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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             .
Commission file number: 000-32897

UNITED SECURITY BANCSHARES
(Exact name of registrant as specified in its charter)
 
CALIFORNIA 91-2112732
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
2126 Inyo Street, Fresno, California
 93721
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code    (559) 490-6261

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, no par valueUBFONasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days. Yes ☒ No ☐   

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

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

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

Common Stock, no par value
(Title of Class)

Shares outstanding as of October 31, 2023: 17,136,095
1

TABLE OF CONTENTS

PART I. Financial Information 
  
  
  
  
Condensed Consolidated Statements of Changes in Shareholders’ Equity
  
  
 
  
  
  
  
 
PART II. Other Information
 Item 1.
 Item 2.
 Item 6.
2

PART I. Financial Information
Item 1 - Financial Statements (Unaudited)

United Security Bancshares and Subsidiaries
Condensed Consolidated Balance Sheets – (unaudited)
(In thousands except shares)September 30, 2023December 31, 2022
Assets  
Cash and noninterest-bearing deposits in other banks$34,329 $31,650 
Due from Federal Reserve Bank (FRB)968 6,945 
Cash and cash equivalents35,297 38,595 
Investment securities (at fair value)
Available-for-sale (AFS) securities, at fair value, net of allowance for credit losses of $0 (amortized cost of $214,645 and $234,610)
184,641 207,545 
Marketable equity securities3,216 3,315 
Total investment securities187,857 210,860 
Loans 973,923 981,772 
Unearned fees and unamortized loan origination costs - net(1,052)(1,594)
Allowance for credit losses(15,649)(10,182)
Net loans957,222 969,996 
Premises and equipment - net9,197 9,770 
Accrued interest receivable8,095 8,489 
Other real estate owned4,582 4,582 
Goodwill4,488 4,488 
Deferred tax assets - net15,646 12,825 
Cash surrender value of life insurance, net23,299 22,893 
Operating lease right-of-use assets1,497 1,984 
Other assets25,912 14,711 
Total assets$1,273,092 $1,299,193 
Liabilities & Shareholders’ Equity  
Liabilities  
Deposits  
Non-interest-bearing$386,258 $481,629 
Interest-bearing601,373 683,855 
Total deposits987,631 1,165,484 
Short-term borrowings142,000  
Operating lease liabilities1,599 2,093 
Other liabilities15,868 8,270 
Junior subordinated debentures (at fair value)10,966 10,883 
Total liabilities1,158,064 1,186,730 
Commitments and contingencies (Note 17)
Shareholders’ Equity  
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 17,135,595 at September 30, 2023 and 17,067,253 at December 31, 2022
60,524 60,030 
Retained earnings73,654 69,928 
Accumulated other comprehensive loss, net of tax(19,150)(17,495)
Total shareholders’ equity115,028 112,463 
Total liabilities and shareholders’ equity$1,273,092 $1,299,193 
3

United Security Bancshares and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except shares and EPS)2023202220232022
Interest Income:
Interest and fees on loans$13,763 $11,514 $40,292 $30,363 
Interest on investment securities1,491 1,322 4,492 3,117 
Interest on deposits in FRB74 683 187 1,023 
Total interest income15,328 13,519 44,971 34,503 
Interest Expense:  
Interest on deposits1,841 679 5,128 1,702 
Interest on other borrowed funds1,566 110 2,475 224 
Total interest expense3,407 789 7,603 1,926 
Net Interest Income 11,921 12,730 37,368 32,577 
Provision for Credit Losses 607 587 1,217 
Net Interest Income after Provision for Credit Losses11,921 12,123 36,781 31,360 
Noninterest Income:  
Customer service fees686 899 2,187 2,328 
Increase in cash surrender value of bank-owned life insurance102 89 406 343 
Unrealized loss on fair value of marketable equity securities(92)(149)(99)(458)
Loss on fair value of junior subordinated debentures(811)(600)(553)(2,469)
Gain on sale of investment securities   30 
Other229 153 633 1,015 
Total noninterest income114 392 2,574 789 
Noninterest Expense:
Salaries and employee benefits3,376 2,965 9,937 8,791 
Occupancy expense984 923 2,804 2,551 
Data processing204 215 583 475 
Professional fees1,177 1,089 2,969 2,957 
Regulatory assessments169 212 554 630 
Director fees106 110 321 345 
Correspondent bank service charges20 23 57 74 
Net cost of operation of OREO30 33 126 27 
Other559 641 1,731 1,755 
Total noninterest expense6,625 6,211 19,082 17,605 
Income before provision for taxes5,410 6,304 20,273 14,544 
Provision for income taxes1,557 1,837 5,878 4,199 
Net income$3,853 $4,467 $14,395 $10,345 
Net Income per common share
Basic$0.22 $0.26 $0.84 $0.61 
Diluted$0.22 $0.26 $0.84 $0.61 
Weighted average common shares outstanding
Basic17,132,080 17,042,479 17,103,982 17,036,460 
Diluted17,140,204 17,063,947 17,115,875 17,057,638 
4

