<SUBMISSION>
<ACCESSION-NUMBER>0001137547-02-000065
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>1
<PERIOD>20020331
<FILING-DATE>20020514
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>UNITED SECURITY BANCSHARES
<CIK>0001137547
<ASSIGNED-SIC>6021
<IRS-NUMBER>912112732
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-32897
<FILM-NUMBER>02644454
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1525 E SHAW AVENUE
<CITY>FRESO
<STATE>CA
<ZIP>93710
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1525 E SHAW AVENUE
<CITY>FRESNO
<STATE>CA
<ZIP>93710
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>e10q32002.htm
<TEXT>


<HTML>
<head>
<title>United Security Bancshares 10Q March 31, 2002
</title>
</head>
<BODY>

<FONT FACE="Times New Roman, Times, Serif" SIZE=3><a href="#toc2002">Click here for Table of Contents</a></font>

<hr size=4 noshade width=100%><BR>


<p align=center><font size=4><b>SECURITIES AND EXCHANGE COMMISSION</b></font><br>
WASHINGTON, D.C. 20549</p>

<p align=center><font size=4><b>FORM 10-Q</b></font></p>
<HR noshade width=20%><BR>
<p><font size=3><b>


&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[X]</b>&nbsp;QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002.</font></p><BR>
<p><font size=3>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>[&nbsp;&nbsp;&nbsp;]</b>&nbsp;TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;FOR THE TRANSITION PERIOD FROM _______ TO _______ .</font></p><BR>


<p align=center><font size=5><b><u>UNITED SECURITY BANCSHARES</u></b></font><BR>
<font size=2>(Exact name of registrant as specified in its charter)</font></p>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr align=center>
<td width=35%><u>CALIFORNIA</u></td>
<td width=30%>&nbsp;</td>
<td width=45%><u>91-2112732</u></td>
</tr>
<tr align=center>
<td>(State or other jurisdiction of</td>
<td>&nbsp;</td>
<td>(I.R.S. Employer</td>
</tr>
<tr align=center>
<td>incorporation or organization)</td>
<td>&nbsp;</td>
<td>Identification No.)</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr align=center>
<td width=35%><u>1525 East Shaw Ave., Fresno, California</u></td>
<td width=30%>&nbsp;</td>
<td width=45%><u>93710</u></td>
</tr>
<tr align=center>
<td>(Address of principal executive offices)</td>
<td>&nbsp;</td>
<td>(Zip Code)</td>
</tr>
</table>
<BR>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr>
<td width=28%>&nbsp;</td>
<td width=72%>Registrants telephone number, including area code<u>&nbsp;(559) 248-4943&nbsp;</u></td>
</tr>
</table>
<br><BR><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing for the past 90 days.
Yes&nbsp;<u>&nbsp;&nbsp;X&nbsp;&nbsp;</u> No&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate the number of
shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date. </FONT></P>

<table width=100% border=0 cellspacing=0 cellpadding=0>
<tr>
<td width=100% align=center><u>Common Stock, no par value</u></td>
</tr>
<tr>
<td align=center>(Title of Class)</td>
</tr>
<tr>
<td align=center>&nbsp;</td>
</tr>
<tr>
<td align=center>Shares outstanding as of April 30, 2002:&nbsp;<u> 5,382,937&nbsp;</u></td>
</tr>
</table>
<BR><BR><BR><BR><BR>

<BR><BR><BR>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<BR>

<a name="toc2002"></a>
<p align=center><font size=3><b>UNITED SECURITY BANCSHARES AND SUBSIDIARIES<BR>
QUARTERLY REPORT ON FORM 10Q FOR THE PERIOD ENDED<BR>MARCH 31, 2002<BR><BR>
TABLE OF CONTENTS</B></font></p>
<HR noshade width=100%>

<!-- Index table begins here 4 columns -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 border=0>
<tr>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=6%>&nbsp;</TD>
<TD WIDTH=61%>&nbsp;</td>
<td width=35% align=center><u>&nbsp;Page&nbsp;</u></td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<TD>&nbsp;</TD>
<TD colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Facing Page</font></TD>
<td align=center>&nbsp;1</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD colspan=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Table of Contents</font></TD>
<td align=center>&nbsp;2</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=2>PART I.&nbsp;&nbsp;Financial Information</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=2>Item 1.&nbsp;&nbsp;Financial Statements:</td>
<td>&nbsp;</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a003">Consolidated Balance Sheets</a></td>
<td align=center>3</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a004">Consolidated Statements of Income and Comprehensive Income</a></td>
<td align=center>4</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a005">Consolidated Statements of Changes in Shareholder's Equity</a></td>
<td align=center>5</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a006">Consolidated Statements of Cash Flows</a></td>
<td align=center>6</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a007">Notes to Consolidated Financial Statements</a></td>
<td align=center>7</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td>&nbsp;</td>
<td valign=top>Item 2.</td>
<td><a href="#a0013">Management's Discussion and Analysis of Financial Condition
and Results of Operations:</a></td>
<td>&nbsp;</td>
</tr>


<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a0014">Results of Operations</a></td>
<td align=center>14</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a0017">Financial Condition</a></td>
<td align=center>17</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a0023">Liquidity and Asset/Liability Management</a></td>
<td align=center>23</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a0024">Interest Rate Sensitivity and Market Risk</a></td>
<td align=center>24</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td><a href="#a0026">Regulatory Matters</a></td>
<td align=center>26</td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td colspan=2>PART II.&nbsp;&nbsp;<a href="#a0028">Other Information</a></td>
<td align=center>28</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td colspan=2><a href="#a0029">Signatures</a></td>
<td align=center>29</td>
</tr>
<tr>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</table>

<BR><BR><BR><BR>

<p align=center><font size=3>2</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">



<a name="a003"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Condition - Balance Sheets<BR>
March 31, 2002 (unaudited) and December 31, 2001</b></font></p>
<PRE>
                                                                          March 31,           December 31,
   (In thousands except shares)                                              2002                 2001
-----------------------------------------------------------------------------------------------------------
Assets
   Cash and due from banks                                                  $19,309              $15,945
   Federal funds sold and securities purchased
     under agreements to resell                                              10,725               13,310
                                                                     --------------------------------------
        Cash and cash equivalents                                            30,034               29,255
  Securities available for sale (Note 2)                                     74,738               63,365
  Securities held to maturity (Note 2)                                            0                    0
                                                                     --------------------------------------
     Total investment securities                                             74,738               63,365

   Loans and leases (Note 3)                                                340,157              336,287
     Unearned fees                                                             (575)                (667)
     Allowance for credit losses                                             (5,024)              (4,457)
                                                                     --------------------------------------
       Net loans                                                            334,558              331,163

   Accrued interest receivable                                                4,057                3,751
   Premises and equipment - net                                               2,916                3,057
   Other real estate owned                                                   10,165                5,390
   Intangible assets                                                          2,570                2,660
   Cash surrender value of life insurance                                     2,438                2,411
   Investment in limited partnership                                          2,737                2,772
   Deferred income taxes                                                      1,820                1,730
   Other assets                                                               6,443                5,374
                                                                     ---------------------------------------
Total assets                                                               $472,476             $450,928
                                                                     =======================================
Liabilities &amp; Shareholders' Equity:
Liabilities
   Deposits (Note 4)
     Noninterest bearing                                                    $70,393              $72,413
     Interest bearing                                                       311,582              296,238
                                                                     ---------------------------------------
        Total deposits                                                      381,975              368,651
   Federal funds purchased and securities sold
     under agreements to repurchase (Note 5)                                 35,400               27,500
   Other borrowings (Note 5)                                                    868                  916
   Accrued interest payable                                                     929                1,270
   Accounts payable and other liabilities                                     1,869                1,532
                                                                     ---------------------------------------
        Total liabilities                                                   421,041              399,869
Company obligated manditorily redeemable cumulative trust
  preferred securities of subsidiary trust holding solely junior
  subordinated debentures (Trust Preferred securities) (Note 6)              15,000               15,000

Commitments and Contingent Liabilities (Note 3)

Shareholders' Equity (Notes 7 and 10)
   Common  stock, no par value
       10,000,000 shares authorized, 5,382,937 and 5,397,298
          issued and outstanding, in 2002 and 2001, respectively             17,891               18,239
   Retained earnings                                                         19,391               18,582
   Unearned ESOP shares (Note 5)                                               (823)                (873)
Accumulated other comprehensive income                                          (24)                 111
                                                                     ---------------------------------------
          Total shareholders' equity                                         36,435               36,059
                                                                     ---------------------------------------
Total liabilities and shareholders' equity                                 $472,476             $450,928
                                                                     =======================================
      See notes to financial statements
</pre>

<BR><BR><BR>

<p align=center><font size=3>3</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a004"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Income and Comprehensive Income<BR>
Three Months Ended March 31, 2002 and 2001 (unaudited)</b></font></P>
<PRE>
   (In thousands except shares and EPS)                                      2002                 2001
------------------------------------------------------------------------------------------------------------
Interest Income:
   Loans, including fees                                                     $6,013               $6,835
   Investment securities - AFS - taxable                                        741                  713
   Investment securities - HTM - taxable                                          0                  152
   Investment securities - AFS - nontaxable                                      36                   40
   Federal funds sold and securities purchased
     under agreements to resell                                                  54                   53
                                                                     ---------------------------------------
        Total interest income                                                 6,844                7,793
Interest Expense:
   Interest on deposits                                                       2,194                2,941
   Interest on other borrowings                                                 519                  475
                                                                     ---------------------------------------
         Total interest expense                                               2,713                3,416
                                                                     ---------------------------------------
Net Interest Income Before
   Provision for Credit Losses                                                4,131                4,377
Provision for Credit Losses (Note 3)                                            620                  375
                                                                     ---------------------------------------
Net Interest Income                                                           3,511                4,002
Noninterest Income:
   Customer service fees                                                        953                  565
   Gain on sale of securities                                                     0                    1
   Gain on sale of other real estate owned                                        4                    0
   Gain on sale of fixed assets                                                   0                    8
   Other                                                                        362                   62
                                                                     ---------------------------------------
        Total noninterest income                                              1,319                  636
Noninterest Expense:
   Salaries and employee benefits                                             1,249                1,111
   Occupancy expense                                                            465                  423
   Data processing                                                              138                  123
   Professional fees                                                            197                   53
   Director fees                                                                 51                   48
   Amortization of intangibles                                                   90                   90
   Correspondent bank service charges                                            69                   47
   Other                                                                        436                  345
                                                                     ---------------------------------------
        Total noninterest expense                                             2,695                2,240
                                                                     ---------------------------------------
Income Before Taxes on Income                                                 2,135                2,398
Taxes on Income (Note 11)                                                       619                  885
                                                                     ---------------------------------------
Net Income                                                                   $1,516               $1,513
                                                                     =======================================
Other comprehensive income, net of tax:
 Unrealized (loss) gain on available for sale securities -
   net income tax (benefit) of $(90) and $50                                   (135)                  75
                                                                     ---------------------------------------
Comprehensive Income                                                         $1,381               $1,588
                                                                     =======================================
Net Income per common share (Note 9)
  Basic                                                                       $0.28                $0.28
                                                                     =======================================
  Diluted                                                                     $0.28                $0.27
                                                                     =======================================
Shares on which net income per common share
  were based (Note 9)
  Basic                                                                     5,387,206            5,430,274
                                                                     =======================================
  Diluted                                                                   5,487,304            5,577,221
                                                                     =======================================
     See notes to financial statements
</pre>

<BR><BR>

<p align=center><font size=3>4</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a005"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Shareholders' Equity<BR>
Periods Ended March 31, 2002</b></font></p>

<PRE>
                                                Common stock   Common stock                           Accumulated
                                              ------------------------------                             Other
                                                  Number                    Retained     Unearned    Comprehensive
   (In thousands except shares)                 of Shares       Amount      Earnings    ESOP Shares   Income (Loss)    Total
--------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2001                         5,419,487      $19,178      $14,916       $(682)          $337        $33,749

