Company Quick10K Filing
Quick10K
United Security Bancshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.30 17 $175
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-17 Earnings, Exhibits
8-K 2019-06-25 Other Events, Exhibits
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-10-17 Earnings, Exhibits
8-K 2018-10-01 Officers, Exhibits
8-K 2018-09-25 Other Events, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-06-26 Other Events, Exhibits
8-K 2018-06-22
8-K 2018-05-16 Shareholder Vote
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-04-17
8-K 2018-03-27 Other Events, Exhibits
8-K 2018-01-29 Earnings, Exhibits
AMAT Applied Materials 38,870
LTHM Livent 1,230
WINA Winmark 668
FPH Five Point Holdings 619
MITK Mitek Systems 424
CLMT Calumet Specialty Products Partners 280
ARDX Ardelyx 202
SENY Sauer Energy 0
NYB New York Community Bancorp 0
AOI Alliance One 0
UBFO 2019-06-30
Part I. Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits:
EX-31.1 ubfo-20190630exhibit311.htm
EX-31.2 ubfo-20190630exhibit312.htm
EX-32.1 ubfo-20190630exhibit321.htm
EX-32.2 ubfo-20190630exhibit322.htm

United Security Bancshares Earnings 2019-06-30

UBFO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ubfo-2019063010q.htm 10-Q Document

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
o
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)

Registrants telephone number, including area code    (559) 248-4943

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No  x
 
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 x No o   

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

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 o
Accelerated filer x
Non-accelerated filer o
Small reporting company x

Emerging growth company o

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. o 

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

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 July 31, 2019: 16,953,744

1


TABLE OF CONTENTS

Facing Page

Table of Contents


PART I. Financial Information
 
 
 
 
 
 
Item 1. Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. Other Information
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 
 
 
 

2


PART I. Financial Information


United Security Bancshares and Subsidiaries
Consolidated Balance Sheets – (unaudited)
June 30, 2019 and December 31, 2018
(in thousands except shares)
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Cash and non-interest-bearing deposits in other banks
$
30,074

 
$
28,949

Due from Federal Reserve Bank ("FRB")
279,386

 
191,388

Cash and cash equivalents
309,460

 
220,337

Investment securities (at fair value)
 
 
 
Available for sale ("AFS") securities
59,863

 
66,426

Marketable equity securities
3,769

 
3,659

Total investment securities
63,632

 
70,085

Loans
573,421

 
587,933

Unearned fees and unamortized loan origination costs - net
(611
)
 
(119
)
Allowance for credit losses
(8,452
)
 
(8,395
)
Net loans
564,358

 
579,419

Premises and equipment - net
9,529

 
9,837

Accrued interest receivable
10,314

 
8,341

Other real estate owned
5,745

 
5,745

Goodwill
4,488

 
4,488

Deferred tax assets - net
3,095

 
3,174

Cash surrender value of life insurance
20,535

 
20,244

Operating lease right-of-use assets
3,836

 

Other assets
11,501

 
11,388

Total assets
$
1,006,493

 
$
933,058

 
 
 
 
Liabilities & Shareholders' Equity
 

 
 

Liabilities
 

 
 

Deposits
 

 
 

Non-interest-bearing
$
304,172

 
$
292,720

Interest-bearing
566,743

 
512,923

Total deposits
870,915

 
805,643

 
 
 
 
Accrued interest payable
77

 
57

Operating lease liabilities
3,938

 

Other liabilities
7,729

 
7,963

Junior subordinated debentures (at fair value)
10,496

 
10,155

Total liabilities
893,155

 
823,818

Shareholders' Equity
 

 
 

Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 16,953,744 at June 30, 2019 and 16,946,622 at December 31, 2018
58,818

 
58,624

Retained earnings
54,312

 
49,942

Accumulated other comprehensive income
208

 
674

Total shareholders' equity
113,338

 
109,240

Total liabilities and shareholders' equity
$
1,006,493

 
$
933,058


3


United Security Bancshares and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands except shares and EPS)
2019
 
2018
 
2019
 
2018
Interest Income:
 
 
 
 
 
 
 
Interest and fees on loans
$
8,443

 
$
7,491

 
$
17,085

 
$
15,717

Interest on investment securities
444

 
265

 
921

 
457

Interest on deposits in FRB
1,424

 
681

 
2,722

 
1,065

Total interest income
10,311

 
8,437

 
20,728

 
17,239

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 

 
 

Interest on deposits
890

 
550

 
1,724

 
937

Interest on other borrowed funds
118

 
109

 
241

 
199

Total interest expense
1,008

 
659

 
1,965


1,136

 
 
 
 
 
 