United Security Bancshares and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)2023202220232022
Net Income$3,853 $4,467 $14,395 $10,345 
Unrealized loss on debt securities(4,178)(8,799)(2,939)(29,232)
Unrealized gain on unrecognized post-retirement costs23 22 66 67 
Unrealized gain on junior subordinated debentures576 825 523 3,419 
Other comprehensive loss, before tax(3,579)(7,952)(2,350)(25,746)
Tax benefit related to debt securities1,236 2,601 869 8,641 
Tax expense related to unrecognized post-retirement costs(9)(7)(22)(20)
Tax expense related to junior subordinated debentures(170)(243)(152)(1,011)
Total other comprehensive loss(2,522)(5,601)(1,655)(18,136)
Comprehensive income (loss) $1,331 $(1,134)$12,740 $(7,791)
5

United Security Bancshares and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
For the Three Months Ended September 30, 2023 and 2022
 Common StockRetained EarningsAccumulated Other Comprehensive (Loss) Income 
(Dollars in thousands)Number of SharesAmountTotal
Balance June 30, 202217,040,549 $59,835 $63,875 $(13,709)$110,001 
Other comprehensive loss— — — (5,601)(5,601)
Dividends payable ($0.11 per share)
— — (1,877)— (1,877)
Restricted stock units released6,127 — — — — 
Director stock grant— 44 — — 44 
Stock-based compensation expense— 45 — — 45 
Net income— — 4,467 — 4,467 
Balance September 30, 202217,046,676 $59,924 $66,465 $(19,310)$107,079 
Balance June 30, 202317,129,938 $60,451 $71,857 $(16,628)$115,680 
Other comprehensive loss— — — (2,522)(2,522)
Dividends payable ($0.12 per share)
— — (2,056)— (2,056)
Restricted stock units released5,657 — — — — 
Director stock grant— 41 — — 41 
Stock-based compensation expense— 32 — — 32 
Net income— — 3,853 — 3,853 
Balance September 30, 202317,135,595 $60,524 $73,654 $(19,150)$115,028 


6

United Security Bancshares and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
For the Nine Months Ended September 30, 2023 and 2022

 Common StockRetained EarningsAccumulated Other Comprehensive (Loss) Income 
(Dollars in thousands)Number of SharesAmountTotal
Balance December 31, 202117,028,239 $59,635 $61,746 $(1,174)$120,207 
Other comprehensive loss— — — (18,136)(18,136)
Dividends paid and payable ($0.11 per share)
— — (5,626)— (5,626)
Restricted stock units released18,437 — — — — 
Tax benefit from restricted stock units released— (1)— — (1)
Director stock grant— 139 — — 139 
Stock-based compensation expense— 151 — — 151 
Net income— 10,345 — 10,345 
Balance September 30, 202217,046,676 $59,924 $66,465 $(19,310)$107,079 
Balance December 31, 202217,067,253 $60,030 $69,928 $(17,495)$112,463 
Other comprehensive loss— — — (1,655)(1,655)
Dividends paid ($0.11 per share)
— — (1,880)— (1,880)
Dividends paid and payable ($0.12 per share)
— — (4,111)— (4,111)
Restricted stock units released68,342 — — — — 
Tax benefit from restricted stock units released— (10)— — (10)
Director stock grant— 290 — — 290 
Stock options exercised106 106 
Stock-based compensation expense— 108 — — 108 
Cumulative effect of adopting Current Expected Credit Losses (CECL)— — (4,678)— (4,678)
Net income— — 14,395 — 14,395 
Balance September 30, 202317,135,595 $60,524 $73,654 $(19,150)$115,028 
7

