UNITED BANCSHARES INC /PA - Form 10-Q/A SEC filing

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

	2018	2017

Cash flows from operating activities:
Net loss	$ (198,026)	$ (202,621)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision (credit) for loan losses	20,000	(30,000)
Amortization of premiums on investments	2,021	2,623
Loss on sale of other real estate	2,082	-
Amortization of servicing asset	34,083	8,063
Depreciation on fixed assets	49,033	46,526
Net change in fair value of financial instruments	(9,093)	(25,659)
Gain on sale of loans	(156,547)	(60,458)
Proceeds from the sale of loans held-for-sale	1,747,544	583,392
Loans originated for sale	(1,638,729)	(444,949)
Increase in accrued interest receivable and other assets	(5,842)	(86,050)
Increase (decrease) in accrued interest payable and other liabilities	17,281	(13,312)
Net cash used in operating activities	(136,193)	(222,445)

Cash flows from investing activities:
Proceeds from maturity and principal reductions of available-for-sale investment securities	257,894	127,767
Purchase of securities available-for-sale	(450)	(328)
Net decrease in loans	1,119,761	1,191,137
Proceeds from sale of other real estate	54,618	-
Purchase of bank premises and equipment	-	(6,938)
Net cash provided by investing activities	1,431,823	1,311,638

Cash flows from financing activities:
Proceeds from the sale of preferred stock	-	675,000
Net increase in deposits	335,254	227,694
Net cash provided by financing activities	335,254	902,694
Net increase in cash and cash equivalents	1,630,884	1,991,887

Cash and cash equivalents at beginning of period	11,671,253	7,802,831

Cash and cash equivalents at end of period	$ 13,302,137	$ 9,794,718

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$ 11472	$ 16,908
Investments transferred to other cash equivalents	$ 131,981	$ -
Loans transferred from held for sale to held at fair value	$ 398,138	$ 95,777

See accompanying notes to the unaudited consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

1. Significant Accounting Policies

United Bancshares, Inc. (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956. The Company's principal activity is the ownership and management of its wholly owned subsidiary, United Bank of Philadelphia (the "Bank").

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission. Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2017 when reviewing this Form 10-Q. Because this report is based on an interim period, certain information and footnote disclosures normally included in the Annual Report on Form 10-K have been condensed or omitted. Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of March 31, 2018 and December 31, 2017 and the consolidated results of its operations and its cash flows for the three months ended March 31, 2018 and 2017.

Management’s Use of Estimates

The preparation of the financial statements has been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities, the determination of the allowance for loan losses, the fair value of loans held at fair value, valuation allowance for deferred tax assets, the carrying value of other real estate owned, the determination of other than temporary impairment for securities.

Commitments

In the general course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these commitments.

Contingencies

The Company is from time to time a party to routine litigation in the normal course of its business. Management does not believe that the resolution of any such litigation will have a material adverse effect on the financial condition or results of operations of the Company. However, the ultimate outcome of any such litigation, as with litigation generally, is inherently uncertain and it is possible that some litigation matters may be resolved adversely to the Company.

Loans Held for Sale

The Bank originates SBA loans for which the guaranteed portion is intended to be sold within a short period of time in the secondary market. These loans are carried at fair value based on a loan-by-loan valuation using actual market bids. Any change in the balance of the loan and its fair value is recorded as income or expense in each reporting period. When the guaranteed portion of the loan is sold, the gain on the sale is reduced by the income previously recognized as part of the fair value adjustment.

Loans Held at Fair Value

The Bank originates SBA loans for which the un-guaranteed portion is retained after the guaranteed portion is sold in the secondary market. Management has elected to carry these loans at fair value in accordance with the irrevocable option permitted under Accounting Standards Codification (“ASC”) 825-10-25 Financial Instruments. Fair value of these loans is estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.

Loans

The Bank has both the positive intent and ability to hold the majority of its loans to maturity. These loans are stated at the amount of unpaid principal, reduced by net unearned discount and an allowance for loan losses. Interest income on loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding and accretion of discount.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses. Loans that are determined to be uncollectible are charged against the allowance account, and subsequent recoveries, if any, are credited to the allowance. When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically include changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans, current economic conditions which may affect borrowers’ ability to repay, and other factors which may warrant current recognition. Such periodic assessments may, in management’s judgment, require the Bank to recognize additions or reductions to the allowance.