 
 
Net Interest Income
9,303

 
7,778

 
18,763

 
16,103

Provision (Recovery of Provision) for Credit Losses
4

 
(1,136
)
 
10

 
(1,325
)
Net Interest Income after Provision (Recovery of Provision) for Credit Losses
9,299

 
8,914

 
18,753

 
17,428

 
 
 
 
 
 
 
 
Noninterest Income:
 
 
 
 
 

 
 

Customer service fees
830

 
1,020

 
1,639

 
1,971

Increase in cash surrender value of bank-owned life insurance
147

 
132

 
292

 
257

Gain (loss) on fair value of marketable equity securities
53

 
(18
)
 
110

 
(78
)
Gain on proceeds from bank-owned life insurance

 

 

 
171

Gain (loss) on fair value of junior subordinated debentures
497

 
(192
)
 
911

 
(661
)
Loss on dissolution of real estate investment trust
(5
)
 

 
(114
)
 

Gain on sale of assets
6

 
29

 
6

 
29

Other
201

 
198

 
408

 
403

Total noninterest income
1,729

 
1,169

 
3,252

 
2,092

 
 
 
 
 
 
 
 
Noninterest Expense:
 
 
 
 
 
 
 
Salaries and employee benefits
2,760

 
3,010

 
5,532

 
5,971

Occupancy expense
808

 
834

 
1,621

 
1,599

Data processing
144

 
99

 
251

 
211

Professional fees
746

 
614

 
1,559

 
1,142

Regulatory assessments
83

 
78

 
176

 
161

Director fees
95

 
81

 
186

 
162

Correspondent bank service charges
14

 
17

 
28

 
34

Loss on California tax credit partnership

 
5

 

 
9

Net cost on operation and sale of OREO
87

 
49

 
152

 
100

Other
525

 
531

 
1,104

 
929

Total noninterest expense
5,262

 
5,318

 
10,609

 
10,318

 
 
 
 
 
 
 
 
Income Before Provision for Taxes
5,766

 
4,765

 
11,396

 
9,202

Provision for Taxes on Income
1,669

 
1,373

 
3,292

 
2,653

Net Income
$
4,097

 
$
3,392

 
$
8,104

 
$
6,549


 
 
 
 
 
 
 
Net Income per common share
 
 
 
 
 
 
 
Basic
$
0.24

 
$
0.20

 
$
0.48

 
$
0.39

Diluted
$
0.24

 
$
0.20

 
$
0.48

 
$
0.39

Shares on which net income per common shares were based
 
 
 
 
 
 
 
Basic
16,950,564

 
16,899,968

 
16,948,810

 
16,895,135

Diluted
16,981,705

 
16,957,282

 
16,977,224

 
16,935,911


4


United Security Bancshares and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

(In thousands)
Three Months Ended  
 June 30, 2019
 
Three Months Ended  
 June 30, 2018
 
Six Months Ended 
 June 30, 2019
 
Six Months Ended 
 June 30, 2018
Net Income
$
4,097

 
$
3,392

 
$
8,104

 
$
6,549

 
 
 
 
 
 
 
 
Unrealized holdings gain (loss) on securities
275

 
(171
)
 
563

 
(428
)
Unrealized gains on unrecognized post-retirement costs
14

 
18

 
28

 
27

    Unrealized (loss) gain on junior subordinated debentures
(542
)
 
(272
)
 
(1,247
)
 
295

Other comprehensive loss, before tax
(253
)
 
(425
)
 
(656
)
 
(106
)
Tax (expense) benefit related to securities
(85
)
 
46

 
(170
)
 
128

Tax expense related to unrecognized post-retirement costs
(4
)
 
(5
)
 
(8
)
 
(8
)
Tax benefit (expense) related to junior subordinated debentures
160

 
80

 
368

 
(88
)
Total other comprehensive loss
(182
)
 
(304
)
 
(466
)
 
(74
)
Comprehensive Income
$
3,915

 
$
3,088

 
$
7,638

 
$
6,475



5


United Security Bancshares and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
 
Common Stock
 
 
 
 
 
 
(In thousands except shares)
Number of Shares
 
Amount
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss) Gain
 
 Total
 
 
 
 
Balance December 31, 2017 (1)
16,885,615

 
$
57,880

 
$
44,182

 
$
(710
)
 
$
101,352

(1) Excludes 46,511 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adoption of ASU 2016-01: reclassification of unrealized gain on junior subordinated debentures to accumulated other comprehensive income
 
 
 
 
(1,482
)
 
1,482

 

Adoption of ASU 2016-01: recognition of previously unrealized losses within marketable equity securities
 
 
 