 Director/Employee stock options exercised         34,842          313                                                    313
 Net changes in unrealized gain
  loss) on available for sale securities
  (net of income tax of $49,801 )                                                                           74             74
 Dividends on common stock ($0.115 per share)                                  (634)                                     (634)
 Unearned ESOP shares purchased                   (20,655)                                 (363)                         (363)
 Release of unearned ESOP shares                    3,244                                    56                            56
 Net Income                                                                   1,513                                     1,513
                                               ---------------------------------------------------------------------------------
Balance March 31, 2001 (unaudited)              5,436,918       19,491       15,795        (989)           411         34,708

 Director/Employee stock options exercised         69,988          493                                                    493
 Tax benefit of stock options exercised                            145                                                    145
 Net changes in unrealized gain
  (loss) on available for sale securities
  (net of income tax  benefit of $200,257 )                                                               (300)          (300)
 Dividends on common stock ($0.345 per share)                                (1,893)                                   (1,893)
 Repurchase and cancellation of common shares    (115,786)      (1,884)                                                (1,884)
 Unearned ESOP shares purchased                    (2,530)                                  (36)                          (36)
 Release of unearned ESOP shares                    8,708           (6)                     152                           146
 Net Income                                                                   4,680                                     4,680
                                               ---------------------------------------------------------------------------------
Balance December 31, 2001                       5,397,298       18,239       18,582        (873)           111         36,059

 Director/Employee stock options exercised          5,500           33                                                     33
 Tax benefit of stock options exercised                              2                                                      2
 Net changes in unrealized gain
  (loss) on available for sale securities
  (net of income tax benefit of $89,850)                                                                  (135)          (135)
 Dividends on common stock ($0.13 per share)                                   (707)                                     (707)
 Repurchase and cancellation of common shares     (22,776)        (381)                                                  (381)
 Release of unearned ESOP shares                    2,915           (2)                      50                            48
 Net Income                                                                   1,516                                     1,516
                                               ---------------------------------------------------------------------------------
Balance March 31, 2002 (unaudited)              5,382,937      $17,891      $19,391       $(823)          $(24)       $36,435
                                               =================================================================================
  See notes to financial statements
</pre>

<BR><BR><BR>

<p align=center><font size=3>5</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">


<a name="a006"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>United Security Bancshares and Subsidiaries<BR>
Consolidated Statements of Cash Flows<BR>
Periods Ended March 31, 2002 and 2001 (unaudited)</b></font></p>
<PRE>
   (In thousands)                                                      2002                  2001
--------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
  Net income                                                          $1,516                $1,513
  Adjustments to reconcile net earnings to cash provided
   by operating activities:
     Provision for credit losses                                         620                   375
     Depreciation and amortization                                       310                   292
     Amortization (accretion) of investment securities                   135                    (8)
     Gain on sale of securities                                            0                    (1)
     Increase in accrued interest receivable                            (306)                  (98)
     Decrease in accrued interest payable                               (341)                  (78)
     Decrease in unearned fees                                           (92)                  (84)
     Increase in income taxes payable                                    617                   801
     Decrease in accounts payable and accrued liabilities               (360)                 (342)
     Write-down of other investments                                      40                     0
     Gain on sale of other real estate owned                              (4)                    0
     Gain on sale of assets                                                0                    (8)
     Increase in surrender value of life insurance                       (27)                  (28)
     Loss in limited partnership interest                                 57                    45
     Net increase in other assets                                       (996)                 (139)
                                                                   -------------------------------------
  Net cash provided by operating activities                            1,169                 2,240

Cash Flows From Investing Activities:
  Purchases of available-for-sale securities                         (17,364)              (20,691)
  Net purchase of FHLB/FRB and other bank stock                         (114)                 (580)
  Maturities and calls of available-for-sale securities                5,632                18,129
  Net increase in loans                                               (8,926)              (14,906)
  Proceeds from sales of other real estate owned                         257                     0
  Capital expenditures for premises and equipment                        (76)                  (83)
  Proceeds from sales of premises and equipment                            0                    23
                                                                   -------------------------------------
Net cash used in investing activities                                (20,591)              (18,108)

Cash Flows From Financing Activities:
  Net decrease in demand deposit and savings accounts                 (2,325)               (5,555)
  Net increase in certificates of deposit                             15,649                25,389
  Net decrease in federal funds purchased                                  0               (10,300)
  Net increase in repurchase agreements                                7,900                    88
  Director/Employee stock options exercised                               33                   313
  Repurchase and retirement of common stock                             (381)                    0
  Proceeds from ESOP borrowings                                            0                   360
  Repayment of ESOP borrowings                                           (49)                  (53)
  Purchase of unearned ESOP shares                                         0                  (363)
  Payment of dividends on common stock                                  (626)                 (548)
                                                                   -------------------------------------
Net cash provided by financing activities                             20,201                 9,331
                                                                   -------------------------------------
Net increase (decrease) in cash and cash equivalents                     779                (6,537)
Cash and cash equivalents at beginning of period                      29,255                19,176
                                                                   -------------------------------------
Cash and cash equivalents at end of period                           $30,034               $12,639
                                                                   =====================================
See notes to financial statements
</pre>

<BR><BR><BR>

<p align=center><font size=3>6</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<BR><BR>
<a name="a007"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<B><u>United Security Bancshares and Subsidiaries
 - Notes to Consolidated Financial Statements - (Unaudited)</u></b></font></p>

<P><font size=3><b><i>1. Summary of Significant Accounting and Reporting Policies</i></b></font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   The consolidated financial statements include the accounts of United Security Bancshares, Inc., and its wholly owned
   subsidiaries, United Security Bank and subsidiary (the "Bank"), and United Security Bancshares Capital Trust I (the "Trust"),
   (collectively the "Company"). Intercompany accounts and transactions have been eliminated in consolidation. In the following
   notes, references to the Bank are references to United Security Bank. References to the Company are references to United
   Security Bancshares, Inc. (including the Bank), except for periods prior to June 12, 2001, in which case, references to the
   Company are references to the Bank.</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   United Security Bancshares is a bank holding company, incorporated in the state of California for the purpose of acquiring all
   the capital stock of the Bank through a holding company reorganization (the "Reorganization") of the Bank. The Reorganization,
   which was accounted for in a manner similar to a pooling of interests, was completed on June 12, 2001. Management believes the
   reorganization will provide the Company greater operating and financial flexibility and will permit expansion into a broader
   range of financial services and other business activities.</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   United Security Bancshares Capital Trust I, a subsidiary of United Security Bancshares, is a Delaware statutory business trust
   formed for the exclusive purpose of issuing and selling Trust Preferred Securities. The Trust was formed on June 28, 2001 (See
   Note 6. "Trust Preferred Securities").</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   USB Investment Trust Inc. was incorporated effective December 31, 2001 as a special purpose real estate investment trust
   ("REIT") under Maryland law. The REIT is a subsidiary of the Bank and was funded with $133.0 million in real estate-secured
   loans contributed by the Bank. USB Investment Trust will give the Bank flexibility in raising capital, and will reduce the
   expenses associated with holding the assets contributed to USB Investment Trust.</font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   These unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim
   financial information on a basis consistent with the accounting policies reflected in the audited financial statements of the
   Company included in its Annual Report on Form 10-K for the year ended December 31, 2001.  The consolidated financial statements
   of the Company for the periods prior to the Reorganization consist of those of the Bank. These interim financial statements do
   not include all of the information and footnotes required by generally accepted accounting principles for complete financial
   statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a
   fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the
   results that may be expected for any other interim period or for the year as a whole.</font></p>

<P><font size=3><b><i>2. Securities Available for Sale</i></b></font></p>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
   Following is a comparison of the amortized cost and approximate fair value of securities available for sale for the periods
   ended March 31, 2002 and December 31, 2001</font></p>

<PRE>
                                        ----------------------------------------------------------------
                                                            Gross           Gross         Fair Value
                                           Amortized      Unrealized      Unrealized      (Carrying
   (In thousands)                             Cost          Gains           Losses          Amount)
--------------------------------------------------------------------------------------------------------
March 31, 2002:
U.S. Government agencies                     $54,550         $273           $(211)         $54,612
U.S. Government agency
 collateralized mortgage obligations             102            0               0              102
Obligations of state and
 political subdivisions                        2,963           57              (5)           3,015
Other debt securities                         17,163            0            (154)          17,009
                                        ----------------------------------------------------------------
                                             $74,778         $330           $(370)         $74,738
                                        ================================================================
December 31, 2001:
U.S. Government agencies                     $42,341         $360            $(74)         $42,627
U.S. Government agency
 collateralized mortgage obligations             211            1              (2)             210
Obligations of state and
 political subdivisions                        3,464           72              (4)           3,532
Other debt securities                         17,164            0            (168)          16,996
                                        ----------------------------------------------------------------
                                             $63,180         $433           $(248)         $63,365
                                        ================================================================
</PRE>

<BR>

<p align=center><font size=3>7</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Included in other debt securities at March 31, 2002 and December 31, 2001, are a
short-term government securities mutual fund totaling $10.0 million, a CRA
qualified investment fund totaling $4.0 million, and Trust Preferred securities
pools totaling $3.2 million. The short-term government securities mutual fund
invests in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, with a maximum duration equal to that of a 3-year
U.S. Treasury Note. The principal strategy of the CRA qualified investment fund
is to invest in debt securities that will cause the shares of the fund to
qualify under the Community Reinvestment Act of 1977 (&#147;CRA&#148;) as CRA
qualified investments. Such investments may include U.S. Government agencies,
taxable municipal bonds, and certificates of deposit.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
There were no realized gains or losses on sales of available-for-sale securities
during the three-month period ended March 31, 2002. Realized gains on sale of
available-for-sale securities totaled $846 during the three months ended March
31, 2001.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The amortized cost and fair value of securities available for sale at March 31,
2002, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.</FONT></p>


<PRE>
                                                         March 31, 2002
                                                -------------------------------------
                                                 Amortized            Fair Value
  (In thousands)                                    Cost          (Carrying Amount)
-------------------------------------------------------------------------------------
Due in one year or less                           $10,166              $10,166
Due after one year through five years              41,458               41,482
Due after five years through ten years              5,225                5,292
Due after ten years                                17,827               17,696
Collateralized mortgage obligations                   102                  102
                                                -------------------------------------
                                                  $74,778              $74,738
                                                =====================================
</PRE>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed
paydowns.</font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
At March 31, 2002 and December 31, 2001, available-for-sale securities with an
amortized cost of approximately $55,973,000 and $43,833,000 (fair value of
$56,057,000 and $44,198,000) were pledged as collateral for public funds,
treasury tax and loan balances, and repurchase agreements.</FONT></p>

<P><font size=3><b><i>3. Loans</i></b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Loans include the following:</font></p>

<PRE>
                                             March 31,         December 31,
   (In thousands)                              2002                2001
-----------------------------------------------------------------------------
Commercial and industrial                    $102,957            $102,280
Real estate - mortgage                         95,074             111,425
Real estate - construction                    109,294              92,764
Agricultural                                   13,739              12,987
Installment/other                               8,618               6,647
Lease financing                                10,475              10,184
                                        -------------------------------------
Total Loans                                  $340,157            $336,287
                                        =====================================
</PRE>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company's loans are predominantly in the San Joaquin Valley, and the greater
Oakhurst/East Madera County area, although the Company does participate in loans
with other financial institutions, primarily in the state of California.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Commercial and industrial loans represent 30.3% of total loans at March 31, 2002 and have a
high degree of industry diversification. A substantial portion of the commercial
and industrial loans are secured by accounts receivable, inventory, leases or
other collateral including real estate. The remainder are unsecured; however,
extensions of credit are predicated upon the financial capacity of the borrower.
Repayment of commercial loans is generally from the cash flow of the borrower.</FONT></p>

