of loan growth at ALC during the first six months of 2015. Loans, net of the allowance for loan losses, increased to $80.0 million as of June 30, 2015, from $72.0 million as of December 31, 2014. In addition, the shift in the mix of loans contributed to improvement in the credit quality of ALC’s loan portfolio during that time frame. The allowance for loan losses as a percentage of loans declined to 3.10% as of June 30, 2015, compared with 3.59% as of December 31, 2014.

The Company continues to maintain ample liquidity for ongoing operations and benefits from a strong deposit base, a liquid investment portfolio and access to funding from a variety of external sources, such as federal funds lines, Federal Home Loan Bank (“FHLB”) advances and brokered deposits. During the first quarter of 2015, the Bank became subject to the revised regulatory capital standards promulgated under the final rule adopted by the federal banking regulators to implement the Basel III capital framework (the “Basel III Final Rule”). As of June 30, 2015, the Bank maintained capital ratios that were higher than the ratios required to be considered a “well-capitalized” institution under the revised framework.

	Three Months Ended					Six Months Ended
	June 30,		June 30,			June 30,			June 30,
	2015		2014			2015			2014
	(Dollars in Thousands)					(Dollars in Thousands)
Interest income	$	7,735	$	7,930		$	15,056		$	15,776
Interest expense		565		630			1,179			1,275
Net interest income		7,170		7,300			13,877			14,501
Provision (reduction in reserve) for loan losses		45		(264	)		(121	)		150
Net interest income after provision (reduction in reserve) for loan losses		7,125		7,564			13,998			14,351
Non-interest income		1,068		1,485			2,359			2,632
Non-interest expense		7,107		7,223			14,084			14,107
Income before income taxes		1,086		1,826			2,273			2,876
Provision for income taxes		312		608			663			884
Net income	$	774	$	1,218		$	1,610		$	1,992

Net interest income is comprised of the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company’s earning assets are comprised of loans at both the Bank and ALC, taxable and nontaxable investments and federal funds sold. Interest-bearing liabilities are comprised of interest-bearing demand deposits and savings and time deposits, as well as short-term borrowings and long-term debt. Net interest income for the Company decreased $0.1 million, or 1.8%, for the second quarter of 2015, and $0.6 million, or 4.3%, for the six months ended June 30, 2015, compared to the same periods in 2014. The decline in both periods resulted primarily from decreases in loan volume at the Bank and, to a lesser extent, reduced yield on ALC’s loan portfolio.

The following tables show, for the three and six months ended June 30, 2015 and June 30, 2014, the average balances of each principal category of assets, liabilities and shareholders’ equity. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net yield is calculated for each period presented as net interest income divided by average total interest-earning assets.

	Three Months Ended							Three Months Ended
	June 30, 2015							June 30, 2014
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
	(Dollars in Thousands, Except Percentages)
ASSETS
Interest-Earning Assets:
Loans – FUSB (Note A)	$	170,313	$	2,425		5.34	%	$	212,938	$	2,850		5.17	%
Loans – ALC (Note A)		75,198		4,095		22.28	%		69,320		3,995		23.07	%
Taxable Investments		254,319		1,065		1.69	%		223,889		938		1.72	%
Non-Taxable Investments		16,086		150		3.62	%		15,860		147		3.65	%
Total Interest-Earning Assets		515,916		7,735		5.90	%		522,007		7,930		6.06	%
Non-Interest-Earning Assets:
Other Assets		47,595							45,883
Total	$	563,511						$	567,890
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Demand Deposits	$	148,920	$	144		0.38	%	$	144,753	$	153		0.43	%
Savings Deposits		73,750		34		0.19	%		71,298		36		0.20	%
Time Deposits		184,229		379		0.80	%		203,193		428		0.83	%
Borrowings		5,773		8		0.59	%		5,658		13		0.89	%
Total Interest-Bearing Liabilities		412,672		565		0.54	%		424,902		630		0.59	%
Non-Interest-Bearing Liabilities:
Demand Deposits		68,168							65,249
Other Liabilities		6,708							5,762
Shareholders’ Equity		75,963							71,977
Total	$	563,511						$	567,890
Net Interest Income (Note B)			$	7,170						$	7,300
Net Yield on Interest-Earning Assets						5.47	%						5.58	%

	Six Months Ended							Six Months Ended
	June 30, 2015							June 30, 2014
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
	(Dollars in Thousands, Except Percentages)
ASSETS
Interest-Earning Assets:
Loans – FUSB (Note A)	$	175,941	$	4,817		5.48	%	$	220,381	$	5,770		5.24	%
Loans – ALC (Note A)		74,366		7,838		21.08	%		69,276		7,872		22.73	%
Taxable Investments		253,504		2,104		1.66	%		217,637		1,830		1.68	%
Non-Taxable Investments		16,318		297		3.64	%		16,098		304		3.78	%
Total Interest-Earning Assets		520,129		15,056		5.79	%		523,392		15,776		6.03	%
Non-Interest-Earning Assets:
Other Assets		47,387							46,258
Total	$	567,516						$	569,650
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Demand Deposits	$	149,964	$	287		0.38	%	$	143,060	$	300		0.42	%
Savings Deposits		72,911		67		0.19	%		70,977		70		0.20	%
Time Deposits		186,431		810		0.87	%		206,345		884		0.86	%
Borrowings		5,615		15		0.53	%		5,844		21		0.72	%
Total Interest-Bearing Liabilities		414,921		1,179		0.57	%		426,226		1,275		0.60	%
Non-Interest-Bearing Liabilities:
Demand Deposits		69,128							65,593
Other Liabilities		7,602							6,493
Shareholders’ Equity		75,865							71,338
Total	$	567,516						$	569,650
Net Interest Income (Note B)			$	13,877						$	14,501
Net Yield on Interest-Earning Assets						5.29	%						5.54	%