 
(184
)
 
184

 

Adjusted balance at January 1, 2018
16,885,615

 
$
57,880

 
$
42,516

 
$
956

 
$
101,352

 
 
 
 
 
 
 
 
 
 
   Other comprehensive loss
 

 
 

 
 

 
230

 
230

Dividends payable ($0.09 per share)
 
 
 
 
(1,520
)
 
 
 
(1,520
)
Restricted stock units released
13,000

 
 
 
 
 
 
 

Stock-based compensation expense
 

 
291

 
 

 
 

 
291

Net income
 

 
 

 
3,156

 
 

 
3,156

Balance March 31, 2018 (2)
16,898,615

 
$
58,171

 
$
44,152

 
$
1,186

 
$
103,509

(2) Excludes 46,511 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Other comprehensive loss
 

 
 

 
 

 
(304
)
 
(304
)
Dividends payable ($0.09 per share)
 
 
 
 
(1,519
)
 
 
 
(1,519
)
Restricted stock units released
3,003

 
 
 
 
 
 
 

Stock-based compensation expense
 

 
138

 
 

 
 

 
138

Net income
 

 
 

 
3,392

 
 

 
3,392

Balance June 30, 2018 (3)
16,901,618

 
$
58,309

 
$
46,025

 
$
882

 
$
105,216

(3) Excludes 78,508 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
 

 
 

 
 

 
(160
)
 
(160
)
Dividends payable ($0.10 per share)
 
 
 
 
(1,690
)
 
 
 
(1,690
)
Restricted stock units released
1,672

 
 
 
 

 
 
 

  Stock-based compensation expense
 

 
163

 
 

 
 
 
163

Net income
 

 
 

 
3,517

 
 

 
3,517

Balance September 30, 2018 (4)
16,903,290

 
$
58,472

 
$
47,852

 
$
722

 
$
107,046

(4) Excludes 78,508 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
 

 
 

 
 

 
(48
)
 
(48
)
Dividends payable ($0.11 per share)
 
 
 
 
(1,859
)
 
 
 
(1,859
)
Restricted stock units released
43,332

 
 
 
 

 
 
 

  Stock-based compensation expense
 

 
152

 
 

 
 
 
152

Net income
 

 
 

 
3,949

 
 

 
3,949

Balance December 31, 2018 (5)
16,946,622

 
$
58,624

 
$
49,942

 
$
674

 
$
109,240

(5) Excludes 59,217 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Other comprehensive loss
 

 
 

 
 

 
(284
)
 
(284
)

6


Dividends payable ($0.11 per share)
 
 
 
 
(1,869
)
 
 
 
(1,869
)
Restricted stock units released
2,500

 
 
 
 
 
 
 

Stock-based compensation expense
 

 
99

 
 

 
 

 
99

Net income
 

 
 

 
4,007

 
 

 
4,007

Balance March 31, 2019 (6)
16,949,122

 
$
58,723

 
$
52,080

 
$
390

 
$
111,193

(6) Excludes 59,217 unvested restricted shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Other comprehensive loss
 

 
 

 
 

 
(182
)
 
(182
)
Dividends payable ($0.11 per share)
 
 
 
 
(1,865
)
 
 
 
(1,865
)
Restricted stock units released
4,622

 
 
 
 
 
 
 

Stock-based compensation expense
 

 
95

 
 

 
 

 
95

Net income
 

 
 

 
4,097

 
 

 
4,097

Balance June 30, 2019 (7)
16,953,744

 
$
58,818


$
54,312

 
$
208

 
$
113,338

(7) Excludes 55,713 unvested restricted shares
 
 
 
 
 
 
 
 
 


7


United Security Bancshares and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
 
Six months ended June 30,
(In thousands)
2019
 
2018
Cash Flows From Operating Activities:
 
 
 
Net Income
$
8,104

 
$
6,549

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Provision (recovery of provision) for credit losses
10

 
(1,325
)
Depreciation and amortization
694

 
666

Amortization of operating lease right-of-use assets
354

 

Amortization of investment securities, net
298

 
258

Increase in accrued interest receivable
(1,972
)
 
(1,866
)
Increase (decrease) in accrued interest payable
20

 
(1
)
Decrease in accounts payable and accrued liabilities
(2,104
)
 
(1,401
)
Decrease in unearned fees and unamortized loan origination costs, net
492

 
684

Decrease in income taxes payable
(760
)
 
(1,204
)
Unrealized (gain) loss on marketable equity securities
(110
)
 
78

Stock-based compensation expense
194

 
429

Provision for deferred income taxes
(99
)
 