<BR>

<p align=center><font size=3>8</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Real estate mortgage loans, representing 28.0% of total loans at March 31, 2002, are
secured by trust deeds on primarily commercial property. Repayment of real
estate mortgage loans is generally from the cash flow of the borrower.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Real estate construction loans, representing 32.1% of total loans at March 31, 2002,
consist of loans to residential contractors which are secured by single family
residential properties. All real estate loans have established equity
requirements. Repayment on construction loans is generally from long-term
mortgages with other lending institutions.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Agricultural loans represent 4.0% of total loans at March 31, 2002 and are generally secured
by land, equipment, inventory and receivables. Repayment is from the cash flow
of the borrower.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Lease financing loans, representing 3.1% of total loans at March 31, 2002, consist of
loans to small businesses which are secured by commercial equipment. Repayment
of the lease obligation is from the cash flow of the borrower.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Loans over 90 days past due and still accruing interest totaled $848,000 at March 31,
2002. There were no loans over 90 days past due and still accruing interest at
December 31, 2001. Nonaccrual loans totaled $7.3 million and $13.0 million at
March 31, 2002 and December 31, 2001, respectively.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
An analysis of changes in the allowance for credit losses is as follows:</font></p>

<PRE>
                                                March 31,      December 31,      March 31,
   (In thousands)                                 2002             2001            2001
--------------------------------------------------------------------------------------------
Balance, beginning of year                      $4,457            $3,773          $3,773
Provision charged to operations                    620             1,733             375
Losses charged to allowance                        (67)           (1,076)           (398)
Recoveries on loans previously charged off          14                27               7
                                              ----------------------------------------------
Balance at end-of-period                        $5,024            $4,457          $3,757
                                              ==============================================
</pre>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The allowance for credit losses represents management's estimate of the risk
inherent in the loan portfolio based on the current economic conditions,
collateral values and economic prospects of the borrowers. Significant changes
in these estimates might be required in the event of a downturn in the economy
and/or the real estate market in the San Joaquin Valley, and the greater
Oakhurst and East Madera County area.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
At March 31, 2002 and 2001, the Company's recorded investment in loans for which
impairment has been recognized totaled $7.3 million and $3.9 million. Included
in this amount is $1.2 million and $385,000 of impaired loans for which the
related specific allowance is $98,000 and $289,000, as well as $6.1 million and
$3.5 million of impaired loans that as a result of write-downs or the fair value
of the collateral, did not have a specific allowance. The average recorded
investment in impaired loans was $10.8 million and $3.8 million for the
three-month periods ended March 31, 2002 and 2001, respectively. At December 31,
2001, the Company's recorded investment in loans for which impairment has been
recognized totaled $13.1 million. Included in this amount is $1.3 million of
impaired loans for which the related specific allowance is $115,000, as well as
$11.8 million of impaired loans that as a result of write-downs or the fair
value of the collateral did not have a specific allowance. The average recorded
investment in impaired loans was $5.7 for the year ended December 31, 2001. In
most cases, the Company uses the cash basis method of income recognition for
impaired loans. In the case of certain troubled debt restructuring for which the
loan is performing under the current contractual terms, income is recognized
under the accrual method. For the three months ended March 31, 2002 and 2001,
the Company recognized no income on such loans. For the year ended December 31,
2001, the Company recognized $23,000 on such loans.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
In the normal course of business, the Company is party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. At
March 31, 2002 and December 31, 2001 these financial instruments include
commitments to extend credit of $106.7 million and $108.1 million, respectively,
and standby letters of credit of $6.4 million and $6.3 million, respectively.
These instruments involve elements of credit risk in excess of the amount
recognized on the balance sheet. The contract amounts of these instruments
reflect the extent of the involvement the bank has in off-balance sheet
financial instruments.</FONT></p>

<BR>

<p align=center><font size=3>9</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company&#146;s exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies as it does for
on-balance-sheet instruments.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
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. Substantially all of
these commitments are at floating interest rates based on prime. Commitments
generally have fixed expiration dates. The Company evaluates each customer's
creditworthiness on a case by case basis. The amount of collateral obtained, if
deemed necessary, is based on management's credit evaluation. Collateral held
varies but includes accounts receivable, inventory, leases, property, plant and
equipment, residential real estate and income-producing properties.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Standby letters of credit are generally unsecured and are issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.</FONT></p>

<P><font size=3><b><i>4. Deposits</i></b></font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Deposits include the following:</font></p>
 <pre>
                                                  March 31,         December 31,
   (In thousands)                                   2002                2001
-------------------------------------------------------------------------------------
Noninterest bearing deposits                      $70,393             $72,413
Interest bearing deposits:
   NOW and money market accounts                   83,822              83,316
   Savings accounts                                19,072              19,883
   Time deposits:
      Under $100,000                               65,032              68,414
      $100,000 and over                           143,656             124,625
                                             ----------------------------------------
Total interest bearing deposits                   311,582             296,238
                                             ----------------------------------------
Total deposits                                   $381,975            $368,651
                                             ========================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At March 31, 2002, the
scheduled maturities of all certificates of deposit and other time deposits are
as follows: </FONT></P>

<PRE>
   (In thousands)
--------------------------------------------------------------------------------
One year or less                                                 $176,531
More than one year, but less than or equal to two years            28,739
More than two years, but less than or equal to three years          1,086
More than three years, but less than or equal to four years         1,922
More than four years, but less than or equal to five years            399
More than five years                                                   11
                                                             -------------------
                                                                 $208,688
                                                             ===================
</PRE>

<P><font size=3><b><i>5. Short-term Borrowings/Other Borrowings</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
At March 31, 2002, the Company had collateralized and uncollateralized lines of credit
with aggregating $151.0 million, as well as FHLB lines of credit totaling $ 37.1
million. Advances on the FHLB lines of credit totaled $34.5 million at March 31,
2002. These lines of credit generally have interest rates tied to the Federal
Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR. FHLB
advances are collateralized by all of the Company&#146;s stock in the FHLB and
certain qualifying mortgage loans. All lines of credit are on an &#147;as
available&#148; basis and can be revoked by the grantor at any time.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company had collateralized and uncollateralized lines of credit with aggregating
$119.6 million, as well as repurchase agreement lines of credit totaling $5.3
million and FHLB lines of credit totaling $ 35.6 million at December 31, 2001.
As of that date, investment securities of $5.6 million (including accrued
interest) were pledged as collateral for repurchase agreements and $64.9 million
in real estate-secured loans were pledged as collateral for FHLB advances</FONT></p>

<BR>

<p align=center><font size=3>10</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The table below provides further detail of the Company's repurchase agreements and FHLB advances for the years ended March 31,
2002 and December 31, 2001:</font></p>

<PRE>
                                                             March 31,         December 31,
  (In thousands)                                               2002                2001
---------------------------------------------------------------------------------------------
Outstanding:
    Average for the period - Repos                             $883              $12,048
    Average for the period - FHLB advances                  $23,227              $19,255
    Maximum during the period - total borrowings            $35,400              $38,250
Interest rates:
    Average for the period - Repos                            1.96%                4.90%
    Average for the period - FHLB advances                    4.58%                4.79%
    Average at period end - Repos                              ---                 1.93%
    Average at period end - FHLB advances                     4.17%                4.66%
</PRE>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
On June 20, 2000, the Company&#146;s ESOP entered into an agreement with a
correspondent bank to establish a $1.0 million unsecured revolving line of
credit with a variable rate of prime plus 100 basis points and maturity of June
20, 2005. The loan is guaranteed by the Company. Advances on the line totaled
$868,000 at March 31, 2002.</FONT></p>

<P><font size=3><b><i>6. Trust Preferred Securities</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
On July 16, 2001, the Company&#146;s wholly owned special-purpose trust subsidiary,
United Security Bancshares Capital Trust I (the &#147;Trust&#148;) issued $15
million in cumulative Trust Preferred Securities. The securities bear a floating
rate of interest of 3.75% over the six month LIBOR rate, payable semi-annually.
Concurrent with the issuance of the Trust Preferred Securities, the Trust used
the proceeds from the Trust Preferred Securities offering to purchase a like
amount of Junior Subordinated Debentures of the Company. The Subordinated
Debentures are the sole assets of the Trust and are eliminated, along with the
related income statement effects, in the consolidated financial statements. The
Company will pay interest on the Junior Subordinated Debentures to the Trust,
which represents the sole revenues and sole source of dividend distributions to
the holders of the Trust Preferred Securities. The Company has the right,
assuming no default has occurred, to defer payments of interest on the Junior
Subordinated Debentures at any time for a period not to exceed 20 consecutive
quarters. The Trust Preferred Securities will mature on July 25, 2031, but can
be redeemed after July 25, 2006 at a premium, and can be redeemed after July 25,
2011 at par. The obligations of the Trust are fully and unconditionally
guaranteed, on a subordinated basis, by the Company.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Company received $14.5 million from the Trust upon issuance of the Junior
Subordinated Debentures, of which $13.7 million was contributed by the Company
to the Bank to increase its capital. Under applicable regulatory guidelines, the
Company expects that a portion of the Trust Preferred Securities will qualify as
Tier I Capital, and the remainder as Tier II Capital.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Issuance costs of $495,000 related to the Trust Preferred Securities have been deferred
and will be amortized over the 30-year life of the securities. Interest expense
on the Trust Preferred Securities totaled $234,000 and amortization expense
totaled $4,000 for the three months ended March 31, 2002.</FONT></p>


<P><font size=3><b><i>7. Regulatory Matters</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<u>Capital Guidelines</u> - The Company (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements adopted by the Board of Governors of the
Federal Reserve System (&#147;Board of Governors&#148;). Failure to meet minimum
capital requirements can initiate certain mandates and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company&#146;s consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.</FONT></p>

<BR>

<p align=center><font size=3>11</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Quantitative measures established by regulation to ensure capital adequacy require insured
institutions to maintain a minimum leverage ratio of Tier 1 capital (the sum of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, minus intangible assets,
identified losses and investments in certain subsidiaries, plus unrealized
losses or minus unrealized gains on available for sale securities) to total
assets. Institutions which have received the highest composite regulatory rating
and which are not experiencing or anticipating significant growth are required
to maintain a minimum leverage capital ratio of 3% Tier 1 capital to total
assets. All other institutions are required to maintain a minimum leverage
capital ratio of at least 100 to 200 basis points above the 3% minimum
requirement.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The Board of Governors has also adopted a statement of policy, supplementing its
leverage capital ratio requirements, which provides definitions of qualifying
total capital (consisting of Tier 1 capital and supplementary capital, including
the allowance for loan losses up to a maximum of 1.25% of risk-weighted assets)
and sets forth minimum risk-based capital ratios of capital to risk-weighted
assets. Insured institutions are required to maintain a ratio of qualifying
total capital to risk weighted assets of 8%, at least one-half of which must be
in the form of Tier 1 capital.</FONT></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The following table sets forth the Company's and the Bank's
actual capital positions at the periods presented:</font></p>
<pre>
                                                  March 31,      December 31,      March 31,
                                                    2002             2001             2001
-------------------------------------------------------------------------------------------------
Company:
  Total Capital (to Risk Weighted Assets)           13.17%          12.89%            N/A
  Tier I Capital (to Risk Weighted Assets)          11.03%          10.82%            N/A
  Tier I Capital (to Average Assets)                10.06%          10.20%            N/A

Bank:
  Total Capital (to Risk Weighted Assets)           12.57%          12.48%           10.74%
  Tier I Capital (to Risk Weighted Assets)          11.34%          11.38%            9.59%
  Tier I Capital (to Average Assets)                10.29%          10.67%            8.82%
</PRE>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
As of March 31, 2002 and December 31, 2001, the most recent notifications from the
Bank&#146;s regulators categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum total capital and Tier 1
capital (as defined) to risk-based assets (as defined), and a minimum leverage
ratio of Tier 1 capital to average assets (as defined) as set forth in the
proceeding discussion. There are no conditions or events since the notification
that management believes have changed the institution&#146;s category.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Management believes that, under regulatory guidelines, the $15 million in Trust Preferred
Securities issued in July of 2001 will qualify as Tier 1 capital up to 25% of
Tier 1 capital. Any additional portion of Trust Preferred Securities will
qualify as Tier 2 capital.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<u>Dividends</u> - Subsequent to the Reorganization on June 12, 2001, dividends paid to
shareholders will be paid by the bank holding company, subject to restrictions
set forth in the California General Corporation Law. The primary source of funds
with which dividends will be paid to shareholders will come from cash dividends
received by the Company from the Bank. Year-to-date as of March 31, 2001, the
Company has received $1,950,000 in cash dividends from the Bank, from which the
Company has declared or paid $1,332,000 in dividends to shareholders.</FONT></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
Under California state banking law, the Bank may not pay cash dividends in an amount
which exceeds the lesser of the retained earnings of the Bank or the Bank&#146;s
net income for the last three fiscal years (less the amount of distributions to
shareholders during that period of time). If the above test is not met, cash
dividends may only be paid with the prior approval of the California State
Department of Financial Institutions, in an amount not exceeding the greater of:
(i) the Bank&#146;s retained earnings; (ii) its net income for the last fiscal
year; or (iii) its net income for the current fiscal year. As of March 31, 2002,
approximately $6.5 million was available to the Bank for cash dividend
distributions without prior approval. Year-to-date, the Bank has paid dividends
of $1,950,000 to the Company.</FONT></p>