Yield on loans improved at FUSB comparing both the three- and six-month periods presented; however, average loan volume declined during both periods of 2015, as the Bank experienced payoffs and paydowns at a faster rate than the generation of new loans. Loans, net of the allowance for loan losses, at FUSB declined to $165.0 million as of June 30, 2015, compared with $187.5 million as of December 31, 2014, a decrease of $22.5 million. Of this decrease, approximately $3.8 million related to the payoff of loans that were categorized within the special mention or substandard risk grade categories, and approximately $1.0 million represented loans that were transferred to OREO. As a result of declining loan balances, Bank management has continued efforts to earn interest income by investing available funds in the investment securities portfolio, which provides lower yields than the loan portfolio. Investment securities (including both taxable and non-taxable investments) increased to $246.2 million as of June 30, 2015, from $234.1 million as of December 31, 2014.

At ALC, yield on loans declined comparing both the three- and six-month periods presented. These declines resulted primarily from management’s ongoing strategic efforts to refine origination criteria with a focus on improved credit quality. This strategy has included efforts to grow point-of-sale consumer lending through arrangements with prominent retailers, while at the same time reducing exposure to loans collateralized by residential real estate. These efforts have contributed to an improvement in the credit quality of ALC’s loan portfolio, with a corresponding offset in lower average rates charged. Loans, net of the allowance for loan losses, increased to $80.0 million as of June 30, 2015, compared with $72.0 million as of December 31, 2014. The majority of the increase occurred during the second quarter and was attributable to growth in point-of-sale consumer lending, as well as seasonality related to ALC’s traditional consumer lending portfolio, which typically experiences growth at a higher level during the second

quarter. Comparing the six months ended June 30, 2015 to the six months ended June 30, 2014, the average balance of ALC’s loan portfolio increased 7.3%, from $69.3 million to $74.4 million. Despite the increases in balances, interest income at ALC remained relatively flat comparing the same periods, primarily due to the mix-shift to lower yield, higher credit quality loans.

At both the Bank and ALC, management continues to focus efforts on generating loans within established credit standards, while also maintaining vigilance in the deployment of strategies to manage risks associated with interest rate fluctuations. Although this strategy may result in lower yields, primarily at ALC, management believes that it will also result in improved credit performance of the portfolio, and ultimately lower losses over time. However, net interest income could continue to experience downward pressure due to increased competition for quality loan opportunities and lower reinvestment yields in the securities portfolio.

Interest expense decreased $65 thousand, or 10.3%, comparing the second quarter of 2015 to the second quarter of 2014. Comparing the six months ended June 30, 2015 to the six months ended June 30, 2014, interest expense decreased $0.1 million, or 7.5%. The decrease in both periods presented resulted primarily from a mix-shift away from higher-cost time deposits to demand deposits. Interest expense can fluctuate significantly based on the interest rate environment, behaviors of the Bank’s deposit customers and changes in the Company’s funding needs. Accordingly, there is no expectation that the decreases in interest expense experienced by the Company in both the three- and six-month periods ended June 30, 2015 will continue in future periods.

The provision for loan losses is an expense used to establish the allowance for loan losses. Actual loan losses, net of recoveries, are charged directly to the allowance for loan losses. The expense recorded each reporting period is a reflection of actual net losses experienced during the period and management’s judgment as to the adequacy of the allowance to absorb losses inherent in the portfolio as of the balance sheet date.

The following table presents the provision (reduction in reserve) for loan losses for the Bank and ALC for the three and six months ended June 30, 2015 and 2014.

At FUSB, a reduction in the reserve for loan losses was recorded during all periods presented. These reductions were due to improvement in the overall credit quality of the Bank’s loan portfolio, including declining historical loss rates used in the calculation of the allowance for loan losses, lower levels of nonperforming loans and reduced loan volumes. During the second quarter of 2015, the Bank experienced net recoveries of loans previously charged off totaling $15 thousand, compared with net charge-offs of $0.2 million during the second quarter of 2014. For the six months ended June 30, 2015, the Bank’s net charge-offs totaled $0.1 million, compared to $0.7 million for the six months ended June 30, 2014.

At ALC, the provision for loan losses increased during both the three and six months ended June 30, 2015, compared with the corresponding periods in 2014, as a result of significant loan growth during 2015, partially offset by improvement in the overall credit quality of ALC’s portfolio. Total loans, net of unearned interest, fees and deferred costs, increased by $9.2 million during the second quarter of 2015, compared with an increase of $2.6 million during the second quarter of 2014. For the six months ended June 30, 2015, total loans, net of unearned interest, fees and deferred costs, increased by $7.8 million, compared with $0.5 million for the six months ended June 30, 2014. ALC’s net charge-offs totaled $0.5 million during the second quarter of both 2015 and 2014. For the six months ended June 30, 2015, net charge-offs were $1.0 million, compared with $1.1 million for the six months ended June 30, 2014.