(108
)
Gain on bank owned life insurance

 
(171
)
Increase in cash surrender value of bank-owned life insurance
(292
)
 
(257
)
(Gain) loss on fair value option of junior subordinated debentures
(911
)
 
661

Loss on tax credit limited partnership interest

 
9

Loss on dissolution of real estate investment trust
114

 

Gain on sale of premises and equipment
(6
)
 
(29
)
Net decrease (increase) in other assets
1,054

 
(28
)
Net cash provided by operating activities
5,080

 
2,944

Cash Flows From Investing Activities:
 

 
 

Purchase of correspondent bank stock
(47
)
 
(10
)
Purchases of available-for-sale securities

 
(19,860
)
Principal payments of available-for-sale securities
6,828

 
4,698

Net decrease in loans
14,559

 
27,839

Investment in limited partnership
(320
)
 

Cash proceeds from sale of premises and equipment
12

 

Proceeds from bank owned life insurance

 
376

Capital expenditures of premises and equipment
(392
)
 
(542
)
Net cash provided by investing activities
20,640

 
12,501

Cash Flows From Financing Activities:
 

 
 

Net increase in demand deposits and savings accounts
77,652

 
67,299

Net (decrease) increase in time deposits
(12,380
)
 
1,970

Dividends on common stock
(1,869
)
 
(1,520
)
Net cash provided by financing activities
63,403

 
67,749

 
 
 
 
Net increase in cash and cash equivalents
89,123

 
83,194

Cash and cash equivalents at beginning of period
220,337

 
107,934

Cash and cash equivalents at end of period
$
309,460

 
$
191,128


8


United Security Bancshares and Subsidiaries - Notes to 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 and its wholly owned subsidiary United Security Bank (the “Bank”)(collectively the “Company” or “USB”). 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 2018 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) 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:
Certain reclassifications have been made to prior year financial statements to conform to the classifications used in 2019. None of the reclassifications had an impact on equity or net income.

Revenue from Contracts with Customers:

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The Company adopted Topic 606 using the modified retrospective method on all contracts not completed as of January 1, 2018. The adoption of Topic 606 did not result in a material change to the accounting for any of the in-scope revenue streams. As such, no cumulative effect adjustment was recorded.

Leases:

The Company determines if an arrangement is a lease at inception. Operating leases are included in other assets and other liabilities on the consolidated balance sheets. Finance leases, if necessary, are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
 
Recently Adopted Accounting Standards:

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this Update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key

9


information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification® and creating Topic 842, Leases. The Company adopted the New Lease Standard as of January 1, 2019 using an optional transition method, as discussed in ASU 2018-11 below, that allows application of the new leases standard at the adoption date. Under the optional transition method, financial result reported in periods prior to 2019 are unchanged. The Company also elected the package of practical expedients, which among other things did not require assessment of lease classification. See Note 7 - Leases for additional information.

In July 2018, FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which amends ASC 842, Leases. The amendments in this Update allowed lessors to combine lease and associated nonlease components by class of underlying asset in contract that meet certain criteria. For a lessor to qualify for this practical expedient, the lease and related nonlease components must have the same timing and pattern of transfer, and the lease component, if accounted for on a stand-alone basis, would be classified as an operating lease. Additionally the Update provided an optional method for adopting the new leasing guidance. The optional transition method allows entities to apply the new guidance at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of the retained earnings, and not to restate the comparative periods presented. The Company has elected to use the practical expedient, and optional method of adoption as set-forth in this Update. See Note 7 - Leases for additional information.

Recently Accounting Standards Not Yet Adopted:

In June 2016, FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326). The FASB is issuing this Update to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. 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. This amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has formed a project team that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. An external provider specializing in community bank loss driver and CECL reserving model design as well as other related consulting services has been retained, and the Company has begun to evaluate potential CECL modeling alternatives. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as evaluated the key economic loss drivers for each segment. The Company presently plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting periods in 2019. While the Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by the composition and quality of the Company’s loans and investment securities as well as the economic conditions as of the date of adoption. The Company also anticipates significant changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on the Company's consolidated financial statements.

In January 2017, FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). The FASB is issuing this Update to eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. This ASU will be effective for public business entities for annual periods beginning after December 15, 2019 (i.e. calendar periods beginning on January 1, 2020, and interim periods therein. The Company does not expect any impact on the Company's consolidated financial statements resulting from the adoption of this Update.

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts within FASB's Concepts Statement, including the consideration of costs and benefits. The amendment calls for the removal, modification, and addition of certain disclosure aspects to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures. The amendments of the update will become effective in fiscal years beginning after December 15, 2019. The Company does not expect the requirements of this Update to have a material impact on the Company’s financial position, results of operations or cash flows.

