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Table of Content
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 MARCH 31, 2021
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 ☐  No  ☒
 
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 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 ☒ 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
Small 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 March 31, 2021: 17,010,288
1

Table of Content
TABLE OF CONTENTS

Facing Page

Table of Contents

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

Table of Content
PART I. Financial Information


United Security Bancshares and Subsidiaries
Consolidated Balance Sheets – (unaudited)
March 31, 2021 and December 31, 2020
(in thousands except shares)March 31, 2021December 31, 2020
Assets  
Cash and non-interest-bearing deposits in other banks$34,257 $29,490 
Due from Federal Reserve Bank ("FRB")273,652 264,579 
Cash and cash equivalents307,909 294,069 
Investment securities (at fair value)
Available-for-sale ("AFS") securities143,549 82,341 
Marketable equity securities3,791 3,851 
Total investment securities147,340 86,192 
Loans 675,694 655,411 
Unearned fees and unamortized loan origination costs - net(1,205)(1,064)
Allowance for credit losses(8,549)(8,522)
Net loans665,940 645,825 
Premises and equipment - net8,895 9,110 
Accrued interest receivable8,582 8,164 
Other real estate owned4,841 5,004 
Goodwill4,488 4,488 
Deferred tax assets - net3,235 2,907 
Cash surrender value of life insurance21,766 20,715 
Operating lease right-of-use assets2,733 2,864 
Other assets11,207 13,316 
Total assets$1,186,936 $1,092,654 
Liabilities & Shareholders' Equity  
Liabilities  
Deposits  
Non-interest-bearing$429,005 $391,897 
Interest-bearing618,776 560,754 
Total deposits1,047,781 952,651 
Operating lease liabilities2,838 2,967 
Other liabilities8,001 8,305 
Junior subordinated debentures (at fair value)10,983 10,924 
Total liabilities1,069,603 974,847 
Shareholders' Equity  
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 17,010,288 at March 31, 2021 and 17,009,883 at December 31, 2020
59,443 59,397 
Retained earnings58,673 59,138 
Accumulated other comprehensive loss(783)(728)
Total shareholders' equity117,333 117,807 
Total liabilities and shareholders' equity$1,186,936 $1,092,654 
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United Security Bancshares and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 
 Three Months Ended March 31,
(In thousands except shares and EPS)20212020
Interest Income:
Interest and fees on loans$8,071 $8,499 
Interest on investment securities387 428 
Interest on deposits in FRB62 567 
Total interest income8,520 9,494 
Interest Expense:
Interest on deposits427 664 
Interest on other borrowed funds46 97 
Total interest expense473 761 
Net Interest Income 8,047 8,733 
Provision for Credit Losses375 1,707 
Net Interest Income after Provision for Credit Losses7,672 7,026 
Noninterest Income:
Customer service fees656 728 
Increase in cash surrender value of bank-owned life insurance132 131 
Unrealized (loss) gain on fair value of marketable equity securities(60)15 
(Loss) gain on fair value of junior subordinated debentures(1,033)1,498 
Gain on sale of assets13 
Other133 208 
Total noninterest (loss) income(159)2,580 
Noninterest Expense:
Salaries and employee benefits3,024 2,995 
Occupancy expense856 853 
Data processing87 112 
Professional fees827 855 
Regulatory assessments166 85 
Director fees92 94 
Correspondent bank service charges19 15 
Net cost on operation and sale of OREO25 153 
Other469 582 
Total noninterest expense5,565 5,744 
Income Before Provision for Taxes1,948 3,862 
Provision for Taxes on Income537 1,108 
Net Income$1,411 $2,754 
Net Income per common share
Basic$0.08 $0.16 
Diluted$0.08 $0.16 
Shares on which net income per common shares were based
Basic17,010,131 16,974,100 
Diluted17,026,752 16,994,727 
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United Security Bancshares and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