<BR>

<p align=center><font size=3>12</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><font size=3><b><i>8. Supplemental Cash Flow Disclosures</i></b></font></p>
<pre>
                                                     Three Months Ended March 31,
   (In thousands)                                      2002                2001
---------------------------------------------------------------------------------------
Cash paid during the period for:
  Interest                                            $3,055              $3,495
  Income Taxes                                             0                  84
Noncash investing activities:
  Loans transferred to foreclosed property             5,030                   0
  Dividends declared not paid                            705                 632
</PRE>

<P><font size=3><b><i>9. Net Income Per Share</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The following table provides a reconciliation of the numerator and the denominator
of the basic EPS computation with the numerator and the denominator of the
diluted EPS computation:</FONT></p>

<PRE>
                                                              Three Months Ended March 31,
   (In thousands except earnings per share data)                 2002               2001
--------------------------------------------------------------------------------------------
Net income available to common shareholders                     $1,516             $1,513
Weighted average shares issued                                   5,436              5,486
   Less: unearned ESOP shares                                      (49)               (56)
                                                             -------------------------------
Weighted average shares outstanding                              5,387              5,430
   Add: dilutive effect of stock options                           100                147
                                                             -------------------------------
Weighted average shares outstanding
   adjusted for potential dilution                               5,487              5,577
                                                             ===============================
Basic earnings per share                                         $0.28              $0.28
                                                             ===============================
Diluted earnings per share                                       $0.28              $0.27
                                                             ===============================
</PRE>

<P><font size=3><b><i>10. Common Stock Repurchase Plan</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
During August 2001, the Company&#146;s Board of Directors approved a plan to
repurchase, as conditions warrant, up to 280,000 shares of the Company&#146;s
common stock on the open market or in privately negotiated transactions. The
duration of the program is open-ended and the timing of the purchases will
depend on market conditions. During the three months ended March 31, 2002, the
Company repurchased 22,776 shares for a total of $381,000. During the year ended
December 31, 2001, the Company repurchased 115,786 shares for a total of $1.9
million. The repurchased shares were subsequently retired.</FONT></p>

<P><font size=3><b><i>11. Income Taxes</i></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The effective tax rate for the three months ended March 31, 2002 was 29.0% as
compared to 36.9% for the three months ended March 31, 2001 and 33.9% for the
year ended December 31. 2001. The decline in the Company&#146;s effective tax
rate during 2002, was primarily the result of the formation of USB Investment
Trust, Inc., as a subsidiary of the Bank during January of 2002. The subsidiary
was formed as a special purpose real estate investment trust (&#147;REIT&#148;)
under Maryland law.</FONT></p>

<BR>

<p align=center><font size=3>13</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a0013"></a>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations</b>
</font></p>
<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b><u>Overview</u></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><i>Certain matters discussed
or incorporated by reference in this Quarterly Report of Form 10-Q are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to, those described in Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations. Therefore, the information set
forth therein should be carefully considered when evaluating the business
prospects of the Company.</i></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On June 12, 2001, the
United Security Bank (the &#147;Bank&#148;) became the wholly owned subsidiary
of United Security Bancshares, Inc. (the &#147;Company&#148;) through a tax free
holding company reorganization, accounted for on a basis similar to the pooling
of interest method. In the transaction, each share of Bank stock was exchanged
for a share of Company stock on a one-to-one basis. No additional equity was
issued as part of this transaction. In the following discussion, references to
the Bank are references to United Security Bank. References to the Company are
references to United Security Bancshares, Inc. (including the Bank), except for
periods prior to June 12, 2001, in which case, references to the Company are
references to the Bank. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On June 28, 2001, United
Security Bancshares Capital Trust I (the &#147;Trust&#148;) was formed as a
Delaware business trust for the sole purpose of issuing Trust Preferred
securities. On July 16, 2001, the Trust completed the issuance of $15 million in
Trust Preferred securities, and concurrently, the Trust used the proceeds from
that offering to purchase Junior Subordinated Debentures of the Company. The
Company subsequently contributed $13.7 million of the $14.5 million in net
proceeds received from the Trust to the Bank to increase its regulatory capital. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company continues to
seek ways to better meet its customers' needs for financial services, expand
into new markets and compete in today's financial services environment. The
Company's strategy is to be a better low-cost provider of services to its
customer base while enlarging its market area and corresponding customer base to
further its ability to provide those services. The Company currently has seven
banking branches, which provide financial services in Fresno and Madera
counties. </FONT></P>
<a name="a0014"></a>
<b><u>Results of Operations</u></b><BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the three months ended
March 31, 2002, the Company reported net income of $1.516 million or $0.28 per
share ($0.28 diluted) as compared to $1.513 million or $0.28 per share ($0.27
diluted) for the three months ended March 31, 2001. The Company&#146;s return on
average assets was 1.36% for the three months ended March 31, 2002 as compared
to 1.73% for the same three-month period of 2001. The Bank&#146;s return on
average equity was 16.76% for the three months ended March 31, 2002 as compared
to 17.78% for the same three-month period of 2001. </FONT></P>

<b><i>Net Interest Income</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Net interest income, the
most significant component of earnings, is the difference between the interest
and fees received on earning assets and the interest paid on interest-bearing
liabilities. Earning assets consist primarily of loans, and to a lesser extent,
investments in securities issued by federal, state and local authorities, and
corporations. These earning assets are funded by a combination of
interest-bearing and noninterest-bearing liabilities, primarily customer
deposits and short-term and long-term borrowings. Net interest income before
provision for credit losses totaled $4.1 million for the three months ended
March 31, 2002, representing a decrease of $246,000 or 5.6% when compared to the
$4.4 million reported for the same three months of the previous year. The
decrease in net interest income between 2001 and 2002 is primarily the result of
a significant decline in market rates of interest, which was only partially
offset by growth in earning assets between these two three-month periods. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank's net interest
margin, as shown in Table 1, decreased to 4.07% at March 31, 2002 from 5.44% at
March 31, 2001, a decrease of 137 basis points (100 basis points = 1%) between
the two periods. Market rates of interest decreased significantly between the
three-month periods ended March 31, 2001 and 2002. The prime rate averaged 4.75%
for the three months ended March 31, 2002 as compared to 8.63% for the
comparative three months of 2001. </FONT></P>

<BR>

<p align=center><font size=3>14</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<u>Table 1. - Distribution of Average Assets, Liabilities and Shareholders' Equity:</u><BR>
Interest rates and Interest Differentials<BR>
Periods Ended March 31, 2002 and 2001
<PRE>
                                              ----------------------------------------------------------------------------
                                                             2002                                 2001
                                              ----------------------------------------------------------------------------
     (dollars in thousands)                     Average                 Yield/     Average                   Yield/
                                                Balance    Interest      Rate      Balance      Interest      Rate
--------------------------------------------------------------------------------------------------------------------------
Assets:
Interest-earning assets:
 Loans (1)                                    $336,801      $6,013       7.24%     $267,705      $6,835      10.35%
 Investment Securities - taxable                59,333         741       5.06%       51,275         865       6.84%
 Investment Securities - nontaxable (2)          3,035          36       4.81%        3,317          40       4.89%
 Federal funds sold  and reverse repos          12,644          54       1.73%        3,834          53       5.61%
                                              ----------------------------------------------------------------------------
       Total interest-earning assets           411,813      $6,844       6.74%      326,131      $7,793       9.69%
                                              ======================                =====================
Allowance for possible loan losses              (4,819)                              (3,735)
Noninterest-bearing assets:
 Cash and due from banks                        16,424                               12,286
 Premises and equipment, net                     3,014                                3,379
 Accrued interest receivable                     3,357                                3,297
 Other real estate owned                         7,156                                2,661
 Other assets                                   15,382                               11,574
                                              -------------                        -------------
       Total average assets                   $452,327                             $355,593
                                              =============                        =============
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
  NOW accounts                                 $25,855        $53         0.83%     $23,592        $101       1.74%
  Money market accounts                         59,707        312         2.12%      40,471         388       3.89%
  Savings accounts                              19,273         42         0.88%      17,630          93       2.14%
  Time deposits                                193,187      1,787         3.75%     155,257       2,359       6.16%
  Other borrowings                              25,308        281         4.50%      30,879         475       6.24%
  Trust Preferred securities                    15,000        238         6.43%           0           0       0.00%
                                              ----------------------------------------------------------------------------
       Total interest-bearing liabilities      338,330     $2,713         3.25%     267,829      $3,416       5.17%
                                              ======================               =======================
Noninterest-bearing liabilities:
  Noninterest-bearing checking                  75,062                               50,484
  Accrued interest payable                       1,020                                1,319
  Other liabilities                              1,226                                1,445
                                             -------------                         -------------
         Total Liabilities                     415,638                              321,077

Total shareholders' equity                      36,689                               34,516
                                              -------------                        -------------
    Total average liabilites and
        Shareholders' equity                  $452,327                             $355,593
                                              =============                        =============
Interest income as a percentage
     of average earning assets                                            6.74%                                9.69%
Interest expense as a percentage
     of average earning assets                                            2.67%                                4.25%
                                                                      -------------                        -------------
Net interest margin                                                       4.07%                                5.44%
                                                                      =============                        =============
</PRE>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=5% valign=top align=center><i>&nbsp;(1)</i></td>
<td width=90%><FONT FACE="times new roman, serif" SIZE=2>
<i>Loan amounts include nonaccrual loans, but the related interest income has been
included only if collected for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$324,000 and $347,000 for the three months ended March 31, 2002 and 2001,
respectively.</i></font></td>
<td width=5%>&nbsp;</td>
</tr>
<tr>
<td valign=top align=center><i>&nbsp;(2)</i></td>
<td><FONT FACE="times new roman, serif" SIZE=2>
<i>Applicable nontaxable securities yields have not been calculated on a
tax-equivalent basis because they are not material to the Company&#146;s results
of operations.</i></font></td>
<td>&nbsp;</td>
</tr>
</TABLE>

<BR>

<p align=center><font size=3>15</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Both the Company's net
interest income and net interest margin are affected by changes in the amount
and mix of interest-earning assets and interest-bearing liabilities, referred to
as &quot;volume change.&quot; Both are also affected by changes in yields on
interest-earning assets and rates paid on interest-bearing liabilities, referred
to as &quot;rate change&quot;. The following table sets forth the changes in
interest income and interest expense for each major category of interest-earning
asset and interest-bearing liability, and the amount of change attributable to
volume and rate changes for the periods indicated. </FONT></P>

<u>Table 2.  Rate and Volume Analysis</u>

<PRE>
                                                  Increase (decrease) in the three months ended
                                                    March 31, 2002 compared to March 31, 2001
                                                  -----------------------------------------------
   (In thousands)                                      Total           Rate          Volume
-------------------------------------------------------------------------------------------------
Increase (decrease) in interest income:
  Loans                                                $(822)       $(2,348)         $1,526
  Investment securities                                 (128)          (246)            118
  Federal funds sold and securities purchased
    under agreements to resell                             1            (56)             57
                                                  -----------------------------------------------
          Total interest income                         (949)        (2,650)          1,701