United Security Bancshares and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
 Nine months ended September 30,
(In thousands)20232022
Cash Flows From Operating Activities:  
Net Income$14,395 $10,345 
Adjustments to reconcile net income to cash provided by operating activities:  
Provision for credit losses 587 1,217 
Depreciation and amortization1,107 965 
Noncash lease expense487 459 
Amortization of premium/discount on investment securities, net299 500 
Decrease (increase) in accrued interest receivable394 (936)
Increase in accrued interest payable20 19 
Increase (decrease) in accounts payable and accrued liabilities7,290 192 
(Decrease) increase in unearned fees and unamortized loan origination costs, net(542)579 
(Increase) decrease in income taxes receivable(355)104 
Loss on marketable equity securities99 458 
Stock-based compensation expense388 288 
(Benefit) provision for deferred income taxes(9)281 
Increase in cash surrender value of bank-owned life insurance(406)(343)
Loss on fair value option of junior subordinated debentures553 2,469 
Gain on sale of investment securities (30)
Net increase in other assets(9,644)(1,540)
Net cash provided by operating activities14,663 15,027 
Cash Flows From Investing Activities:  
Purchase of correspondent bank stock(1,435)(2,432)
Purchases of available-for-sale securities (81,762)
Maturities of available-for-sale securities10,000  
Principal payments of available-for-sale securities9,666 6,726 
Cash proceeds from sale of available-for-sale securities 15,676 
Net decrease (increase) in loans6,480 (91,700)
Investment in limited partnership(400)(311)
Capital expenditures of premises and equipment(534)(1,500)
Net cash provided by (used in) investing activities23,777 (155,303)
Cash Flows From Financing Activities:  
Net (decrease) increase in demand deposits and savings accounts(191,631)45,316 
Net increase in time deposits13,779 7,397 
Proceeds from exercise of stock options106  
Net change in short-term borrowings142,000  
Dividends on common stock(5,992)(5,624)
Net cash (used in) provided by financing activities(41,738)47,089 
Net change in cash and cash equivalents(3,298)(93,187)
Cash and cash equivalents at beginning of period38,595 219,219 
Cash and cash equivalents at end of period$35,297 $126,032 
8

United Security Bancshares and Subsidiaries - Notes to Condensed Consolidated Financial Statements - (Unaudited)
 
1.Organization and Summary of Significant Accounting and Reporting Policies
 
The consolidated financial statements include the accounts of United Security Bancshares (“Company” or “USB”) and its wholly-owned subsidiary, United Security Bank (“Bank”). Intercompany accounts and transactions have been eliminated in consolidation.

These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information on a basis consistent with the accounting policies reflected in the audited consolidated financial statements of the Company included in its 2022 Annual Report on Form 10-K. These interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of a normal, recurring nature and 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.

Reclassifications:

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or shareholders’ equity.

Impact of New Financial Accounting Standards:

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). This update replaces the incurred loss methodology with a current expected loss methodology, commonly referred to as CECL, which seeks to improve financial reporting by requiring timelier recording of credit losses on assets measured at amortized cost, such as loan receivables, held-to-maturity securities, and off-balance sheet exposures. The Update requires enhanced disclosures and judgments in estimating credit losses and also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

On January 1, 2023, the Company adopted ASC 326, Financial Instruments-Credit Losses, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023, are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of this new standard required a cumulative adjustment to the allowance for credit losses, leading to an increase in the credit loss balance of $6.4 million and an increase in the reserve for unfunded loan commitments of $273,000, resulting in a combined adjustment to retained earnings of $4.7 million, net of a $1.9 million tax adjustment.

9

The following table summarized the impact of the adoption of ASU 2016-13 by loan category:

(In thousands)Allowance for credit losses as reported under ASU 2016-13Allowance before the adoption of ASU 2016-13 Impact to allowance of adoption of ASU 2016-13
Assets:
Commercial and industrial:
Commercial and business loans$2,290 $954 $1,336 
Government program loans2 2  
Total commercial and industrial2,292 956 1,336 
Real estate mortgage:  
Commercial real estate2,735 659 2,076 
Residential mortgages986 703 283 
Home improvement and home equity loans2 2  
Total real estate mortgage3,723 1,364 2,359 
Real estate construction and development4,129 3,408 721 
Agricultural1,550 525 1,025 
Installment and student loans4,855 2,898 1,957 
Unallocated 1,031 (1,031)
Allowance for credit losses for all loans$16,549 $10,182 $6,367 
Liabilities:
Allowance for credit losses on off-balance sheet exposures$805 $532 $273 