In October 2018, FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update allow entities to designate a change in the benchmark interest rate utilized for fixed-rate financial instruments, from the previously utilized LIBOR rate. For public business entities amendments of the update will become effective in fiscal years beginning after December 15, 2019. The Company continues to review the potential impact resulting from such a change. As of March 31, 2019, the Company continues to utilize the LIBOR rate for fixed-rate financial

10


instruments. The Company does not expect the requirements of this Update to have a material impact on the Company’s financial position, results of operations or cash flows.

2.
Investment Securities

Following is a comparison of the amortized cost and fair value of securities available-for-sale, as of June 30, 2019 and December 31, 2018:
(in 000's)
 Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value (Carrying Amount)
June 30, 2019
 
 
 
Securities available-for-sale:
 
 
 
U.S. Government agencies
$
33,384

 
$
163

 
$
(167
)
 
$
33,380

U.S. Government sponsored entities & agencies collateralized by mortgage obligations
26,443

 
162

 
(122
)
 
26,483

Total securities available for sale
$
59,827

 
$
325

 
$
(289
)
 
$
59,863

(in 000's)
 Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value (Carrying Amount)
December 31, 2018
 
 
 
Securities available-for-sale:
 
 
 
U.S. Government agencies
$
36,665

 
$
117

 
$
(255
)
 
$
36,527

U.S. Government sponsored entities & agencies collateralized by mortgage obligations
30,289

 
51

 
(441
)
 
29,899

Total securities available for sale
$
66,954

 
$
168

 
$
(696
)
 
$
66,426

 
The amortized cost and fair value of securities available for sale at June 30, 2019, 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.
 
June 30, 2019
 
Amortized Cost
 
Fair Value (Carrying Amount)
(in 000's)
 
Due in one year or less
$

 
$

Due after one year through five years

 

Due after five years through ten years
4,263

 
4,263

Due after ten years
29,121

 
29,117

Collateralized mortgage obligations
26,443

 
26,483

 
$
59,827

 
$
59,863


There were no realized gains or losses on sales of available-for-sale securities for the three and six month periods ended June 30, 2019 and June 30, 2018. There were no other-than-temporary impairment losses for the three and six month periods ended June 30, 2019 and June 30, 2018.

At June 30, 2019, available-for-sale securities with an amortized cost of approximately $52,747,000 (fair value of $52,704,000) were pledged as collateral for FHLB borrowings, securitized deposits, and public funds balances.


The following summarizes temporarily impaired investment securities:
(in 000's)
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2019
Fair Value (Carrying Amount)
 
 Unrealized Losses
 
Fair Value (Carrying Amount)
 
 Unrealized Losses
 
Fair Value (Carrying Amount)
 
 Unrealized Losses
Securities available for sale:
 
 
 
 
 
U.S. Government agencies
$
4,938

 
$
(51
)
 
13,665

 
(116
)
 
$
18,603

 
$
(167
)
U.S. Government sponsored entities & agencies collateralized by mortgage obligations

 

 
13,784

 
(122
)
 
13,784

 
(122
)
Total impaired securities
$
4,938

 
$
(51
)
 
$
27,449

 
$
(238
)
 
$
32,387

 
$
(289
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Securities available for sale:
 

 
 

 
 

 
 

 
 

 
 

U.S. Government agencies
$
19,085

 
$
(148
)
 
$
6,874

 
$
(107
)
 
$
25,959

 
$
(255
)
U.S. Government sponsored entities & agencies collateralized by mortgage obligations

 

 
16,681

 
(441
)
 
16,681

 
(441
)
Total impaired securities
$
19,085

 
$
(148
)
 
$
23,555

 
$
(548
)
 
$
42,640

 
$
(696
)
 
Temporarily impaired securities at June 30, 2019, were comprised of seven U.S. government agency securities, and ten U.S. government sponsored entities and agencies collateralized by mortgage obligations securities.

The Company evaluates investment securities for other-than-temporary impairment (OTTI) at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under ASC Topic 320, Investments – Debt and Equity Instruments.

The Company considers many factors in determining OTTI, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to the Company at the time of the evaluation.
 
Additionally, OTTI occurs when the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If the Company intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary-impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any

11


current-period loss, the other-than-temporary-impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary-impairment related to the credit loss is recognized in earnings, and is determined based on the difference between the present value of cash flows expected to be collected and the current amortized cost of the security. The amount of the total other-than-temporary-impairment related to other factors shall be recognized in other comprehensive (loss) income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment.

Management periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary.