Increase (decrease) in interest expense:
  Interest-bearing demand accounts                      (124)          (257)            133
  Savings accounts                                       (51)           (59)              8
  Time deposits                                         (572)        (1,063)            491
  Other borrowings                                      (194)          (118)            (76)
  Trust Preferred securities                             238              0             238
                                                  -----------------------------------------------
          Total interest expense                        (703)        (1,497)            794
                                                  -----------------------------------------------
Increase in net interest income                        $(246)       $(1,153)           $907
                                                  ===============================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the three months ended
March 31, 2002, total interest income decreased approximately $949,000 or 12.2%
as compared to the three months ended March 31, 2001. The change is attributable
primarily to a substantial decrease in market rates of interest, which was only
partially offset by an increase in the overall volume of earning assets. Earning
asset growth was mostly in loans and, to a smaller degree, in investment
securities and federal funds sold. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the three months ended
March 31, 2002, total interest expense decreased approximately $703,000 or 20.6%
as compared to the three-month period ended March 31, 2001. While average
interest-bearing liabilities increased by $70.5 million between the three-month
periods ended March 31, 2002 and 2001, the average rate paid on those
liabilities declined by 192 basis points, which more than outweighed in the
increase in volume. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Provisions for credit
losses and the amount added to the allowance for credit losses is determined on
the basis of management's continuous credit review of the loan portfolio,
consideration of past loan loss experience, current and future economic
conditions, and other pertinent factors. Such factors consider the allowance for
credit losses to be adequate when it covers estimated losses inherent in the
loan portfolio. Based on the condition of the loan portfolio, management
believes the allowance is sufficient to cover risk elements in the loan
portfolio. For the three months ending March 31, 2002 the provision to the
allowance for credit losses amounted to $620,000 as compared to $375,000 for the
three months ended March 31, 2001. The amount provided to the allowance for
credit losses during the first three months brought the allowance to 1.48% of
net outstanding loan balances at March 31, 2002, as compared to 1.33% of net
outstanding loan balances at December 31, 2001, and 1.36% at March 31, 2001. </FONT></P>

<b><i>Noninterest Income</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Noninterest income consists
primarily of fees and commissions earned on services that are provided to the
Company&#146;s banking customers. Noninterest income for the three months ended
March 31, 2002 increased $683,000 when compared to the same period last year. An
increase in customer service fees accounted for $388,000 or more than half of
the increase in total noninterest income between the two three-month periods
presented, and is are attributable to growth in checking service charges, as
well as overdraft and ATM fee income. Increases in other noninterest income
accounted for another $300,000 of the total increase in noninterest income
between the two periods. Of the increase in other noninterest income, $249,000
is attributable to shared appreciation income on commercial real estate. </FONT></P>

<BR>

<p align=center><font size=3>16</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b><i>Noninterest Expense</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the amount and percentage changes in the categories presented for the
three months ended March 31, 2002 as compared to the three months ended March
31, 2001: </FONT></P>

<u>Table 3. Changes in Noninterest Expense</u>
<pre>
   (In thousands)                                   Amount            Percent
----------------------------------------------------------------------------------
Salaries and employee benefits                       $138              12.41%
Occupancy expense                                      42               9.83%
Data processing                                        15              12.51%
Professional fees                                     144             275.20%
Directors fees                                          3               7.11%
Amortization of intangibles                             0               0.00%
Correspondent bank service charges                     22               48.17%
Other                                                  91               25.87%
                                                   -------------------------------
    Total noninterest expense                        $455               20.31%
                                                   ===============================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Noninterest expense,
excluding provision for credit losses and income tax expense, totaled $2.7
million for the three months ended March 31, 2002 as compared to $2.2 million
for the same three-month period of 2001, representing an increase of $455,000 or
20.3% between the two periods. Increases in salaries and employee benefits were
the result of additional staff to support the Company&#146;s strategic long-term
growth objectives, as well as normal wage and benefit increases combined with
increased medical insurance costs incurred during the year. Professional fees
increased between the three-month periods presented as the result of additional
expenses incurred during 2002 for legal fees associated with impaired loans and
costs of forming the Bank&#146;s REIT subsidiary. </FONT></P>
<a name="a0017"></a>
<b><u>Financial Condition</u></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total assets increased to
$472.5 million at March 31, 2002, up from $368.0 million at the end of the same
period last year, and up from the balance of $450.9 million at December 31,
2001. Total deposits of $382.0 million at March 31, 2002 increased $90.3 million
or 30.9% from the balance reported at March 31, 2001, and increased $13.3
million or 3.6% from the balance of $368.7 million reported at December 31,
2001. Between December 31, 2001 and March 31, 2002, loan growth totaled $3.9
million, while securities and other short-term investments increased $8.8
million. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Earning assets averaged
approximately $411.8 million during the three months ended March 31, 2002, as
compared to $326.1 million for the same three-month period of 2001. Average
interest-bearing liabilities increased to $338.3 million for the three months
ended March 31, 2002, as compared to $267.8 million for the comparative
three-month period of 2001. </FONT></P>

<b><i>Loans</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's primary
business is that of acquiring deposits and making loans, with the loan portfolio
representing the largest and most important component of its earning assets.
Loans totaled $340.2 million at March 31, 2002, an increase of $3.9 million or
1.2% when compared to the balance of $336.3 million at December 31, 2001, and an
increase of $63.9 million or 23.1% when compared to the balance of $276.3
million reported at March 31, 2001. Loans on average rose 25.8% between the
three-month periods ended March 31, 2001 and March 31, 2002, with loans
averaging $336.8 million for the three months ended March 31, 2002, as compared
to $267.7 million for the same three-month period of 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During the first three
months of 2002, increases were experienced in all loan categories except real
estate mortgage loans. The following table sets forth the amounts of loans
outstanding by category at March 31, 2002 and December 31, 2001, the category
percentages as of those dates, and the net change between the two periods
presented. </FONT></P>

<BR>

<p align=center><font size=3>17</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<u>Table 4. Loans</u>

<PRE>
                                   March 31, 2002        December 31, 2001
                             -------------------------------------------------------------------------
                                 Dollar       % of       Dollar       % of         Net          %
   (In thousands)                Amount       Loans      Amount       Loans       Change      Change
------------------------------------------------------------------------------------------------------
Commercial and industrial       $102,957      30.3%     $102,280      30.4%       $677         0.66%
Real estate - mortgage            95,074      28.0%      111,425      33.1%    (16,351)      -14.67%
Real estate - construction       109,294      32.1%       92,764      27.6%     16,530        17.82%
Agricultural                      13,739       4.0%       12,987       3.9%        752         5.80%
Installment/other                  8,618       2.5%        6,647       2.0%      1,971        29.66%
Lease financing                   10,475       3.1%       10,184       3.0%        291         2.86%
                               -----------------------------------------------------------------------
  Total Loans                   $340,157     100.0%     $336,287     100.0%     $3,870         1.15%
                                 =====================================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The overall average yield
on the loan portfolio was 7.24% for the three months ended March 31, 2002 as
compared to 10.35% for the three months ended March 31, 2001, and decreased
between the two periods as the result of a significant decline in market rates
of interest between the two periods. At March 31, 2002, 65.4% of the Company's
loan portfolio consisted of floating rate instruments, as compared to 65.2% of
the portfolio at December 31, 2001, with the majority of those tied to the prime
rate. </FONT></P>

<b><i>Deposits</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Total deposits increased
during the period to a balance of $382.0 million at March 31, 2002 representing
an increase of $13.3 million or 3.6% from the balance of $368.7 million reported
at December 31, 2001, and an increase of $90.3 million or 31.0% from the balance
reported at March 31, 2001. During the first quarter of 2002, increases were
experienced primarily in time deposits greater than $100,000, with modest
declines in all other deposit categories except NOW and money market accounts.
The increase in time deposits is the result of additional brokered deposits
taken during the first three months of 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the amounts of deposits outstanding by category at March 31, 2002 and
December 31, 2001, and the net change between the two periods presented. </FONT></P>

<u>Table 5. Deposits</u>

<PRE>
                                          March 31,     December 31,       Net       Percentage
   (In thousands)                           2002            2001          Change       Change
-------------------------------------------------------------------------------------------------
Noninterest bearing deposits              $70,393         $72,413        $(2,020)       -2.79%
Interest bearing deposits:
  NOW and money market accounts            83,822          83,316            506         0.61%
  Savings accounts                         19,072          19,883           (811)       -4.08%
  Time deposits:
    Under $100,000                         65,032          68,414         (3,382)       -4.94%
    $100,000 and over                     143,656         124,625         19,031        15.27%
                                       ----------------------------------------------------------
Total interest bearing deposits           311,582         296,238         15,344         5.18%
                                       ----------------------------------------------------------
Total deposits                           $381,975        $368,651        $13,324         3.61%
                                       ==========================================================
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's deposit base
consists of two major components represented by noninterest-bearing (demand)
deposits and interest-bearing deposits. Interest-bearing deposits consist of
time certificates, NOW and money market accounts and savings deposits. Total
interest-bearing deposits increased $15.3 million or 5.18% between December 31,
2001 and March 31, 2002, while noninterest-bearing deposits decreased $2.0
million or 2.79% between the same two periods presented. Core deposits,
consisting of all deposits other than time deposits of $100,000 or more, and
brokered deposits, continue to provide the foundation for the Company's
principal sources of funding and liquidity. These core deposits amounted to
61.9% and 65.5% of the total deposit portfolio at March 31, 2002 and December
31, 2001, respectively. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>On a year-to-date average
(refer to Table 1), the Company experienced an increase of $85.7 million or
29.8% in total deposits between the three month periods ended March 31, 2001 and
March 31, 2002. Between these two periods, average interest-bearing deposits
increased $61.1 million or 25.8%, while total noninterest-bearing checking
increased $24.6 million or 48.7% on a year-to-date average basis. </FONT></P>

<BR>

<p align=center><font size=3>18</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<b><i>Short-term Borrowings</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company has the ability
to obtain borrowed funds consisting of federal funds purchased, securities sold
under agreements to repurchase (&#147;repurchase agreements&#148;) and Federal
Home Loan Bank (&#147;FHLB&#148;) advances as alternatives to retail deposit
funds. The Company has established collateralized and uncollateralized lines of
credit with several correspondent banks, as well as a securities dealer, for the
purpose of obtaining borrowed funds as needed. The Company may continue to
borrow funds in the future as part of its asset/liability strategy, and may use
these funds to acquire certain other assets as deemed appropriate by management
for investment purposes and to better utilize the capital resources of the Bank.
Federal funds purchased represent temporary overnight borrowings from
correspondent banks and are generally unsecured. Repurchase agreements are
collateralized by mortgage backed securities and securities of U.S. Government
agencies, and generally have maturities of one to six months, but may have
longer maturities if deemed appropriate as part of the Company&#146;s
asset/liability management strategy. FHLB advances are collateralized by all of
the Company&#146;s stock in the FHLB and certain qualifying mortgage loans. In
addition, the Company has the ability to obtain borrowings from the Federal
Reserve Bank of San Francisco, which would be collateralized by certain pledged
loans in the Company&#146;s loan portfolio. The lines of credit are subject to
periodic review of the Company&#146;s financial statements by the grantors of
the credit lines. Lines of credit may be modified or revoked at any time if the
grantors feel there are adverse trends in the Company&#146;s financial position. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company had
collateralized and uncollateralized lines of credit aggregating $151.0 million,
as well as FHLB lines of credit totaling $37.1 million at March 31, 2002. These
lines of credit generally have interest rates tied to the Federal Funds rate or
are indexed to short-term U.S. Treasury rates or LIBOR. FHLB advances are
collateralized by all of the Company&#146;s stock in the FHLB and certain
qualifying mortgage loans. All lines of credit are on an &#147;as
available&#148; basis and can be revoked by the grantor at any time. At March
31, 2002, the Company had advances on the FHLB line of credit totaling $35.4
million. The Company had collateralized and uncollateralized lines of credit
aggregating $119.6 million, as well as a repurchase agreement line of credit of
$5.3 million and FHLB lines of credit totaling $35.6 million at December 31,
2001. The Company had repurchase agreements of $5.3 million and FHLB advances of
$22.2 million outstanding at December 31, 2001. </FONT></P>