Available-for-sale debt securities in an unrealized loss position are evaluated when the amortized cost of a security exceeds its fair value. If it is determined that it will be necessary to sell a security before the fair value increases to the amortized cost, the amortized cost will be written down to fair value through income. At that point, any previously recorded allowance for credit loss (ACL) would be written off and any additional impairment would be recognized through earnings. If it is believed that the Company will not be required to sell a security before the fair value recovers, a determination will be made as to whether or not the decline in fair value is the result of a credit loss or noncredit factors such as changes in current market rates. If it is determined that the decline is due to a credit loss, the amount recognized as the credit loss will be determined using a discounted cash flow approach. Cash flows expected to be collected would be discounted at the effective interest rate established at acquisition. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses would be recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU was effective for all entities as of March 12, 2020, through December 31, 2022. However, the effective date was updated in ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the sunset date of Topic 848, and is currently set for December 31, 2024. The Company is in the process of evaluating the provisions of this ASU and its effects on our consolidated financial statements. The Company anticipates a minimal impact to junior subordinated debt and floating rate loans tied to LIBOR.

In March 2022, FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. This ASU provides new guidance on the treatment of troubled debt restructurings (TDRs) in relation to the adoption of the CECL model for the accounting for credit losses (see note above regarding ASU 2016-13). Previous accounting guidance related to troubled debt restructurings is eliminated and new disclosure requirements are adopted in regard to loan refinancing and restructurings made to borrowers experiencing financial difficulties under the assumption that the CECL
10

model will capture credit losses related to troubled debt restructurings. New disclosures regarding gross write-offs for financing receivables by year of origination are also included in the update. This update has been adopted as of January 1, 2023. The Bank will no longer report troubled debt restructurings or classify loans as such. TDRs previously recognized have been incorporated into the CECL methodology as it applies to loan loss reserves as of January 1, 2023.

2.Investment Securities

Following is a comparison of the amortized cost and fair value of securities available-for-sale, as of September 30, 2023 and December 31, 2022:
September 30, 2023
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value (Carrying Amount)
Securities available-for-sale:
U.S. Government agencies$6,441 $4 $(49)$6,396 
U.S. Government sponsored entities & agencies collateralized by mortgage obligations102,943 1 (16,739)86,205 
U.S. Treasury securities20,034  (277)19,757 
Municipal bonds50,431  (10,404)40,027 
Corporate bonds34,796 19 (2,559)32,256 
Total securities available-for-sale$214,645 $24 $(30,028)$184,641 

December 31, 2022
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value (Carrying Amount)
Securities available-for-sale:
U.S. Government agencies$8,275 $7 $(51)$8,231 
U.S. Government sponsored entities & agencies collateralized by mortgage obligations110,908 5 (13,695)97,218 
U.S. Treasury securities30,004  (780)29,224 
Municipal bonds50,678  (10,508)40,170 
Corporate bonds34,745 5 (2,048)32,702 
Total securities available-for-sale$234,610 $17 $(27,082)$207,545 
 
The amortized cost and fair value of securities available for sale at September 30, 2023, 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. Contractual maturities on collateralized mortgage obligations cannot be anticipated due to allowed paydowns.
 September 30, 2023
(In thousands)Amortized CostFair Value (Carrying Amount)
Due in one year or less$20,134 $19,854 
Due after one year through five years28,967 27,129 
Due after five years through ten years60,141 48,998 
Due after ten years2,458 2,456 
Collateralized mortgage obligations102,945 86,204 
 $214,645 $184,641 

11

Proceeds and gross realized gains (losses) from sales of available-for-sale debt securities are shown below:

Three Months EndedNine Months Ended
(In thousands)September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Proceeds from sales or calls$ $ $ $15,676 
Gross realized gains from sales or calls$ $ $ $78 
Gross realized losses from sales or calls$ $ $ $(48)

As market interest rates or risks associated with a security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using the proceeds to purchase securities that better fit with the Company’s current risk profile is appropriate and beneficial to the Company. There were no losses recorded due to credit-related factors for the three and nine month periods ended September 30, 2023 or September 30, 2022.

At September 30, 2023, available-for-sale securities with an amortized cost of approximately $73.8 million and a fair value of $63.1 million were pledged as collateral for FHLB borrowings, securitized deposits, and public funds balances. At December 31, 2022, available-for-sale securities with an amortized cost of approximately $78.8 million and a fair value of $69.0 million were pledged as collateral for FHLB borrowings, securitized deposits, and public funds balances.