Three Months Ended March 31,
(In thousands except shares and EPS)20212020
Net Income$1,411 $2,754 
Unrealized holdings loss on debt securities(1,074)(125)
Unrealized gains on unrecognized post-retirement costs24 20 
    Unrealized gain on junior subordinated debentures972 755 
Other comprehensive (loss) gain, before tax(78)650 
Tax benefit related to debt securities317 37 
Tax expense related to unrecognized post-retirement costs(7)(6)
Tax expense related to junior subordinated debentures(287)(223)
Total other comprehensive (loss) gain(55)458 
Comprehensive Income$1,356 $3,212 
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United Security Bancshares and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
 Common Stock  
(In thousands except shares)Number of SharesAmountRetained EarningsAccumulated Other Comprehensive (Loss) Gain Total
Balance December 31, 2019 (1)16,973,885 $58,973 $57,647 $(632)$115,988 
(1) Excludes 35,572 unvested restricted shares
   Other comprehensive loss   458 458 
Dividends payable ($0.11 per share)
(1,867)(1,867)
Restricted stock units released350  
Tax benefit from restricted stock units released(1)(1)
Stock-based compensation expense 78   78 
Net income  2,754  2,754 
Balance March 31, 2020 (2)16,974,235 $59,050 $58,534 $(174)$117,410 
(2) Excludes 47,572 unvested restricted shares
  Other comprehensive loss   (227)(227)
Dividends payable ($0.11 per share)
(1,866)(1,866)
Restricted stock units released3,004  
Stock-based compensation expense 131   131 
Net income  2,012  2,012 
Balance June 30, 2020 (3)16,977,239 $59,181 $58,680 $(401)$117,460 
(3) Excludes 44,568 unvested restricted shares
  Other comprehensive loss81 81 
Dividends payable ($0.11 per share)
(1,867)(1,867)
Stock-based compensation expense108 108 
Net income2,271 2,271 
Balance September 30, 2020 (4)16,977,239 $59,289 $59,084 $(320)$118,053 
(4) Excludes 44,568 unvested restricted shares
  Other comprehensive loss(408)(408)
Dividends payable ($0.11 per share)
(1,870)(1,870)
Restricted stock units released32,644  
Stock-based compensation expense108 108 
Net income1,924 1,924 
Balance December 31, 2020 (5)17,009,883 $59,397 $59,138 $(728)$117,807 
(5) Excludes 11,924 unvested restricted shares
  Other comprehensive income(55)(55)
Dividends payable ($0.11 per share)
(1,876)(1,876)
Restricted stock units released405  
Stock-based compensation expense46 46 
Net income1,411 1,411 
Balance March 31, 2021 (6)17,010,288 $59,443 $58,673 $(783)$117,333 
(6) Excludes 41,424 unvested restricted shares
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United Security Bancshares and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
 Three months ended March 31,
(In thousands)20212020
Cash Flows From Operating Activities:  
Net Income$1,411 $2,754 
Adjustments to reconcile net income to cash provided by operating activities:  
Provision for credit losses 375 1,707 
Depreciation and amortization358 343 
Amortization of operating lease right-of-use assets(129)(146)
Amortization of premium/discount on investment securities, net233 219 
Increase in accrued interest receivable(418)(77)
Increase (decrease) in accrued interest payable1 (9)
Decrease in accounts payable and accrued liabilities(290)(740)
Decrease (increase) in unearned fees and unamortized loan origination costs, net141 (741)
Decrease in income taxes receivable842 665 
Unrealized loss (gain) on marketable equity securities60 (15)
Stock-based compensation expense46 77 
(Provision) benefit for deferred income taxes(18)666 
Loss on sale of other real estate owned 113 
Increase in cash surrender value of bank-owned life insurance(132)(131)
Loss (gain) on fair value option of junior subordinated debentures1,033 (1,498)
Net decrease in other assets1,113 1,625 
Net cash provided by operating activities4,626 4,812 
Cash Flows From Investing Activities:  
Purchases of available-for-sale securities(68,156)(23,020)
Principal payments of available-for-sale securities5,641 5,293 
Net increase in loans(20,631)(26,886)
Cash proceeds from sales of other real estate owned163 895 
Investment in limited partnership (201)
Purchase of bank-owned life insurance(920) 
Capital expenditures of premises and equipment(143)(242)
Net cash used in investing activities(84,046)(44,161)
Cash Flows From Financing Activities:  
Net increase in demand deposits and savings accounts93,779 25,727 
Net increase (decrease) in time deposits1,351 (3,653)
Dividends on common stock(1,870)(1,867)
Net cash provided by financing activities93,260 20,207 
Net increase (decrease) in cash and cash equivalents13,840 (19,142)
Cash and cash equivalents at beginning of period294,069 218,995 
Cash and cash equivalents at end of period$307,909 $199,853 
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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 (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 2020 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.

Impact of New Financial Accounting Standards:

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 original amendment was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In October 2019 FASB unanimously approved a vote to delay the effective date of this Standard to be effective for fiscal years beginning after December 15, 2022. 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 continues 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 has begun to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting beginning in March 2020. 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 loan portfolio 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. Additionally, in regard to the recently approved delay in implementation, the Company continues to evaluate its expected implementation date.

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. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments in this Update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that included March 12, 2020. The amendments in this Update do not apply to contract modifications made after December 31, 2022. The one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity may be made at any time after March 12, 2020 but no later than December 31, 2022. The Company is in the process of evaluating the provisions of this ASU and its effects on our consolidated financial statements.