Based on our evaluation, management believes that the allowance for loan losses for the Company is adequate to absorb losses inherent in the loan portfolio as of June 30, 2015. While we believe that the methodologies and calculations that we use for estimating the allowance are adequate, our conclusions are based on estimates and judgments and are, therefore, approximate and imprecise. Factors beyond our control, such as changes in economic conditions impacting the national economy or the local service areas in which we operate, may negatively and materially affect asset quality and the adequacy of the allowance for loan losses, as well as the resulting provision for loan losses. Furthermore, the reductions in the reserve for loan losses recorded by the Bank in 2015 and 2014 are not expected to continue at any significant level on an ongoing basis.

Non-interest income represents fees and income derived from sources other than interest-earning assets. The following table presents the major components of non-interest income for the periods indicated. Expanded discussion of certain significant non-interest income items and fluctuations is provided below the table.

	Three Months Ended June 30,										Six Months Ended June 30,
	2015		2014		$ Change			% Change			2015		2014		$ Change			% Change
	(Dollars in Thousands)										(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	472	$	491	$	(19	)		(3.9	)%	$	926	$	991	$	(65	)		(6.6	)%
Credit insurance commissions and fees		114		93		21			22.6	%		189		233		(44	)		(18.9	)%
Bank-owned life insurance		104		105		(1	)		(0.1	)%		208		209		(1	)		(0.5	)%
Other income		378		796		(418	)		(52.5	)%		1,036		1,199		(163	)		(13.6	)%
Total non-interest income	$	1,068	$	1,485	$	(417	)		(28.1	)%	$	2,359	$	2,632	$	(273	)		(0.4	)%

Service charges and other fees are generated on deposit accounts held at FUSB. The decrease in this category of non-interest income in both the second quarter of 2015 and the six months ended June 30, 2015, compared with the corresponding periods in 2014, resulted primarily from decreased fees generated from customer overdrafts and non-sufficient funds charges. Revenues from these sources have generally declined in recent years. Management continues to search for new sources of fee income from new financial services and products; however, income from non-sufficient funds and overdraft charges are not expected to increase at a significant rate in the near future.

Credit insurance commissions and fees are generated from credit life and credit accident and health insurance policies offered at both the Bank and ALC to consumer loan customers through FUSB Reinsurance. The majority of these sales have historically been generated at ALC. The increase in revenues during the three-month period ended June 30, 2015, as compared with the same period in 2014, resulted from significant increases in loan volume and activity at ALC during the second quarter. In general, however, revenues from this category of non-interest income have declined in recent years as ALC management has shifted the loan portfolio mix to loans of higher credit quality. This mix-shift has resulted in increased levels of borrowers that generally do not have a significant need for credit insurance products. The overall reduction of credit insurance revenues during the six months ended June 30, 2015, compared with the same period in 2014, is consistent with this general trend. ALC management continues to search for new sources of non-interest income; however, income from credit insurance commissions and fees is not expected to increase at a significant rate for the foreseeable future.

The Bank utilizes bank-owned life insurance as a tool to offset the cost of certain retirement benefit programs. The income derived from bank-owned life insurance represents the increase in the cash surrender value of the policies (which is generally non-taxable) over the periods presented. The cash surrender value of the policies totaled $14.1 million and $14.0 as of June 30, 2015 and December 31, 2014, respectively. The insurance policies are adjustable rate assets with minimum guaranteed rates of interest between 2% and 4%. Accordingly, management does not expect significant fluctuation in the income derived from these assets.

Other non-interest income primarily consists of fee income generated by the Bank for ancillary services, such as letters of credit, ATMs, debit and credit cards, wire transfers, real estate rental and realized gains on the sale of investment securities. In addition, other income is generated at ALC for services including ALC’s auto club membership program, which provides services to members such as emergency road side assistance, lock and key services and emergency travel expenses. The decrease in this category of non-interest income during both the three and six months ended June 30, 2015, as compared to the corresponding periods in 2014, resulted primarily from two transactions that took place during the second quarter of 2014 that were not repeated during 2015. These transactions, which resulted in non-recurring gains of approximately $0.5 million during the second quarter of 2014, included the dissolution of one of the Bank’s limited partnership investments and a reimbursement from a vendor related to a discontinued product.

These reductions were partially offset by increased realized gains on the sale of investment securities, which increased by $0.1 million and $0.3 million, respectively, comparing the three- and six-month periods ended June 30, 2015 to the corresponding periods in 2014. Given the nature of the types of revenues categorized as other income, there is uncertainty as to the level of revenue that will be derived from these sources in the future.

Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods indicated. Expanded discussion of certain significant non-interest expense items and fluctuations is provided below the tables.