<b><i>Asset Quality and Allowance for Credit Losses</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Lending money is the
Company's principal business activity, and ensuring appropriate evaluation,
diversification, and control of credit risks is a primary management
responsibility. Implicit in lending activities is the fact that losses will be
experienced and that the amount of such losses will vary from time to time,
depending on the risk characteristics of the loan portfolio as affected by local
economic conditions and the financial experience of borrowers. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The allowance for credit
losses is maintained at a level deemed appropriate by management to provide for
known and inherent risks in existing loans and commitments to extend credit. The
adequacy of the allowance for credit losses is based upon management's
continuing assessment of various factors affecting the collectibility of loans
and commitments to extend credit; including current economic conditions, past
credit experience, collateral, and concentrations of credit. There is no precise
method of predicting specific losses or amounts which may ultimately be charged
off on particular segments of the loan portfolio. The conclusion that a loan may
become uncollectible, either in part or in whole, is judgmental and subject to
economic, environmental, and other conditions which cannot be predicted with
certainty. When determining the adequacy of the allowance for credit losses, the
Company follows the guidelines set forth in the Interagency Policy Statement on
the Allowance for Loan and Lease Losses (&#147;Statement&#148;) issued jointly
by banking regulators during July 2001. The Statement outlines
characteristics that should be used in segmentation of the loan portfolio for
purposes of the analysis including risk classification, past due status, type of
loan, industry or collateral. It also outlines factors to consider when
adjusting the loss factors for various segments of the loan portfolio.
Securities and Exchange Commission Staff Accounting Bulletin No. 102 was also
released at this time which represents the SEC staff&#146;s view relating to
methodologies and supporting documentation for the Allowance for Loan and Lease
Losses that should be observed by all public companies in complying with the
federal securities laws and the Commission&#146;s interpretations. It is also
generally consistent with the guidance published by the banking regulators. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company&#146;s
methodology for assessing the adequacy of the allowance for credit losses
consists of several key elements, which include: </FONT></P>
<ul>
<li>the formula allowance,<BR>
<li>specific allowances for problem graded loans ("classified loans")<BR>
<li>and the unallocated allowance
</ul>

<BR>

<p align=center><font size=3>19</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>In addition, the allowance
analysis also incorporates the results of measuring impaired loans as provided
in: </FONT></P>
<ul>
<li>Statement of Financial Accounting Standards ("SFAS") No. 114,<BR>
 "Accounting by Creditors for Impairment of a Loan" and<BR>
<li>SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures."
</ul>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The formula allowance is
calculated by applying loss factors to outstanding loans and certain unfunded
loan commitments. Loss factors are based on the Company&#146;s historical loss
experience and on the internal risk grade of those loans and, may be adjusted
for significant factors that, in management's judgment, affect the
collectability of the portfolio as of the evaluation date. Management determines
the loss factors for problem graded loans (substandard, doubtful, and loss),
special mention loans, and pass graded loans, based on a loss migration model.
The migration analysis incorporates loan losses over the past twelve quarters
(three years) and loss factors are adjusted to recognize and quantify the loss
exposure from changes in market conditions and trends in the Company&#146;s loan
portfolio. For purposes of this analysis, loans are grouped by internal risk
classifications which are &#147;pass&#148;, &#147;special mention&#148;,
&#147;substandard&#148;, &#147;doubtful&#148;, and &#147;loss&#148;. Certain
loans are homogenous in nature and are therefore pooled by risk grade. These
homogenous loans include consumer installment and home equity loans. Special
mention loans are currently performing but are potentially weak, as the borrower
has begun to exhibit deteriorating trends, which if not corrected, could
jeopardize repayment of the loan and result in further downgrade. Substandard
loans have well-defined weaknesses which, if not corrected, could jeopardize the
full satisfaction of the debt. A loan classified as &#147;doubtful&#148; has
critical weaknesses that make full collection of the obligation improbable.
Classified loans, as defined by the Company, include loans categorized as
substandard, doubtful, and loss. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Specific allowances are
established based on management&#146;s periodic evaluation of loss exposure
inherent in classified loans, impaired loans, and other loans in which
management believes there is a probability that a loss has been incurred in
excess of the amount determined by the application of the formula allowance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The unallocated portion of
the allowance is based upon management&#146;s evaluation of various conditions
that are not directly measured in the determination of the formula and specific
allowances. The conditions may include, but are not limited to, general economic
and business conditions affecting the key lending areas of the Company, credit
quality trends, collateral values, loan volumes and concentrations, and other
business conditions. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company&#146;s
methodology includes features that are intended to reduce the difference between
estimated and actual losses. The specific allowance portion of the analysis is
designed to be self-correcting by taking into account the current loan loss
experience based on that portion of the portfolio. By analyzing the probable
estimated losses inherent in the loan portfolio on a quarterly basis, management
is able to adjust specific and inherent loss estimates using the most recent
information available. In performing the periodic migration analysis, management
believes that historical loss factors used in the computation of the formula
allowance need to be adjusted to reflect current changes in market conditions
and trends in the Company&#146;s loan portfolio. There are a number of other
factors which are reviewed when determining adjustments in the historical loss
factors. They include 1) trends in delinquent and nonaccrual loans, 2) trends in
loan volume and terms, 3) effects of changes in lending policies, 4)
concentrations of credit, 5) competition, 6) national and local economic trends
and conditions, 7) experience of lending staff, 8) loan review and Board of
Directors oversight, and 9) other business conditions. During the first quarter
of 2002, there were no changes in estimation methods or assumptions that
affected the methodology for assessing the adequacy of the allowance for credit
losses. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Management and the
Company&#146;s lending officers evaluate the loss exposure of classified and
impaired loans on a weekly/monthly basis and through discussions and officer
meetings as conditions change. The Company&#146;s Loan Committee meets weekly
and serves as a forum to discuss specific problem assets that pose significant
concerns to the Company, and to keep the Board of Directors informed through
committee minutes. All special mention and classified loans are reported
quarterly on Criticized Asset Reports which are reviewed by senior management.
With this information, the migration analysis and the impaired loan analysis are
performed on a quarterly basis and adjustments are made to the allowance as
deemed necessary. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Impaired loans are measured
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent. The amount of impaired loans is not directly comparable
to the amount of nonperforming loans disclosed later in this section. The
primary differences between impaired loans and nonperforming loans are: i) all
loan categories are considered in determining nonperforming loans while impaired
loan recognition is limited to commercial and industrial loans, commercial and
residential real estate loans, construction loans, and agricultural loans, and
ii) impaired loan recognition considers not only loans 90 days or more past due,
restructured loans and nonaccrual loans but also may include problem loans other
than delinquent loans. </FONT></P>

<BR>

<p align=center><font size=3>20</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company considers a
loan to be impaired when, based upon current information and events, it believes
it is probable the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans include
nonaccrual loans, restructured debt, and performing loans in which full payment
of principal or interest is not expected. Management bases the measurement of
these impaired loans on the fair value of the loan's collateral or the expected
cash flows on the loans discounted at the loan's stated interest rates. Cash
receipts on impaired loans not performing to contractual terms and that are on
nonaccrual status are used to reduce principal balances. Impairment losses are
included in the allowance for credit losses through a charge to the provision,
if applicable. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>At March 31, 2002 and 2001,
the Company's recorded investment in loans for which impairment has been
recognized totaled $7.3 million and $3.9 million, respectively. Included in
total impaired loans at March 31, 2002, is $1.2 million of impaired loans for
which the related specific allowance is $98,000, as well as $6.1 million of
impaired loans that as a result of write-downs or the fair value of the
collateral, did not have a specific allowance. Total impaired loans at March 31,
2001 included $385,000 of impaired loans for which the related specific
allowance is $289,000, as well as $3.5 million of impaired loans that as a
result of write-downs or the fair value of the collateral, did not have a
specific allowance. The average recorded investment in impaired loans was $10.8
million during the first three months of 2002, and $3.8 million during the first
three months of 2001. In most cases, the Bank uses the cash basis method of
income recognition for impaired loans. In the case of certain troubled debt
restructuring for which the loan is performing under the current contractual
terms, income is recognized under the accrual method. For the three months ended
March 31, 2002 and 2001, the Bank recognized no income on such loans. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Other factors that continue
to gain management&#146;s attention are competition in the Company&#146;s market
area and economic conditions, which may ultimately affect the risk assessment of
the portfolio. The Company has experienced increased competition from major
banks, local independents and non-bank institutions creating pressure on loan
pricing. After the Federal Reserve raised interest rates 75 basis points during
1999 and an additional 100 basis points by mid-2000, the domestic economy began
to slow in the third quarter, and stall during the fourth quarter of 2000. As a
result, the Federal Reserve began to cut interest rates in the first week of
January 2001, and by December 31, 2001, had reduced interest rates by an
unprecedented 475 basis points. We have gone from what was possibly considered
the longest economic expansion in recent U.S. history, to what many refer to as
a recession in just a few short months, with increasing energy costs, declining
consumer confidence, and job layoffs at major corporations across the country.
With recent events at the World Trade Center, and expanding conflict in the
Middle East, it is difficult to determine what continued impact these changes
will have on consumer confidence and the domestic economy or whether the Federal
Reserve will continue to adjust interest rates in an effort to control the
economy. It is likely that the business environment in California will continue
to be influenced by these domestic as well as global events, although the
overall economy of California has generally improved over the past several
years. San Francisco, the Silicon Valley, and adjacent areas continue to feel
the effect of the high-tech decline as occupancy rates drop, along with rental
rates of available commercial office space. Occupancy rates for commercial real
estate in other parts of the state may also suffer as a result of the drag on
the economy. The local economy has been impacted to some degree over the past
several years by such things as decreased exports and adverse weather patterns,
which has increased worries about the future economic trends in the state. Local
unemployment rates, as well as foreclosures in Fresno and Madera counties have
increased during the past several years and persist to the current time. Despite
the Central Valley's traditionally high unemployment, it is anticipated that the
Central San Joaquin Valley will continue to grow and diversify as property and
housing costs remain reasonable relative to other areas of the state, although
this growth may begin to slow as the Federal Reserve seeks to control what it
perceives as a potential recession in the economy. Management recognizes
increased risk of loss due to the Company's exposure from local and worldwide
economic conditions, as well as soft real estate markets, and takes these
factors into consideration when analyzing the adequacy of the allowance for
credit losses. </FONT></P>

<BR>

<p align=center><font size=3>21</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table
provides a summary of the Company's allowance for possible credit losses,
provisions made to that allowance, and charge-off and recovery activity
affecting the allowance for the periods indicated. </FONT></P>

<u>Table 6. Allowance for Credit Losses - Summary of Activity (unaudited)</u>
<pre>
                                                            March 31,         March 31,
  (In thousands)                                               2002              2001
------------------------------------------------------------------------------------------
Total loans outstanding at end of period before
Deducting allowances for credit losses                      $339,582          $275,578
                                                        ==================================
Average net loans outstanding during period                  336,801           267,705
                                                        ==================================
Balance of allowance at beginning of period                    4,457             3,773
Loans charged off:
  Real estate                                                      0                 0
  Commercial and industrial                                      (58)             (398)
  Installment and other                                           (9)                0
                                                        ----------------------------------
       Total loans charged off                                   (67)             (398)

Recoveries of loans previously charged off:
  Real estate                                                      0                 0
  Commercial and industrial                                       14                 7
  Installment and other                                            0                 0
                                                        ----------------------------------
       Total loan recoveries                                      14                 7
                                                        ----------------------------------
Net loans charged off                                            (53)             (391)
Provision charged to operating expense                           620               375
Balance of allowance for credit losses                  ----------------------------------
    at end of period                                          $5,024            $3,757
                                                        ==================================