At June 30, 2019, the decline in fair value of the seven U.S. government agency securities, and the ten U.S. government sponsored entities and agencies collateralized by mortgage obligations securities is attributable to changes in interest rates, and not credit quality. Because the Company does not have the intent to sell these impaired securities, and it is not more likely than not that it will be required to sell these securities before its anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2019.

During the six months ended June 30, 2019, the Company recognized $110,000 of unrealized gains related to equity securities held at June 30, 2019 in the consolidated statements of income. During the six months ended June 30, 2018, the Company recognized $78,000 of unrealized losses related to equity securities held at June 30, 2018 in the consolidated statements of income. For the quarter ended June 30, 2019, the Company recognized $53,000 of unrealized gains related to equity securities held at June 30, 2019 in the consolidated statements of income. For the quarter ended June 30, 2018, the Company recognized $18,000 of unrealized losses related to equity securities held at June 30, 2018 in the consolidated statements of income.

The Company had no held-to-maturity or trading securities at June 30, 2019 or December 31, 2018.


3.
Loans

Loans are comprised of the following:
(in 000's)
June 30, 2019
 
December 31, 2018

Commercial and industrial:
 
 
 
Commercial and business loans
$
54,334

 
$
55,929

Government program loans
811

 
1,049

Total commercial and industrial
55,145

 
56,978

Real estate mortgage:
 

 
 

Commercial real estate
227,525

 
229,448

Residential mortgages
54,142

 
59,431

Home improvement and home equity loans
221

 
321

Total real estate mortgage
281,888

 
289,200

Real estate construction and development
114,611

 
108,795

Agricultural
52,027

 
61,149

Installment and student loans
69,750

 
71,811

Total loans
$
573,421

 
$
587,933

 
The Company's 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. Although the Company does participate in loans with other financial institutions, they are primarily in the state of California.

Commercial and industrial loans represent 9.6% of total loans at June 30, 2019 and 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; however, extensions of

12


credit are predicated upon the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower.

Real estate mortgage loans, representing 49.2% of total loans at June 30, 2019, are secured by trust deeds on primarily commercial property, but are also secured by trust deeds on 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 on all types of 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. Commercial real estate loans are made under the premise that the loan will be 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 20.0% of total loans at June 30, 2019, consist of loans for residential and commercial construction projects, as well as land acquisition and development, or land held for future development. Loans in this category are secured by real estate including improved and unimproved land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment 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 represent 9.1% of total loans at June 30, 2019 and are generally secured by land, equipment, inventory and receivables. Repayment is from the cash flow of the borrower.

Installment loans, including student loans, represent 12.2% of total loans at June 30, 2019 and 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 June 30, 2019 and December 31, 2018, these financial instruments include commitments to extend credit of $209,335,000 and $144,643,000, respectively, and standby letters of credit of $875,000 and $1,183,000, 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 the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies as it does for on-balance sheet instruments.

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. A majority of these commitments are at floating interest rates based on the Prime rate. 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.

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.

During the second quarter of 2018, the Bank entered into a Small Business Administration (SBA) 504 Loan Forward Purchase Commitment to buy a one hundred percent (100%) interest in up to $30 million, first mortgage, California SBA 504 loans on a flow basis with servicing released by the Seller.

13



Past Due Loans

The Company monitors delinquency and potential problem loans on an ongoing basis through weekly reports to the Loan Committee and monthly reports to the Board of Directors.

The following is a summary of delinquent loans at June 30, 2019 (in 000's):
June 30, 2019
Loans
30-60 Days Past Due
 
Loans
61-89 Days Past Due
 
Loans
90 or More
Days Past Due
 
Total Past Due Loans
 
Current Loans
 
Total Loans
 
Accruing
Loans 90 or
More Days Past Due
Commercial and business loans
$

 
$
75

 
$

 
$
75

 
$
54,259

 
$
54,334

 
$

Government program loans

 

 

 

 
811

 
811

 

Total commercial and industrial

 
75

 

 
75

 
55,070

 
55,145

 

Commercial real estate loans
1,016

 

 

 
1,016

 
226,509

 
227,525

 

Residential mortgages

 

 

 

 
54,142

 
54,142

 

Home improvement and home equity loans

 

 

 

 
221

 
221

 

Total real estate mortgage
1,016

 

 

 
1,016

 
280,872

 
281,888

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate construction and development loans

 

 
8,825

 
8,825

 
105,786

 
114,611

 

Agricultural loans
180

 

 

 
180

 
51,847

 
52,027

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment and student loans
303

 
371

 
341

 
1,015

 
68,510

 
69,525

 
341

Overdraft protection lines

 

 

 

 
35

 
35

 

Overdrafts

 

 

 