	Three Months Ended June 30,										Six Months Ended June 30,
	2015		2014		$ Change			% Change			2015		2014		$ Change			% Change
	(Dollars in Thousands)										(Dollars in Thousands)
Salaries and employee benefits	$	4,215	$	4,141	$	74			1.8	%	$	8,407	$	8,223	$	184			2.2	%
Net occupancy and equipment expense		780		775		5			0.6	%		1,603		1,590		13			0.8	%
Other real estate/foreclosure expense:
Write-downs, net of gain or loss on sale		231		183		48			26.2	%		311		148		163			110.1	%
Carrying costs		116		142		(26	)		(18.3	)%		256		277		(21	)		(7.6	)%
Total other real estate/foreclosure expense		347		325		22			6.8	%		567		425		142			33.4	%
FDIC insurance assessments		105		189		(84	)		(44.4	)%		225		367		(142	)		(38.7	)%
Other		1,660		1,793		(133	)		(7.4	)%		3,282		3,502		(220	)		(6.3	)%
Total non-interest expense	$	7,107	$	7,223	$	(116	)		(1.6	)%	$	14,084	$	14,107	$	(23	)		(0.2	)%

Salaries and employee benefits expense, the largest category of non-interest expense, totaled $2.7 million at the Bank and $1.5 million at ALC for the second quarter of 2015, as compared with $2.6 million at the Bank and $1.5 million at ALC during the second quarter of 2014. For the six-month period ended June 30, 2015, salaries and benefits expense totaled $5.4 million at the Bank and $3.0 million at ALC, compared with $5.2 million at the Bank and $3.0 million at ALC for the six months ended June 30, 2014. The expense amounts for the Bank are inclusive of salaries and benefits paid to certain members of management and employees for work performed on behalf of USBI, as well as current and deferred fees paid to members of the Bank’s and USBI’s Board of Directors. Management remains committed to providing salaries and benefits packages to employees at competitive levels in order to ensure that we continue to provide quality service to our customers. Accordingly, we expect salaries and employee benefits expense to generally increase commensurate with market-based increases over time.

This category of non-interest expense includes expenses associated with depreciation of buildings, equipment and furniture and fixtures, rent of office space, utilities expense and maintenance and repair costs. The majority of the Bank’s office space is owned, while the majority of ALC’s office space is leased. The modest increase in this category, comparing both the three- and six-month periods ended June 30, 2015 with the corresponding periods of 2014, resulted primarily from increased rents at ALC. Occupancy and equipment expense is expected to increase over time as the Company depreciates expenditures associated with capital and technological improvements. During the six months ended June 30, 2015, the Company recorded $1.9 million in additions to premises and equipment. These additions were primarily related to technological and capital improvements incurred at the Bank’s principal office in Thomasville, Alabama, and new branch location in Tuscaloosa, Alabama, as well as leasehold improvements at ALC’s new headquarters in Mobile, Alabama.

Other real estate / foreclosure expense includes both the cost of carrying OREO and write-downs of OREO. Cost of carrying OREO includes property taxes, attorneys’ fees, maintenance costs, security costs and the cost of obtaining independent property appraisals. Write-downs include impairments recorded on existing OREO properties in order to carry the property at the lower of cost or fair value, less estimated cost to sell. The table above presents write-downs netted with gains or losses recorded upon the sale of OREO properties.

Write-downs, net of gain or loss on sale, increased in both the second quarter of 2015 and the six months ended June 30, 2015, primarily due to gains on the sale of foreclosed property at the Bank in 2014 that were not repeated in 2015. At ALC, write-downs, net of gains and losses on sale of foreclosed property, were relatively consistent comparing the two periods.

Carrying costs associated with OREO decreased marginally, comparing both the three and six months ended June 30, 2015 with the corresponding periods of 2014, primarily as a result of reductions in legal costs associated with certain properties held in OREO by the Bank. OREO totaled $6.5 million and $0.7 million at FUSB and ALC, respectively, as of June 30, 2015, compared with $9.5 million and $0.8 million, respectively, as of June 30, 2014, a decrease of $3.1 million for the Company on a consolidated basis.

Although management continues efforts to work through problem assets and to sell OREO, there continues to be uncertainty with respect to economic conditions and real estate values in certain of the service areas in which both the Bank and ALC operate. If the national or local economy weakens, or if real estate values decline further in our primary service areas, additional write-downs of existing OREO could be required, and the level of migration of properties into OREO could increase, resulting in increased carrying cost.

The provision for income taxes was $0.3 million and $0.6 million for the three months ended June 30, 2015 and 2014, respectively. The effective tax rate was 28.7% for the second quarter of 2015, compared with 33.3% for the second quarter of 2014. For the six months ended June 30, 2015, the effective tax rate was 29.2%, compared with 30.7% for the six months ended June 30, 2014. The decrease in the effective tax rate during both the three and six months ended June 30, 2015 compared to the corresponding periods of 2014 was primarily due to changes in tax-exempt interest income. The Company’s effective tax rate is expected to fluctuate based on recurring items such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared with total pre-tax income.

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 2.9 years and 3.1 years as of June 30, 2015 and December 31, 2014, respectively.

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income, a separate component of shareholders’ equity. As of June 30, 2015, available-for-sale securities totaled $202.2 million, or 82.2% of the total investment portfolio, compared to $205.0 million, or 87.6% of the total investment portfolio, as of December 31, 2014. As of June 30, 2015, available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, obligations of U.S. government-sponsored agencies, obligations of state and political subdivisions and corporate notes.

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of June 30, 2015, held-to-maturity securities totaled $43.9 million, or 17.8% of the total investment portfolio, compared to $29.1 million, or 12.4% of the total investment portfolio, as of December 31, 2014. As of June 30, 2015, held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of state and political subdivisions.