The following summarizes available-for-sale debt securities in an unrealized loss position for which a credit loss has not been recorded:
Less than 12 Months12 Months or MoreTotal
(In thousands)Fair Value (Carrying Amount)Unrealized LossesFair Value (Carrying Amount)Unrealized LossesFair Value (Carrying Amount)Unrealized Losses
September 30, 2023
U.S. Government agencies$ $ $4,352 $(49)$4,352 $(49)
U.S. Government sponsored entities and agencies collateralized by mortgage obligations242 (3)85,729 (16,736)85,971 (16,739)
U.S. Treasury securities  19,757 (277)19,757 (277)
Municipal bonds  40,027 (10,404)40,027 (10,404)
Corporate bonds  27,425 (2,559)27,425 (2,559)
Total available-for-sale$242 $(3)$177,290 $(30,025)$177,532 $(30,028)
December 31, 2022      
U.S. Government agencies$ $ $5,831 $(51)$5,831 $(51)
U.S. Government sponsored entities and agencies collateralized by mortgage obligations47,968 (3,949)48,763 (9,746)96,731 (13,695)
U.S. Treasury securities14,714 (190)14,510 (590)29,224 (780)
Municipal bonds  40,170 (10,508)40,170 (10,508)
Corporate bonds24,424 (1,491)5,443 (557)29,867 (2,048)
Total available-for-sale$87,106 $(5,630)$114,717 $(21,452)$201,823 $(27,082)
 
12

The following summarizes the number of available-for-sale debt securities in an unrealized loss position for which a credit loss has not been recorded:
September 30, 2023December 31, 2022
Securities available for sale:
U.S. Government agencies4 4 
U.S. Government sponsored entities and agencies collateralized by mortgage obligations49 51 
Municipal bonds45 46 
Corporate bonds8 9 
U.S. Treasury securities3 4 
Total available for sale 109 114 

Management has evaluated each available-for-sale investment security in an unrealized loss position to determine if it would be required to sell the security before the fair value increases to amortized cost and whether any unrealized losses are due to credit losses or noncredit factors such as current market rates, which would not require the establishment of an allowance for credit losses. At September 30, 2023, the decline in fair value of the available-for-sale securities is attributed to changes in interest rates and not credit quality. These declines are primarily the result of the fast pace and large increases in interest rates during the last two years, which have led to decreases in bond prices and increases in yields. Because the Company does not intend to sell these securities, and because it is more likely than not that it will not be required to sell these securities before their anticipated recovery, the Company does not consider it necessary to provide an allowance for any available-for-sale security at September 30, 2023.

During the nine months ended September 30, 2023 and 2022, the Company recognized $99,000 of unrealized losses and $458,000 of unrealized losses, respectively, related to marketable equity securities, related to one mutual fund, included in the marketable equity securities. During the quarters ended September 30, 2023 and 2022, the Company recognized $92,000 and $149,000 of unrealized losses related to the same mutual fund.

The Company had no held-to-maturity or trading securities at September 30, 2023 or December 31, 2022.

3.Loans

Loans, at amortized cost, are comprised the following:
(In thousands)September 30, 2023December 31, 2022
Commercial and industrial:
Commercial and business loans$51,772 $57,770 
Government program loans77 132 
Total commercial and industrial51,849 57,902 
Real estate mortgage:  
Commercial real estate419,916 398,115 
Residential mortgages262,420 273,357 
Home improvement and home equity loans40 49 
Total real estate mortgage682,376 671,521 
Real estate construction and development133,516 153,374 
Agricultural61,501 52,722 
Installment and student loans43,629 44,659 
Total loans$972,871 $980,178 
 
The Company’s directly-originated loans are predominantly in the San Joaquin Valley and the greater Oakhurst/East Madera County area, as well as the Campbell area of Santa Clara County. The Company’s participation loans with other financial institutions are primarily in the state of California.

13

Commercial and industrial loans, representing 5.3% of total loans at September 30, 2023 and 5.9% at December 31, 2022, are generally made to support the ongoing operations of small- to medium-sized commercial businesses. Commercial and industrial loans have a high degree of industry diversification and provide working capital, financing for the purchase of manufacturing plants and equipment, or funding for growth and general expansion of businesses. A substantial portion of commercial and industrial loans are secured by accounts receivable, inventory, leases, or other collateral including real estate; the remainder are unsecured. Extensions of credit are predicated upon the financial capacity of the borrower and repayment is generally from the cash flow of the borrower.