 
190

 
190

 

Total installment and student loans
303

 
371

 
341

 
1,015

 
68,735

 
69,750

 
341

Total loans
$
1,499

 
$
446

 
$
9,166

 
$
11,111

 
$
562,310

 
$
573,421

 
$
341



14


The following is a summary of delinquent loans at December 31, 2018 (in 000's):
December 31, 2018
Loans
30-60 Days Past Due
 
Loans
61-89 Days Past Due
 
Loans
90 or More
Days Past Due
 
Total Past Due Loans
 
Current Loans
 
Total Loans
 
Accruing
Loans 90 or
More Days Past Due
Commercial and business loans
$

 
$

 
$

 
$

 
$
55,929

 
$
55,929

 
$

Government program loans

 

 

 

 
1,049

 
1,049

 

Total commercial and industrial

 

 

 

 
56,978

 
56,978

 

Commercial real estate loans

 

 
389

 
389

 
229,059

 
229,448

 

Residential mortgages
32

 

 

 
32

 
59,399

 
59,431

 

Home improvement and home equity loans

 

 

 

 
321

 
321

 

Total real estate mortgage
32

 

 
389

 
421

 
288,779

 
289,200

 

Real estate construction and development loans

 

 
8,825

 
8,825

 
99,970

 
108,795

 

Agricultural loans

 

 

 

 
61,149

 
61,149

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment and student loans
130

 
139

 

 
269

 
71,362

 
71,631

 

Overdraft protection lines

 

 

 

 
41

 
41

 

Overdrafts

 

 

 

 
139

 
139

 

Total installment and student loans
130

 
139

 

 
269

 
71,542

 
71,811

 

Total loans
$
162

 
$
139

 
$
9,214

 
$
9,515

 
$
578,418

 
$
587,933

 
$


Nonaccrual Loans

Commercial, construction and commercial real estate loans are placed on nonaccrual status under the following circumstances:

- When there is doubt regarding the full repayment of interest and principal.

- When principal and/or interest on the loan has been in default for a period of 90-days or more, unless the asset is both well secured and in the process of collection that will result in repayment in the near future.

- When the loan is identified as having loss elements and/or is risk rated "8" Doubtful.

Other circumstances which jeopardize the ultimate collectability of the loan including certain troubled debt restructurings, identified loan impairment, and certain loans to facilitate the sale of OREO.

Loans meeting any of the preceding criteria are placed on nonaccrual status and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income.

All loans, outside of student loans, where principal or interest is due and unpaid for 90 days or more are placed on nonaccrual and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income. See Note 4 - Student Loans for specific information on the student loan portfolio.

When a loan is placed on nonaccrual status and subsequent payments of interest (and principal) are received, the interest received may be accounted for in two separate ways.

Cost recovery method: If the loan is in doubt as to full collection, the interest received in subsequent payments is diverted from interest income to a valuation reserve and treated as a reduction of principal for financial reporting purposes.

Cash basis: This method is only used if the recorded investment or total contractual amount is expected to be fully collectible, under which circumstances the subsequent payments of interest are credited to interest income as received.


15


Loans on non-accrual status are usually not returned to accrual status unless all delinquent principal and/or interest has been brought current, there is no identified element of loss, and current and continued satisfactory performance is expected (loss of the contractual amount not the carrying amount of the loan). Return to accrual is generally demonstrated through the timely receipt of at least six monthly payments on a loan with monthly amortization.

There were no remaining undisbursed commitments to extend credit on nonaccrual loans at June 30, 2019 or December 31, 2018.

The following is a summary of nonaccrual loan balances at June 30, 2019 and December 31, 2018 (in 000's).
 
June 30, 2019
 
December 31, 2018
Commercial and business loans
$
75

 
$

Government program loans

 

Total commercial and industrial
75

 

 
 
 
 
Commercial real estate loans

 
389

Residential mortgages

 

Home improvement and home equity loans

 

Total real estate mortgage

 
389

 
 
 
 
Real estate construction and development loans
11,562

 
11,663

Agricultural loans

 

Installment and student loans

 

 
 
 
 
Total loans
$
11,637

 
$
12,052


Impaired Loans

A loan is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.

The Company applies its normal loan review procedures in making judgments regarding probable losses and loan impairment. The Company evaluates for impairment those loans on nonaccrual status, graded doubtful, graded substandard or those that are troubled debt restructures. The primary basis for inclusion in impaired status under generally accepted accounting pronouncements is that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

A loan is not considered impaired if there is merely an insignificant delay or shortfall in the amounts of payments and the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of the delay.