Sales transactions affecting the Bank’s investment portfolio are directed by asset and liability management activities and strategies. Although short-term losses may occur from time to time, the “pruning” of the portfolio is designed to maintain the strength of the investment portfolio.

Net gains on the sale of available-for-sale securities of $0.1 million were recognized during the second quarter of 2015. No gains on the sale of available-for-sale securities were recognized during the second quarter of 2014. During the six months ended June 30,

2015, net gains on the sale of available-for-sale securities of $0.4 million were recognized, compared with $0.1 million for the six months ended June 30, 2014. There were no losses on sales of securities during the three or six months ended June 30, 2015 or 2014.

The tables below summarize loan balances by portfolio segment for both FUSB and ALC at the end of each of the past five quarters as of June 30, 2015.

	FUSB
	2015				2014
	June 30,		March 31,		December 31,		September 30,		June 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	12,363	$	10,137	$	10,431	$	9,813	$	10,223
Secured by 1-4 family residential properties		30,564		29,545		30,795		30,867		31,596
Secured by multi-family residential properties		17,163		18,837		20,403		20,459		20,459
Secured by non-farm, non-residential properties		81,621		86,982		104,883		112,512		119,574
Other		57		58		58		61		72
Commercial and industrial loans		18,198		17,897		16,838		18,216		17,385
Consumer loans		6,910		7,254		7,188		7,719		8,471
Other loans		786		775		579		403		976
Total loans	$	167,662	$	171,485	$	191,175	$	200,050	$	208,756
Less unearned interest, fees and deferred cost		191		174		189		116		122
Allowance for loan losses		2,449		2,880		3,486		4,789		5,036
Net loans	$	165,022	$	168,431	$	187,500	$	195,145	$	203,598

	ALC
	2015				2014
	June 30,		March 31,		December 31,		September 30,		June 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		19,129		20,209		21,309		22,668		24,168
Secured by multi-family residential properties		—	—			—		—		—
Secured by non-farm, non-residential properties		—	—			—		—		—
Other		—	—			—		—		—
Commercial and industrial loans		—	—			—		—		—
Consumer loans		73,342		61,321		61,833		57,508		53,766
Other loans		—	—			—		—		—
Total loans	$	92,471	$	81,530	$	83,142	$	80,176	$	77,934
Less unearned interest, fees and deferred cost		9,941		8,222		8,444		7,524		6,810
Allowance for loan losses		2,559		2,521		2,682		2,627		2,636
Net loans	$	79,971	$	70,787	$	72,016	$	70,025	$	68,488

Loan volume declined at FUSB during the three and six months ended June 30, 2015, as the Bank experienced payoffs and paydowns at a faster rate than generation of new loans. Loans, net of the allowance for loan losses, declined $3.4 million during the second quarter of 2015, and $22.5 million during the six months ended June 30, 2015. Of the decrease during the six month period, approximately $3.8 million related to the payoff of loans that were categorized within the special mention or substandard risk grade categories, and approximately $1.0 million represented loans that were transferred to OREO.

At ALC, loans, net of the allowance for loan losses, increased by approximately $9.2 million during the second quarter of 2015, and $8.0 million during the six months ended June 30, 2015. The increase during the second quarter was attributable to growth in point-of-sale consumer lending, as well as seasonality related to ALC’s traditional consumer lending portfolio, which typically experiences growth at a higher level during the second quarter of the year than the first quarter.

Although Bank and ALC management continues to focus on the generation of loans of appropriate credit quality, loan growth will remain a challenge. Continued reductions in loan volume could result in reductions in interest income and net income from the levels experienced during the three and six months ended June 30, 2015 and 2014.

The tables below summarize changes in the allowance for loan losses and certain asset quality ratios at the end of each of the most recent five quarters as of June 30, 2015 at both FUSB and ALC.

	FUSB
	2015						2014
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter
	(Dollars in Thousands)
Balance at beginning of period	$	2,880		$	3,486		$	4,789		$	5,036		$	5,523
Charge-offs:
Commercial and industrial		—		—				(8	)		(13	)		—
Commercial real estate		(28	)		(77	)		(430	)		(23	)		(270	)
Residential real estate		—			(40	)		(76	)		(21	)		(76	)
Consumer installment		(3	)		(11	)		(51	)		(80	)		(2	)
Total charge-offs		(31	)		(128	)		(565	)		(137	)		(348	)
Recoveries		45			47			132			439			187
Net recoveries (charge-offs)		14			(81	)		(433	)		302			(161	)
Provision (reduction in reserve) for loan losses		(445	)		(525	)		(870	)		(549	)		(326	)
Ending balance	$	2,449		$	2,880		$	3,486		$	4,789		$	5,036
as a % of loans		1.46	%		1.68	%		1.83	%		2.40	%		2.41	%