Net loan charge-offs to
  total average loans (annualized)                             0.06%             0.59%
Net loan charge-offs to loans at
  end of period (annualized)                                   0.06%             0.58%
Allowance for credit losses to
  total loans at end of period                                 1.48%             1.36%
Net loan charge-offs to allowance
  for credit losses (annualized)                               4.28%            42.21%
Net loan charge-offs to provision
  for credit losses (annualized)                               8.55%           104.27%
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Management believes that
the 1.48% credit loss allowance at March 31, 2002 is adequate to absorb known
and inherent risks in the loan portfolio. No assurance can be given, however,
that the economic conditions which may adversely affect the Company's service
areas or other circumstances will not be reflected in increased losses in the
loan portfolio. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>It is the Company's policy
to discontinue the accrual of interest income on loans for which reasonable
doubt exists with respect to the timely collectability of interest or principal
due to the ability of the borrower to comply with the terms of the loan
agreement. Such loans are placed on nonaccrual status whenever the payment of
principal or interest is 90 days past due or earlier when the conditions
warrant, and interest collected is thereafter credited to principal to the
extent necessary to eliminate doubt as to the collectability of the net carrying
amount of the loan. Management may grant exceptions to this policy if the loans
are well secured and in the process of collection. </FONT></P>

<u>Table 7. Nonperforming Assets</u>
<pre>
                                                             March 31,          December 31,
   (In thousands)                                               2002                2001
------------------------------------------------------------------------------------------------
Nonaccrual Loans (1)                                           $7,343             $13,019
Restructured Loans                                                  0                   0
                                                            ------------------------------------
   Total nonperforming loans                                    7,343              13,019

Other real estate owned                                        10,165               5,390
                                                            ------------------------------------
   Total nonperforming assets                                 $17,508             $18,409
                                                            ====================================
Loans past due 90 days or more, still accruing                   $848                  $0
                                                            ====================================
Nonperforming loans to total gross loans                         2.16%               3.87%
                                                            ====================================
Nonperforming assets to total gross loans                        5.15%               5.47%
                                                            ====================================
</PRE>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=5% valign=top align=center><i>&nbsp;(1)</i></td>
<td width=90%><FONT FACE="times new roman, serif" SIZE=2>
<i>Included in nonaccrual loans at March 31, 2002 and December 31, 2001, are
restructured loans totaling $33,000 and $37,600, respectively.</i></font></td>
<td width=5%>&nbsp;</td>
</tr>
</table>

<BR>

<p align=center><font size=3>22</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Loans past due more than 30
days are receiving increased management attention and are monitored for
increased risk. The Company continues to move past due loans to nonaccrual
status in its ongoing effort to recognize loan problems at an earlier point in
time when they may be dealt with more effectively. As impaired loans, nonaccrual
and restructured loans are reviewed for specific reserve allocations and the
allowance for credit losses is adjusted accordingly. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Except for the loans
included in the above table, there were no loans at March 31, 2002 where the
known credit problems of a borrower caused the Company to have serious doubts as
to the ability of such borrower to comply with the present loan repayment terms
and which would result in such loan being included as a nonaccrual, past due or
restructured loan at some future date. </FONT></P>
<a name="a0023"></a>
<b><u>Liquidity and Asset/Liability Management</u></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The primary function of
asset/liability management is to provide adequate liquidity and maintain an
appropriate balance between interest-sensitive assets and interest-sensitive
liabilities. </FONT></P>

<b><i>Liquidity</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Liquidity management may be
described as the ability to maintain sufficient cash flows to fulfill financial
obligations, including loan funding commitments and customer deposit
withdrawals, without straining the Company&#146;s equity structure. To maintain
an adequate liquidity position, the Company relies on, in addition to cash and
cash equivalents, cash inflows from deposits and short-term borrowings,
repayments of principal on loans and investments, and interest income received.
The Company's principal cash outflows are for loan origination, purchases of
investment securities, depositor withdrawals and payment of operating expenses. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company continues to
emphasize liability management as part of its overall asset/liability strategy.
Through the discretionary acquisition of short term borrowings, the Company has
been able to provide liquidity to fund asset growth while, at the same time,
better utilizing its capital resources, and better controlling interest rate
risk. The borrowings are generally short-term and more closely match the
repricing characteristics of floating rate loans which comprise approximately
65.4% of the Company&#146;s loan portfolio at March 31, 2002. This does not
preclude the Company from selling assets such as investment securities to fund
liquidity needs but, with favorable borrowing rates, the Company has maintained
a positive yield spread between borrowed liabilities and the assets which those
liabilities fund. If, at some time, rate spreads become unfavorable, the Company
has the ability to utilize an asset management approach and, either control
asset growth or, fund further growth with maturities or sales of investment
securities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's liquid asset
base which generally consists of cash and due from banks, federal funds sold,
securities purchased under agreements to resell (&#147;reverse repos&#148;) and
investment securities, is maintained at a level deemed sufficient to provide the
cash outlay necessary to fund loan growth as well as any customer deposit runoff
that may occur. Within this framework is the objective of maximizing the yield
on earning assets. This is generally achieved by maintaining a high percentage
of earning assets in loans, which historically have represented the Company's
highest yielding asset. At March 31, 2002, the Bank had 70.8% of total assets in
the loan portfolio and a loan to deposit ratio of 88.9%. Liquid assets at March
31, 2002 include cash and cash equivalents totaling $30.0 million as compared to
$29.3 million at December 31, 2001. Other sources of liquidity include
collateralized and uncollateralized lines of credit from other banks, the
Federal Home Loan Bank, and from the Federal Reserve Bank totaling $188.1
million at March 31, 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The liquidity of the parent
company, United Security Bancshares, is primarily dependent on the payment of
cash dividends by its subsidiary, United Security Bank, subject to limitations
imposed by the Financial Code of the State of California. During 2002, total
dividends paid by the Bank to the parent company totaled $1.950 million dollars.
As a bank holding company newly formed under the Bank Holding Act of 1956,
United Security Bancshares is to provide a source of financial strength for its
subsidiary bank(s). To help provide financial strength, United Security
Bancshares&#146; trust subsidiary, United Security Bancshares Capital Trust I,
recently completed a $15 million offering in Trust Preferred Securities during
July 2001, the proceeds of which were used to purchase Junior Subordinated
Debentures of the Company. Of the $14.5 million in net proceeds received by the
Company, $13.7 million was used to enhance the liquidity and capital positions
of the Bank. </FONT></P>

<BR>

<p align=center><font size=3>23</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<a name="a0024"></a>
<b><i>Interest Rate Sensitivity and Market Risk</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>An interest rate-sensitive
asset or liability is one that, within a defined time period, either matures or
is subject to interest rate adjustments as market rates of interest change.
Interest rate sensitivity is the measure of the volatility of earnings from
movements in market rates of interest, which is generally reflected in interest
rate spread. As interest rates change in the market place, yields earned on
assets do not necessarily move in tandem with interest rates paid on
liabilities. Interest rate sensitivity is related to liquidity in that each is
affected by maturing assets and sources of funds. Interest rate sensitivity is
also affected by assets and liabilities with interest rates that are subject to
change prior to maturity. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The object of interest rate
sensitivity management is to minimize the impact on earnings from interest rate
changes in the marketplace. In recent years, deregulation, causing liabilities
to become more interest rate sensitive, combined with interest rate volatility
in the capital markets, has placed additional emphasis on this principal. When
management decides to maintain repricing imbalances, it usually does so on the
basis of a well- conceived strategy designed to ensure that the risk is not
excessive and that liquidity is properly maintained. The Company's interest rate
risk management is the responsibility of the Asset/Liability Management
Committee (ALCO) which reports to the Board of Directors on a periodic basis,
pursuant to established operating policies and procedures. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company's
asset/liability profile is not complex. The Company does not currently engage in
trading activities or use derivatives to control interest rate risk, although it
has the ability to do so if deemed necessary by ALCO and approved by the Board
of Directors. From the &#147;Gap&#148; report below, the Company is apparently
subject to interest rate risk to the extent that its liabilities have the
potential to reprice more quickly than its assets within the next year. At March
31, 2002, the Company had a cumulative 12 month Gap of $-43.1 million or -10.3%
of total earning assets. Management believes the Gap analysis shown below is not
entirely indicative of the Company&#146;s actual interest rate sensitivity,
because certain interest-sensitive liabilities would not reprice to the same
degree as interest-sensitive assets. For example, if the prime rate were to
change by 50 basis points, the floating rate loans included in the $210.3
million immediately adjustable category would change by the full 50 basis
points. Interest bearing checking and savings accounts which are also included
in the immediately adjustable column probably would move only a portion of the
50 basis point rate change and, in fact, might not even move at all. In
addition, many of the floating rate time deposits are at their floors, or have
repricing rates below their current floors, which means that they might act as
fixed-rate instruments in either a rising or a declining rate environment (see
below for a discussion of the Bank&#146;s floating rate time deposits). The
effects of market value risk have been mitigated to some degree by the makeup of
the Bank's balance sheet. Loans are generally short-term or are floating-rate
instruments. At March 31, 2002, $266.6 million or 80.1% of the loan portfolio
matures or reprices within one year, and only 3.9% of the portfolio matures or
reprices in more than 5 years. Total investment securities including call
options and prepayment assumptions, have a duration of approximately 3.5 years.
Nearly $330.7 million or 91.1% of interest-bearing deposit liabilities mature or
can be repriced within the next 12 months, even though the rate elasticity of
deposits with no defined maturities may not necessarily be the same as
interest-earning assets. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Since May of 1994, the Bank
has offered a two-year floating rate certificate of deposit product to its
customers which adjusts with changes in the Prime Rate, but which has an
interest rate floor below which the rate paid cannot drop. The current rates
below which the rates on this product cannot drop range from 1.50% to 6.50%,
with approximately $14.6 million or 65.3% of those at a 6.50% floor. With the
significant decrease in market rates of interest during the last 15 months, all
$22.4 million of the floating-rate CD&#146;s are at their floors making them
fixed-rate instruments in a declining rate environment. In addition, because all
of the CD&#146;s repricing rates are below their current floors, they behave as
fixed rate instruments even in a rising rate environment. In fact, $21.5 million
or 96.0% of them would remain fixed rate instruments even if the prime rate were
to increase 200 BP or less, $19.9 million or 89.1% would remain fixed rate
instruments even if the prime rate were to increase 300 BP or less, and $17.3
million or 77.5% of them would remain fixed rate instruments even if the prime
rate were to increase 400 BP or less. Of the $19.9 million in the two-year
floating rate certificates of deposit which would behave as fixed rate
instruments if rates were to increase or decrease 300 basis points,
approximately $12.8 million matures in between six and twelve months and,
approximately $691,000 mature in longer than one year. This $19.9 million in
two-year floating rate certificates of deposit has been treated as fixed-rate
instruments for the purpose of the following Gap report </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Interest rate risk can be
measured through various methods including Gap, duration and market value
analysis as well as income simulation models. The Company employs each of these
methods and refines these processes to make the most accurate measurements
possible. The information provided by these calculations is the basis for
management decisions in managing interest rate risk. </FONT></P>

<BR>

<p align=center><font size=3>24</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the Company's Gap, or estimated interest rate sensitivity profile based on
ending balances as of March 31, 2002, representing the interval of time before
earning assets and interest-bearing liabilities may respond to changes in market
rates of interest. Assets and liabilities are categorized by remaining interest
rate maturities rather than by principal maturities of obligations. $19.9
million in two-year, floating rate time deposits which would behave as fixed
rate instruments if rates were to increase or decrease 300 basis points, and
have therefore been treated as fixed rate instruments for purposes of this Gap
report. </FONT></P>

<u>Table 8. Maturities and Interest Rate Sensitivity</u><BR>
 &nbsp;&nbsp;&nbsp;&nbsp;(Unaudited)
<pre>
                                                                   March 31, 2002
                                   ---------------------------------------------------------------------------
                                                             After Three   After One
                                                Next Day But    Months     Year But      After
                                                Within Three  Within 12   Within Five     Five
   (In thousands)                   Immediately    Months       Months       Years       Years        Total
--------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap:
  Loans (1)                           $210,332     $28,937     $27,358     $53,077      $13,109     $332,813
  Investment securities                             10,180          81      41,482       22,995       74,738
  Federal funds sold
    and reverse repos                   10,725                                                        10,725
                                   ---------------------------------------------------------------------------
  Total earning assets                $221,057     $39,117     $27,439     $94,559      $36,104     $418,276
                                   ===========================================================================
  Interest-bearing
    transaction accounts                83,822                                                        83,822
  Savings accounts                      19,072                                                        19,072
  Time deposits  (2)                     3,248      86,357      95,948     23,124            11      208,688
  Federal funds purchased/other            868      26,400                  9,000                     36,268
    borrowings
  Trust Preferred securities                                    15,000                                15,000
                                   ---------------------------------------------------------------------------
  Total interest-bearing liabiities   $107,010    $112,757    $110,948    $32,124           $11     $362,850
                                   ===========================================================================