Review for impairment does not include large groups of smaller balance homogeneous loans that are collectively evaluated to estimate the allowance for loan losses. The Company’s present allowance for loan losses methodology, including migration analysis, captures required reserves for these loans in the formula allowance.

For loans determined to be impaired, the Company evaluates impairment based upon either the fair value of underlying collateral, discounted cash flows of expected payments, or observable market price.

-
For loans secured by collateral including real estate and equipment, the fair value of the collateral less selling costs will determine the carrying value of the loan. The difference between the recorded investment in the loan and the fair value, less selling costs, determines the amount of impairment. The Company uses the measurement method based on fair value of collateral when the loan is collateral dependent and foreclosure is probable. For loans that are not considered collateral dependent, a discounted cash flow methodology is used.

-
The discounted cash flow method of measuring the impairment of a loan is used for impaired loans that are not considered to be collateral dependent. Under this method, the Company assesses both the amount and timing of cash flows expected from impaired loans. The estimated cash flows are discounted using the loan's effective interest rate. The difference

16


between the amount of the loan on the Bank's books and the discounted cash flow amounts determines the amount of impairment to be provided. This method is used for most of the Company’s troubled debt restructurings or other impaired loans where some payment stream is being collected.

-
The observable market price method of measuring the impairment of a loan is only used by the Company when the sale of loans or a loan is in process.
 
The method for recognizing interest income on impaired loans is dependent on whether the loan is on nonaccrual status or is a troubled debt restructure. For income recognition, the existing nonaccrual and troubled debt restructuring policies are applied to impaired loans. Generally, except for certain troubled debt restructurings which are performing under the restructure agreement, the Company does not recognize interest income received on impaired loans, but reduces the carrying amount of the loan for financial reporting purposes.

Loans other than certain homogeneous loan portfolios are reviewed on a quarterly basis for impairment. Impaired loans are written down to estimated realizable values by the establishment of specific reserves for loan utilizing the discounted cash flow method, or charge-offs for collateral-based impaired loans, or those using observable market pricing.
 
The following is a summary of impaired loans at June 30, 2019 (in 000's).
June 30, 2019
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance (1)
 
Recorded
Investment
With Allowance (1)
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment (2)
 
Interest Recognized (2)
Commercial and business loans
$
1,868

 
$
403

 
$
1,475

 
$
1,878

 
$
609

 
$
2,167

 
$
67

Government program loans
274

 
275

 

 
275

 

 
283

 
9

Total commercial and industrial
2,142

 
678

 
1,475

 
2,153

 
609

 
2,450

 
76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
1,816

 
914

 
910

 
1,824

 
347

 
1,655

 
53

Residential mortgages
1,841

 
978

 
870

 
1,848

 
32

 
1,915

 
48

Home improvement and home equity loans

 

 

 

 

 

 

Total real estate mortgage
3,657

 
1,892

 
1,780

 
3,672

 
379

 
3,570

 
101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate construction and development loans
11,562

 
11,562

 

 
11,562

 

 
11,618

 
125

Agricultural loans
659

 

 
667

 
667

 
451

 
734

 
32

Installment and student loans

 

 

 

 

 
24

 

 


 


 


 


 


 


 


Total impaired loans
$
18,020

 
$
14,132

 
$
3,922

 
$
18,054

 
$
1,439

 
$
18,396

 
$
334


(1) The recorded investment in loans includes accrued interest receivable of $34.
(2) Information is based on the six months ended ended June 30, 2019.    


17


The following is a summary of impaired loans at December 31, 2018 (in 000's).

December 31, 2018
Unpaid
Contractual
Principal Balance
 
Recorded
Investment
With No Allowance (1)
 
Recorded
Investment
With Allowance (1)
 
Total
Recorded Investment
 
Related Allowance
 
Average
Recorded Investment (2)
 
Interest Recognized (2)
Commercial and business loans
$
2,513

 
$
470

 
$
2,054

 
$
2,524

 
$
787

 
$
2,955

 
$
179

Government program loans
291

 
292

 

 
292

 

 
254

 
20

Total commercial and industrial
2,804

 
762

 
2,054

 
2,816

 
787

 
3,209

 
199

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
1,305

 
389

 
919

 
1,308

 
394

 
1,370

 
60

Residential mortgages
2,028

 
391

 
1,646

 
2,037

 
75

 
2,412

 
117

Home improvement and home equity loans

 

 

 

 

 

 

Total real estate mortgage
3,333

 
780

 
2,565

 
3,345

 
469

 
3,782

 
177

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate construction and development loans
11,663

 
11,663

 

 
11,663

 

 
9,144

 
331

Agricultural loans
543

 

 
818

 
818

 
520

 
1,014

 
81