	ALC
	2015						2014
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter
	(Dollars in Thousands)
Balance at beginning of period	$	2,521		$	2,682		$	2,627		$	2,636		$	3,044
Charge-offs:
Commercial and industrial		—		—				—			—			—
Commercial real estate		—		—				—			—			—
Residential real estate		(63	)		(80	)		(139	)		(76	)		(38	)
Consumer installment		(573	)		(655	)		(673	)		(613	)		(654	)
Total charge-offs		(636	)		(735	)		(812	)		(689	)		(692	)
Recoveries		184			216			166			186			222
Net recoveries (charge-offs)		(452	)		(519	)		(646	)		(503	)		(470	)
Provision (reduction in reserve) for loan losses		490			358			701			494			62
Ending balance	$	2,559		$	2,521		$	2,682		$	2,627		$	2,636
as a % of loans		3.10	%		3.44	%		3.59	%		3.62	%		3.71	%

The decreases in the allowance for loan losses at both the Bank and ALC resulted from continued problem asset resolution by management during the three and six months ended June 30, 2015, and overall improvement in the credit quality of the loan portfolio, including lower levels of non-accrual loans. We believe that adding loans of sufficient credit quality to the loan portfolio at the Bank and ALC, along with continued efforts to reduce nonperforming loans, should result in continued reduction in the allowance for loan losses as a percentage of loans.

The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio and changes in its risk profile, credit concentrations, historical trends and economic conditions. Although management believes that the allowance for loan losses is adequate, taking into consideration the current economic environment and the amount of subjective judgment involved in the calculation, there can be no assurance that the allowance for loan losses is sufficient, and ultimate losses may vary from estimates. Factors beyond management’s control (such as conditions in the national economy, local real estate markets or industry conditions) may have a material adverse effect on our asset quality and the adequacy of the allowance for loan losses. Estimates are reviewed periodically. As adjustments become necessary, they are reported in earnings in the period in which they become known.

Nonperforming assets at the end of the five most recent quarters as of June 30, 2015 were as follows:

	Consolidated
	2015						2014
	June 30,			March 31,			December 31,			September 30,			June 30,
	(Dollars in Thousands)
Non-accrual loans	$	3,819		$	4,215		$	6,573		$	6,371		$	6,288
Other real estate owned		7,168			8,608			7,735			10,310			10,308
Total	$	10,987		$	12,823		$	14,308		$	16,681		$	16,596
Nonperforming assets as a percentage of loans and other real estate		4.27	%		5.06	%		5.23	%		5.90	%		5.72	%
Nonperforming assets as a percentage of total assets		1.96	%		2.27	%		2.50	%		2.96	%		2.91	%

	FUSB
	2015						2014
	June 30,			March 31,			December 31,			September 30,			June 30,
	(Dollars in Thousands)
Non-accrual loans	$	2,028		$	2,397		$	4,668		$	4,694		$	4,515
Other real estate owned		6,509			7,950			6,997			9,458			9,484
Total	$	8,537		$	10,347		$	11,665		$	14,152		$	13,999
Nonperforming assets as a percentage of loans and other real estate		4.91	%		5.78	%		5.89	%		6.76	%		6.42	%
Nonperforming assets as a percentage of total assets		1.52	%		1.80	%		2.06	%		2.51	%		2.45	%

	ALC
	2015						2014
	June 30,			March 31,			December 31,			September 30,			June 30,
	(Dollars in Thousands)
Non-accrual loans	$	1,791		$	1,818		$	1,905		$	1,677		$	1,773
Other real estate owned		659			658			738			852			824
Total	$	2,450		$	2,476		$	2,643		$	2,529		$	2,597
Nonperforming assets as a percentage of loans and other real estate		2.95	%		3.35	%		3.50	%		3.44	%		3.61	%
Nonperforming assets as a percentage of total assets		2.91	%		3.30	%		3.52	%		3.47	%		3.64	%

At FUSB, nonperforming assets were reduced by $1.8 million during the second quarter of 2015, and by $3.1 million during the six months ended June 30, 2015. These decreases were driven by management’s ongoing focus on problem asset resolution, which includes continued workout of problem loans, as well as the sale of properties in OREO.

At ALC, nonperforming assets declined $26 thousand during the second quarter of 2015, and by $0.2 million during the six months ended June 30, 2015. There continues to be a downward trend in the level of nonperforming assets at ALC, primarily as a result of efforts to monitor non-accruals and dispose of foreclosed properties in a timely manner, coupled with changes in origination criteria that have improved the average credit profile of ALC’s borrowers.

Total deposits decreased 2.6%, from $483.7 million as of December 31, 2014 to $471.1 million as of June 30, 2015. Core deposits, which exclude time deposits of $100,000 or more, provide for a relatively stable funding source that supports earning assets. Core deposits totaled $394.7 million, or 83.8% of total deposits, as of June 30, 2015, compared with $403.0 million, or 83.3% of total deposits, as of December 31, 2014.

Deposits, in particular core deposits, have historically been one of the Company’s primary sources of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that such deposits will continue to be one of the Company’s primary sources of funding in the future and is making efforts to ensure that an adequate level of

deposits is retained to fund the Company’s activities. However, various economic and competitive factors could affect this funding source in the future.

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase and FHLB advances. This category continues to be utilized as an alternative source of funds. During the second quarter of 2015, these borrowings represented 1.02% of average interest-bearing liabilities, compared with 1.03% in the second quarter of 2014.