Interest rate sensitivity gap         $114,047    $(73,640)   $(83,509)   $62,435       $36,093      $55,426
Cumulative gap                        $114,047     $40,407    $(43,102)   $19,333       $55,426
Cumulative gap percentage to
  total earning assets                  27.3%        9.7%       -10.3%      4.6%          13.3%
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>
(1) Loan balance does not include nonaccrual loans of $7.343 million.<BR>
(2) See above for discussion of the impact of floating rate CD's.</i></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company utilizes a
vendor-purchased simulation model to analyze net interest income sensitivity to
movements in interest rates. The simulation model projects net interest income
based on both a 100 and 200 basis point rise and a 100 and 200 basis point fall
in interest rates ramped over a twelve month period, with net interest impacts
projected out as far as twenty four months. The model is based on the actual
maturity and repricing characteristics of the Company's interest-sensitive
assets and liabilities. The model incorporates assumptions regarding the impact
of changing interest rates on the prepayment of certain assets and liabilities.
Projected net interest income is calculated assuming customers will reinvest
maturing deposit accounts and the Company will originate a certain amount of new
loans. The balance sheet growth assumptions utilized correspond closely to the
Company's strategic growth plans and annual budget. Excess cash is invested in
overnight funds or other short-term investments such as U.S. Treasuries. Cash
shortfalls are covered through additional borrowing of overnight or short-term
funds. The Board of Directors has adopted an interest rate risk policy which
establishes maximum decreases in net interest income of 12% and 15% in the event
of a 100 BP and 200 BP increase or decrease in market interest rates over a
twelve month period. Based on the information and assumptions utilized in the
simulation model at March 31, 2002, the resultant projected impact on net
interest income falls within policy limits set by the Board of Directors for all
rate scenarios run. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Company also utilizes
the same vendor-purchased simulation model to project the impact of changes in
interest rates on the underlying market value of all the Company's assets,
liabilities, and off-balance sheet accounts under alternative interest rate
scenarios. The resultant net value, as impacted under each projected interest
rate scenario, is referred to as the market value of equity (&quot;MV of
Equity&quot;). This technique captures the interest rate risk of the Company's
business mix across all maturities. The market analysis is performed using an
immediate rate shock of 200 basis points up and down calculating the present
value of expected cash flows under each rate environment at applicable discount
rates. The market value of loans is calculated by discounting the expected
future cash flows over either the term to maturity for fixed rate loans or
scheduled repricing for floating rate loans using the current rate at which
similar loans would be made to borrowers with similar credit ratings. The market
value of investment securities is based on quoted market prices obtained from
reliable independent brokers.</font></p>

<BR>

<p align=center><font size=3>25</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
The market value of time deposits is calculated by
discounting the expected cash flows using current rates for similar instruments
of comparable maturities. The market value of deposits with no defined
maturites, including interest-bearing checking, money market and savings
accounts is calculated by discounting the expected cash flows at a rate equal to
the difference between the cost of these deposits and the alternate use of the
funds, federal funds in this case. Assumed maturities for these deposits are
estimated using decay analysis and are generally assumed to have implied
maturities of less than five years. For noninterest sensitive assets and
liabilities, the market value is equal to their carrying value amounts at the
reporting date. The Company's interest rate risk policy establishes maximum
decreases in the Company's market value of equity of 12% and 15% in the event of
an immediate and sustained 100 BP and 200 BP increase or decrease in market
interest rates. As shown in the table below, the percentage changes in the net
market value of the Company's equity are within policy limits for both rising
and falling rate scenarios. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following sets forth
the analysis of the Company's market value risk inherent in its
interest-sensitive financial instruments as they relate to the entire balance
sheet at March 31, 2002 and December 31, 2001 ($ in thousands). Fair value
estimates are subjective in nature and involve uncertainties and significant
judgment and, therefore, cannot be determined with absolute precision.
Assumptions have been made as to the appropriate discount rates, prepayment
speeds, expected cash flows and other variables. Changes in these assumptions
significantly affect the estimates and as such, the obtained fair value may not
be indicative of the value negotiated in the actual sale or liquidation of such
financial instruments, nor comparable to that reported by other financial
institutions. In addition, fair value estimates are based on existing financial
instruments without attempting to estimate future business. </FONT></P>

<PRE>
                                March 31, 2002                            December 31,2001
                    ------------------------------------------ -----------------------------------------
                     Estimated    Change in     Change in        Estimated   Change in     Change in
    Change in            MV           MV            MV               MV          MV            MV
      Rates          of Equity    of Equity $   of Equity $      of Equity   of Equity $  of Equity %
-------------------------------------------------------------- -----------------------------------------
   + 200 BP           $36,723      ($1,024)       -2.17%          $33,884     ($1,768)       -4.96%
   + 100 BP            37,528         (169)       -0.45%           35,206        (446)       -1.25%
       0 BP            37,747            0         0.00%           35,652           0         0.00%
   - 100 BP            37,031         (716)       -1.90%           35,478        (174)       -0.49%
   - 200 BP            35,785       (1,963)       -5.20%           34,717        (935)       -2.62%
</PRE>

<a name="a0026"></a>
<B><U>Regulatory Matters</u></b>
<BR><BR>
<b><i>Capital Adequacy</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Capital adequacy for bank
holding companies and their subsidiary banks has become increasingly important
in recent years. Continued deregulation of the banking industry since the 1980's
has resulted in, among other things, a broadening of business activities beyond
that of traditional banking products and services. Because of this volatility
within the banking and financial services industry, regulatory agencies have
increased their focus upon ensuring that banking institutions meet certain
capital requirements as a means of protecting depositors and investors against
such volatility. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>During July 2001, the
Company completed an offering of Trust Preferred Securities in an aggregate
amount of $15.0 million to enhance its regulatory base, while providing
additional liquidity. Subsequent to the completion of the offering, the Company
contributed $13.7 million of that offering to the Bank to enhance its capital
position. Under applicable regulatory guidelines, the Trust Preferred Securities
qualify as Tier I capital up to a maximum of 25% of Tier I capital. Any
additional portion will qualify as Tier 2 capital. As shareholders&#146; equity
increases the amount of Tier I capital that can be comprised of Trust Preferred
Securities will increase. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Board of Governors of
the Federal Reserve System (&#147;Board of Governors&#148;) has adopted
regulations requiring insured institutions to maintain a minimum leverage ratio
of Tier 1 capital (the sum of common stockholders' equity, noncumulative
perpetual preferred stock and minority interests in consolidated subsidiaries,
minus intangible assets, identified losses and investments in certain
subsidiaries, plus unrealized losses or minus unrealized gains on available for
sale securities) to total assets. Institutions which have received the highest
composite regulatory rating and which are not experiencing or anticipating
significant growth are required to maintain a minimum leverage capital ratio of
3% Tier 1 capital to total assets. All other institutions are required to
maintain a minimum leverage capital ratio of at least 100 to 200 basis points
above the 3% minimum requirement. </FONT></P>

<BR>

<p align=center><font size=3>26</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Board of Governors has
also adopted a statement of policy, supplementing its leverage capital ratio
requirements, which provides definitions of qualifying total capital (consisting
of Tier 1 capital and Tier 2 supplementary capital, including the allowance for
loan losses up to a maximum of 1.25% of risk-weighted assets) and sets forth
minimum risk-based capital ratios of capital to risk-weighted assets. Insured
institutions are required to maintain a ratio of qualifying total capital to
risk weighted assets of 8%, at least one-half (4%) of which must be in the form
of Tier 1 capital. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The following table sets
forth the Company&#146;s and the Bank's actual capital positions at March 31,
2002 and the minimum capital requirements for both under the regulatory
guidelines discussed above: </FONT></P>

<u>Table 9. Capital Ratios</u>
<pre>
                                                  Company            Bank
                                                   Actual           Actual           Minimum
                                               Capital Ratios   Capital Ratios    Capital Ratios
                                            -------------------------------------------------------
Total risk-based capital ratio                     13.17%            12.57%            8.00%
Tier 1 capital to risk-weighted assets             11.03%            11.34%            4.00%
Leverage ratio                                     10.06%            10.29%            3.00%
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>As is indicated by the
above table, the Company and the Bank exceeded all applicable regulatory capital
guidelines at March 31, 2002. Management believes that, under the current
regulations, the both will continue to meet their minimum capital requirements
in the foreseeable future. </FONT></P>

<b><i>Dividends</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Dividends paid to
shareholders by the Company are subject to restrictions set forth in the
California General Corporation Law. The California General Corporation Law
provides that a corporation may make a distribution to its shareholders if
retained earnings immediately prior to the dividend payout are at least equal
the amount of the proposed distribution. The primary source of funds with which
dividends will be paid to shareholders will come from cash dividends received by
the Company from the Bank. During 2002, the Company has received $1.950 million
in cash dividends from the Bank, from which the Company declared or paid $1.332
million in dividends to shareholders. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank as a
state-chartered bank is subject to dividend restrictions set forth in California
state banking law, and administered by the California Commissioner of Financial
Institutions (&#147;Commissioner&#148;). Under such restrictions, the Bank may
not pay cash dividends in an amount which exceeds the lesser of the retained
earnings of the Bank or the Bank&#146;s net income for the last three fiscal
years (less the amount of distributions to shareholders during that period of
time). If the above test is not met, cash dividends may only be paid with the
prior approval of the Commissioner, in an amount not exceeding the Bank&#146;s
net income for its last fiscal year or the amount of its net income for the
current fiscal year. This is not the case with the Bank. Year-to-date dividends
of $1.950 million paid to the Company through March 31, 2002 were well within
the maximum allowed under those regulatory guidelines, without approval of the
Commissioner. </FONT></P>

<b><i>Reserve Balances</i></b>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>The Bank is required to
maintain average reserve balances with the Federal Reserve Bank. At March 31,
2002 the Bank's qualifying balance with the Federal Reserve was approximately
$6.0 million, consisting of vault cash and balances. </FONT></P>

<BR>

<p align=center><font size=3>27</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<BR><BR><BR><BR><BR><BR>

<a name="a0028"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b><u>PART II. OTHER INFORMATION</u></b></FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 1.</b> Not applicable</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 2.</b> Not applicable</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 3.</b> Not applicable</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 4.</b> Not applicable</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 5.</b> Not applicable</FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3>
<b>Item 6.</b> Exhibits and Reports on Form 8-K:<BR><BR>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Exhibits: None<BR>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Reports on Form 8-K: None</FONT></P>


<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>

<p align=center><font size=3>28</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<BR><BR><BR><BR>
<a name="a0029"></a>
<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=3><b>Signatures</b></font></p><BR>


<p><FONT FACE="Times New Roman, Times, Serif" SIZE=3>Pursuant to the requirements of Section 13 or 15(d) 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,
</font></p><BR><BR>

<TABLE width=620 CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<td width=60%>&nbsp;</td>
<td align=center width=40%><b>United Security Bancshares</b></td>
</tr>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td>&nbsp;Date: May 10, 2002</td>
<td align=center><u>/S/  Dennis R.Woods</u></td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Dennis R.Woods</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Chairman of the Board and</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>President</td>
</tr>

<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center><u>/S/  Kenneth L. Donahue</u></td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Kenneth L. Donahue</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Senior Vice President and</td>
</tr>
<TR>
<td>&nbsp;</td>
<td align=center>Chief Financial Officer</td>
</tr>
</TABLE><BR><BR>

<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>

<p align=center><font size=3>29</font></p>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">




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