Real estate mortgage loans, representing 70.1% of total loans at September 30, 2023 and 68.5% at December 31, 2022, are typically secured by either trust deeds on commercial property or single family residences. Repayment of real estate mortgage loans generally comes from the cash flow of the borrower and or guarantor(s).

Commercial real estate mortgage loans comprise the largest segment of this loan category and are available for both income-producing and non-income-producing commercial properties, including: office buildings, shopping centers, apartments and motels, owner occupied buildings, manufacturing facilities, and more. Commercial real estate mortgage loans can also be used to refinance existing debt. These loans are typically repaid from the borrower’s business operations, rental income associated with the real property, or personal assets.

Residential mortgage loans are provided to individuals to finance or refinance single-family residences. Residential mortgages are not a primary business line offered by the Company, and a majority are conventional mortgages that were purchased as a pool.

Home improvement and home equity loans comprise a relatively small portion of total real estate mortgage loans. Home equity loans are generally secured by junior trust deeds, but may be secured by 1st trust deeds.

Real estate construction and development loans, representing 13.7% of total loans at September 30, 2023 and 15.5% at December 31, 2022, consist of loans for residential and commercial construction projects, as well as land acquisition and development, and land held for future development. Loans in this category are secured by real estate, including improved- and unimproved-land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment on construction loans generally comes from long-term mortgages with other lending institutions obtained at completion of the project or from the sale of the constructed homes to individuals.

Agricultural loans, representing 6.3% of total loans at September 30, 2023 and 5.4% at December 31, 2022, are generally secured by land, equipment, inventory, and receivables. Repayment is from the cash flow of the borrower.

Installment loans, which represented 4.5% of total loans at September 30, 2023 and 4.6% at December 31, 2022, generally consist of student loans; loans to individuals for household, family and other personal expenditures; automobiles; or other consumer items. See Note 4 - Student Loans for specific information on the student loan portfolio.

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 September 30, 2023 and December 31, 2022, these financial instruments include commitments to extend credit of $193.3 million and $190.2 million, respectively, and standby letters of credit of $3.1 million and $1.6 million for the same period ends, respectively. These instruments involve elements of credit risk in excess of the amount recognized on the consolidated balance sheet. The contract amounts of these instruments reflect the extent of the involvement the Company has in off-balance sheet financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to these financial instruments is represented by the contractual amounts of those instruments. The Company applies the same credit policies used for on-balance sheet instruments.

Commitments to extend credit continue as long as there is no violation of any condition established in the customer’s contract. Substantially all of these commitments are at floating interest rates based on the prime rate and generally have fixed expiration dates. The Company evaluates each customer’s creditworthiness on a case-by-case basis and collateral may be required in some cases. Collateral held varies but includes accounts receivable, inventory, leases, property, plant and equipment, residential real estate, and income-producing properties.

14

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.

Past Due Loans

The following is a summary of the amortized cost of delinquent loans at September 30, 2023:
(In thousands)Loans
30-60 Days Past Due
Loans
61-89 Days Past Due
Loans
90 or More
Days Past Due
Total Past Due LoansCurrent LoansTotal LoansAccruing Loans 90 or More Days Past Due
Commercial and business loans$ $ $ $ $51,772 $51,772 $ 
Government program loans    77 77  
Total commercial and industrial    51,849 51,849  
Commercial real estate loans    419,916 419,916  
Residential mortgages  1,008 1,008 261,412 262,420  
Home improvement and home equity loans5   5 35 40  
Total real estate mortgage5  1,008 1,013 681,363 682,376  
Real estate construction and development loans  11,390 11,390 122,126 133,516  
Agricultural loans  60 60 61,441 61,501  
Installment and student loans1,303 679  1,982 41,647 43,629  
Total loans$1,308 $679 $12,458 $14,445 $958,426 $972,871 $ 

The following is a summary of the amortized cost of delinquent loans at December 31, 2022:
(In thousands)Loans
30-60 Days Past Due
Loans
61-89 Days Past Due
Loans
90 or More
Days Past Due
Total Past Due LoansCurrent LoansTotal LoansAccruing Loans 90 or More Days Past Due
Commercial and business loans$ $ $ $ $57,770 $57,770 $ 
Government program loans    132 132  
Total commercial and industrial    57,902 57,902  
Commercial real estate loans    398,115 398,115  
Residential mortgages    273,357 273,357  
Home improvement and home equity loans8   8 41 49