As of June 30, 2015, shareholders’ equity totaled $75.8 million, or 13.5% of total assets, compared with $75.2 million, or 13.1% of total assets, as of December 31, 2014. The increase in shareholders’ equity during the six months ended June 30, 2015 resulted primarily from net income of $1.6 million, less dividends declared of $0.2 million, combined with the decrease of $0.9 million (net of tax) in accumulated other comprehensive income due to decreases in unrealized holding gains on available-for-sale investment securities, which are recorded at estimated fair value. The fair value of the available-for-sale portfolio fluctuates significantly based on changes in interest rates. Accordingly, the changes in unrealized gains during the first six months of 2015 are not necessarily indicative of future performance of the portfolio.

The Bank’s primary sources of funds are customer deposits, FHLB advances, repayments of loan principal and interest from loans and investments. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition, making them less predictable. The Bank manages the pricing of its deposits to maintain a desired deposit balance. In addition, the Bank invests in short-term interest-earning assets, which provide liquidity to meet lending requirements.

As of June 30, 2015, the Bank had up to $168.1 million in total borrowing capacity (subject to available collateral) from the FHLB and $18.8 million in established federal funds lines. As of December 31, 2014, the Bank had a total of $171.8 million in borrowing capacity (subject to available collateral) from the FHLB and $18.8 million in established federal funds lines. Of this capacity, the Bank had $5.0 million in outstanding borrowings as of both June 30, 2015 and December 31, 2014.

Effective as of the first quarter of 2015, the Bank is subject to the revised regulatory capital standards promulgated under the Basel III Final Rule. As of June 30, 2015, both the Bank’s common equity Tier 1 capital and the Tier 1 risk-based capital ratios were 23.53%. The Bank’s total capital ratio was 24.79%, and its Tier 1 leverage ratio was 12.93%. Each of these ratios is higher than the ratios required to be considered a “well-capitalized” institution under the revised framework.

Management is not aware of any condition that currently exists that would have an adverse effect on the liquidity, capital resources or operation of the Company. However, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. See Note 14 to Item 1, “Guarantees, Commitments and Contingencies,” for a discussion of such claims and legal actions.

The primary functions of asset and liability management are to (1) assure adequate liquidity, (2) maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities, (3) maximize the profit of the Company and (4) reduce risks to capital. Liquidity management involves the ability to meet day-to-day cash flow requirements of customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Bank would not be able to perform a primary function under its role as a financial intermediary and would not be able to meet the needs of the communities that it serves. Interest rate risk management focuses on the maturity structure and repricing characteristics of its assets and liabilities when changes occur in market interest rates. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable time frame, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.

The asset portion of the balance sheet provides liquidity primarily from two sources: (1) principal payments and maturities of loans and (2) maturities and principal payments from the investment portfolio. Other short-term investments, such as federal funds sold, may also provide additional sources of liquidity. Loans maturing or repricing in one year or less amounted to $79.4 million as of June 30, 2015 and $92.9 million as of December 31, 2014.

Investment securities forecasted to mature or reprice over the twelve months ending June 30, 2016 are estimated to be $14.9 million, or approximately 6.04% of the investment portfolio, as of June 30, 2015. For comparison, principal payments on investment securities totaled $24.0 million, or 9.72% of the investment portfolio, as of June 30, 2015.

Although the majority of the securities portfolio has legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. As of June 30, 2015, the investment securities portfolio had an estimated average maturity of 2.9 years, and approximately 82.8% of the portfolio (including both available-for-sale and held-to-maturity designations) was expected to be repaid within five years. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest bearing deposit accounts. Federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure.

As of June 30, 2015, the Company had up to $163.1 million in remaining unused credit from the FHLB (subject to available collateral). Additionally, the Company had $18.8 million of unused capacity in established federal funds lines as of both June 30, 2015 and December 31, 2014.

Interest rate sensitivity is a function of the repricing characteristics of all of the Company’s portfolio of assets and liabilities. These repricing characteristics are the time frames during which the interest-bearing assets and liabilities are subject to fluctuation based on changes in interest rates, either at replacement or maturity, during the life of the instruments. Measuring interest rate sensitivity is a function of the differences in the volume of assets and the volume of liabilities that are subject to repricing in future time periods. These differences are known as interest sensitivity gaps and are usually calculated for segments of time and on a cumulative basis.

The Company measures changes in net interest income and net interest margin on a monthly basis through income simulation over various interest rate shock scenarios, including plus or minus 1%, 2%, 3% and 4% scenarios. Each month, management evaluates how changes in short- and long-term interest rates may impact future profitability, as reflected in the Company’s net interest margin.

Also on a monthly basis, management calculates how changes in interest rates would impact the market value of the Company’s assets and liabilities, as well as its long-term profitability. The process is similar to assessing short-term risk but emphasizes and is measured over a five-year time period, which allows for a more comprehensive assessment of longer-term repricing and cash flow imbalances that may not be captured by short-term net interest margin simulations. The results of these calculations are representative of long-term interest rate risk, both in terms of changes in the present value of the Company’s assets and liabilities and long-term changes in core profitability.

USBI maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in USBI’s Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to USBI’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

USBI’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the USBI’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2015, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, USBI’s management concluded, as of June 30, 2015, that USBI’s disclosure controls and procedures are effective to ensure that the information required to be disclosed in USBI’s periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified.

There were no changes in USBI’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

See Note 14 to Item 1, “Guarantees, Commitments and Contingencies,” for information regarding certain litigation matters relating to the Company.