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2.Investment Securities

Following is a comparison of the amortized cost and fair value of securities available-for-sale, as of March 31, 2021 and December 31, 2020:
(in 000's) Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value (Carrying Amount)
March 31, 2021
Securities available-for-sale:
U.S. Government agencies$39,394 $187 $(209)$39,372 
U.S. Government sponsored entities & agencies collateralized by mortgage obligations60,745 670 (168)61,247 
Asset-backed securities5,630 50  5,680 
Municipal bonds32,960 19 (975)32,004 
Corporate bonds5,000 246  5,246 
Total securities available for sale$143,729 $1,172 $(1,352)$143,549 

(in 000's) Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value (Carrying Amount)
December 31, 2020
Securities available-for-sale:
U.S. Government agencies$33,800 $142 $(232)$33,710 
U.S. Government sponsored entities & agencies collateralized by mortgage obligations37,732 722 (9)38,445 
Asset-backed securities3,871 38  3,909 
Municipal bonds1,045 13  1,058 
Corporate bonds5,000 219  5,219 
Total securities available for sale$81,448 $1,134 $(241)$82,341 
 
The amortized cost and fair value of securities available for sale at March 31, 2021, 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 pay downs.
 March 31, 2021
 Amortized CostFair Value (Carrying Amount)
(in 000's)
Due in one year or less$1,759 $1,767 
Due after one year through five years478 477 
Due after five years through ten years32,547 32,223 
Due after ten years48,200 47,835 
Collateralized mortgage obligations60,745 61,247 
 $143,729 $143,549 

There were no realized gains or losses on sales of available-for-sale securities for the three month periods ended March 31, 2021 and March 31, 2020. There were no other-than-temporary impairment losses for the three month periods ended March 31, 2021 and March 31, 2020.

At March 31, 2021, available-for-sale securities with an amortized cost of approximately $99,622,000 (fair value of $99,776,000) were pledged as collateral for FHLB borrowings, securitized deposits, and public funds balances.


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The following summarizes temporarily impaired investment securities:
(in 000's)Less than 12 Months12 Months or MoreTotal
March 31, 2021Fair Value (Carrying Amount) Unrealized LossesFair Value (Carrying Amount) Unrealized LossesFair Value (Carrying Amount) Unrealized Losses
Securities available for sale:
U.S. Government agencies$ $ $24,958 $(209)$24,958 $(209)
U.S. Government sponsored entities & agencies collateralized by mortgage obligations21,086 (167)118 (1)21,204 (168)
Corporate bonds      
Municipal bonds29,286 (975)  29,286 (975)
Asset-backed securities      
Total impaired securities$50,372 $(1,142)$25,076 $(210)$75,448 $(1,352)
December 31, 2020      
Securities available for sale:     
U.S. Government agencies$9,013 $(73)$16,963 $(159)$25,976 $(232)
U.S. Government sponsored entities & agencies collateralized by mortgage obligations30 (1)1,684 (8)1,714 (9)
Corporate bonds      
Municipal bonds      
Asset-backed securities      
Total impaired securities$9,043 $(74)$18,647 $(167)$27,690 $(241)
 
Temporarily impaired securities at March 31, 2021, were comprised of thirty-one municipal bonds, twelve U.S. government agency securities, and seven 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 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
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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 March 31, 2021, the decline in fair value of the thirty-one municipal bonds, twelve U.S. government agency securities, and the seven 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 intend to sell these impaired securities, and it is more likely than not that it will not be required to sell these securities before its anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2021.

During the quarters ended March 31, 2021 and 2020, the Company recognized $60,000 in unrealized holding losses and $15,000 of unrealized holding gains related to equity securities in the consolidated statements of income, respectively.

The Company had no held-to-maturity or trading securities at March 31, 2021 or December 31, 2020.

3.Loans

Loans are comprised of the following:
(in 000's)March 31, 2021December 31, 2020
Commercial and industrial:
Commercial and business loans$33,563 $37,349 
Government program loans13,743 10,165 
Total commercial and industrial47,306 47,514 
Real estate mortgage:  
Commercial real estate294,561 282,951 
Residential mortgages33,601 37,236 
Home improvement and home equity loans101 107 
Total real estate mortgage328,263 320,294 
Real estate construction and development190,091 175,016 
Agricultural51,704 51,079 
Installment and student loans58,330 61,508 
Total loans$675,694 $655,411 
 
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 7.0% of total loans at March 31, 2021 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 credit are predicated upon the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower. Included within the balance of Commercial and industrial loans is $12,335,000 in Paycheck Protection Program ("PPP") loans administrated by the SBA. PPP loans have a two or five year term and earn interest at 1%. In addition to interest, the Company receives a processing fee ranging from 3%-5% of the loan balance for each PPP loan. The fees are recognized as income over the contractual life of the loan. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

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Real estate mortgage loans, representing 48.6% of total loans at March 31, 2021, 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 28.1% of total loans at March 31, 2021, 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 7.7% of total loans at March 31, 2021 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 8.6% of total loans at March 31, 2021 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 March 31, 2021 and December 31, 2020, these financial instruments include commitments to extend credit of $222,343,000 and $216,799,000, respectively, and standby letters of credit of $3,543,000 and $3,668,000, 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.


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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 March 31, 2021 (in 000's):
March 31, 2021Loans
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$ $ $ $ $33,563 $33,563 $ 
Government program loans    13,743 13,743  
Total commercial and industrial    47,306 47,306  
Commercial real estate loans    294,561 294,561  
Residential mortgages    33,601 33,601  
Home improvement and home equity loans14