USBI and its subsidiaries also are parties to litigation other than as described in Note 14 to Item 1, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in USBI’s Annual Report on Form 10-K for the year ended December 31, 2014 that could materially affect the Company’s business, financial condition or future results. The risks described in USBI’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

The following table sets forth purchases made by or on behalf of USBI or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of USBI’s common stock during the second quarter of 2015.

The exhibits listed in the Index to Exhibits below are filed herewith and are incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

1. I have reviewed this quarterly report on Form 10-Q of United Security Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

1. I have reviewed this quarterly report on Form 10-Q of United Security Bancshares, Inc.;

I, James F. House, President and Chief Executive Officer of United Security Bancshares, Inc., and Thomas S. Elley, Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer of United Security Bancshares, Inc., certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of United Security Bancshares, Inc. for the fiscal quarter ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of United Security Bancshares, Inc.

Delaware	63-0843362
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

131 West Front Street Post Office Box 249 Thomasville, AL		36784
(Address of Principal Executive Offices)		(Zip Code)

Large accelerated filer	£	Accelerated filer	£

Non-accelerated filer	£ (Do not check if a smaller reporting company)	Smaller reporting company	S

Class		Outstanding at August 13, 2015
Common Stock, $0.01 par value		6,043,292 shares

		PAGE

	PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

Interim Condensed Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014		4

Interim Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)		5

Interim Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)		6

Interim Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited)		7

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)		8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47

ITEM 4.	CONTROLS AND PROCEDURES	48

	PART II. OTHER INFORMATION	50

ITEM 1.	LEGAL PROCEEDINGS	50

ITEM 1A.	RISK FACTORS	50

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50

ITEM 6.	EXHIBITS	50

Signature Page		51

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Maturing within one year	$	183	$	185	$	968	$	956
Maturing after one to five years		8,430		8,771		9,059		9,038
Maturing after five to ten years		118,477		118,776		33,902		33,635
Maturing after ten years		73,609		74,515		—		—
Total	$	200,699	$	202,247	$	43,929	$	43,629

	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	18,635	$	494	$	19,129
Consumer loans		72,045		1,297		73,342
Total	$	90,680	$	1,791	$	92,471

	Loans on Non-Accrual Status
	June 30, 2015		December 31, 2014
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	345	$	956
Secured by 1-4 family residential properties		1,137		1,277
Secured by non-farm, non-residential properties		845		2,314
Commercial and industrial loans		119		139
Consumer loans		1,372		140
Total loans	$	3,818	$	4,826

	June 30, 2015
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	3,081	$	20	$	22
Secured by 1-4 family residential properties		193		—		—
Secured by multi-family residential properties		4,997		72		63
Secured by non-farm, non-residential properties		9,138		289		279
Commercial and industrial		153		14		13
Total	$	17,562	$	395	$	377

	Fair Value Measurements as of December 31, 2014 Using
	Totals At December 31, 2014		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Impaired loans	$	1,456	$	—	$	—	$	1,456
OREO		7,735		—		—		7,735

	Level 3 Significant Unobservable Input Assumptions
	Fair Value June 30, 2015		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs (Weighted Average)
	(Dollars in Thousands)
Non-recurring fair value measurements:

Impaired loans	$	3,988	Multiple data points, including discount to appraised value of collateral based on recent market activity	Appraisal comparability adjustment (discount)	9% - 10% (9.0%)

OREO	$	7,168	Discount to appraised value of property based on recent market activity for sales of similar properties	Appraisal comparability adjustment (discount)	9% - 10% (9.0%)


Note A	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. At FUSB, these loans averaged $2.0 million and $5.5 million for the three months ended June 30, 2015 and 2014, respectively. At ALC, these loans averaged $0.7 million and $0.3 million for the respective periods presented.

Note B	—	Loan fees are included in the interest amounts presented. At FUSB, loan fees totaled $0.1 million for both periods presented. At ALC, loan fees totaled $0.8 million for both periods presented.

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs⁽¹⁾		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Programs ⁽¹⁾
April 1 – April 30		5,505	⁽²⁾	$	8.29		—		242,303
May 1 – May 31		1,630	⁽²⁾	$	8.19		—		242,303
June 1 – June 30		—		$	—		—		242,303
Total		7,135		$	8.27		—		242,303

BY:		/s/ Thomas S. Elley
		Thomas S. Elley
		Its Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting
		Officer (Duly Authorized Officer and Principal Financial Officer)

Exhibit No.		Description

3.1		Certificate of Incorporation of United Security Bancshares, Inc., incorporated herein by reference to Exhibit 3(i) to Form 10-Q for the quarter ended September 30, 1999.

3.2		Amended and Restated Bylaws of United Security Bancshares, Inc., incorporated by reference to Exhibit 3(ii) to the Current Report on Form 8-K filed August 29, 2007.

3.2A		First Amendment to the Bylaws of United Security Bancshares, Inc., incorporated by reference to Exhibit 3(ii) to the Current Report on Form 8-K filed February 24, 2012.


31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive Data Files for the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.

By:		/s/ James F. House
		James F. House
		President and Chief Executive Officer

By:		/s/ Thomas S. Elley
		Thomas S. Elley
		Vice President, Treasurer and Assistant
		Secretary, Chief Financial Officer and
		Principal Accounting Officer