Various regulatory agencies periodically review the adequacy of the Bank’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Bank to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination. It is reasonably possible that the above factors may change significantly and, therefore, affects management’s determination of the allowance for loan losses in the near term.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience, other qualitative factors, and adjustments made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Bank will identify and assess loans that may be impaired through any of the following processes:

·During regularly scheduled meetings of the Asset Quality Committee

·During regular reviews of the delinquency report

·During the course of routine account servicing, annual review, or credit file update

·Upon receipt of verifiable evidence of a material reduction in the value of collateral to a level that creates a less than desirable Loan-to-Value ratio

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller, homogeneous loans, including consumer installment and home equity loans, 1-4 family residential mortgages, and student loans are evaluated collectively for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Non-accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have not been received within 30 days as of the date such payments were due. The Bank generally places a loan on non-accrual status when interest or principal is past due 90 days or more. If it otherwise appears doubtful that the loan will be repaid,

management may place the loan on nonaccrual status before the lapse of 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection. When a loan is placed on nonaccrual status, previously accrued and unpaid interest is reversed out of income. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Income Taxes

Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities. Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not. For financial reporting purposes, a valuation allowance of 100% of the net deferred tax asset has been recognized to offset the net deferred tax assets related to cumulative temporary differences and tax loss carryforwards. If management determines that the Company may be able to realize all or part of the deferred tax asset in the future, an income tax benefit may be required to increase the recorded value of the net deferred tax asset to the expected realizable amount.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

2. Net Loss Per Share

The calculation of net loss per share follows:

	Three Months Ended March 31, 2018	Three Months Ended March 31, 2017
Basic:
Net loss available to common shareholders	$ (198,026)	$ (202,621)
Average common shares outstanding-basic	826,921	826,921
Net loss per share-basic	$ (0.24)	$ (0.25)
Diluted:
Average common shares-diluted	826,921	826,921
Net loss per share-diluted	$ (0.24)	$ (0.25)

The preferred stock is non-cumulative and the Company is restricted from paying dividends. Therefore, no effect of the preferred stock is included in the loss per share calculations.

3.Changes in Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss:

	Three Months Ended March 31, 2018
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount
Beginning balance	$ (73)	$ 16	$ (57)
Unrealized holding loss arising during period	(68)	14	(54)
Other comprehensive loss, net	(68)	14	(54)
Ending balance	$ (141)	$ 30	$ (111)

	Three Months Ended March 31, 2017
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount

Beginning balance	$ (96)	$ 33	$ (63)
Unrealized holding gain arising during period	15	(5)	10
Other comprehensive loss, net	15	(5)	10
Ending balance	$ (81)	$ 28	$ (53)

4. New Authoritative Accounting Guidance

Effect of the Adoption of Accounting Standards

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers — Topic 606 and all subsequent ASUs that modified ASC 606. The standard required a company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. The Company completed an assessment of revenue streams and review of the related contracts potentially affected by the new standard and concluded that ASU 2014-09 did not materially change the method in which it recognizes revenue. Therefore, implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. However, additional disclosures were added in the current period, which can be found in Note 9.

In January 2016, the FASB finalized ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 8 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the March 31, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and time deposits and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values.

Effect of Upcoming Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard (along with subsequent amendments and clarifications in ASUs; 2018-01, 2018-11 and 2018-20) requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application

permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended 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 underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

5. Investment Securities

The following is a summary of the Company's investment portfolio:

(In 000’s)	March 31, 2018
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
Available-for-sale:
U.S. Government agency securities	$ 2,349	$ -	$ (97)	$ 2,252
Government Sponsored Enterprises residential mortgage-backed securities	2,623	11	(55)	2,579
	$ 4,972	$ 11	$ (152)	$ 4,831

	December 31, 2017
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
Available-for-sale:
U.S. Government agency securities	$ 2,349	$ -	$ (76)	$ 2,273
Government Sponsored Enterprises residential mortgage-backed securities	2,737	21	(18)	2,740
Investments in money market funds	132	-	-	132
	$ 5,218	$ 21	$ (94)	$ 5,145

The amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of March 31, 2018, are as follows:

Nonperforming and Nonaccrual and Past Due Loans

An age analysis of past due loans, segregated by class of loans, as of March 31, 2018 is as follows:

		Accruing	Nonaccrual
	Loans	Loans 90 or	Loans 90 or
(In 000's)	30-89 Days	More Days	More Days	Total Past	Current
	Past Due	Past Due	Past Due	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$ 15	$ -	$ -	$ 15	$ 1,031	$ 1,046
SBA loans	-	-	-	-	66	66
Asset-based	-	-	86	86	900	986
Total Commercial and industrial	15	-	86	101	1,997	2,098

Commercial real estate:
Commercial mortgages	42	-	1,169	1,211	9,871	11,082
SBA loans	-	-	78	78	184	262
Construction	-	-	-	-	106	106
Religious organizations	-	-	184	184	8,122	8,306
Total Commercial real estate	42	-	1,431	1,473	18,283	19,756

Consumer real estate:
Home equity loans	-	123	287	410	246	656
Home equity lines of credit	-	-	-	-	16	16
1-4 family residential mortgages	26	-	32	58	876	934
Total consumer real estate	26	123	319	468	1,138	1,606

Total real estate	68	123	1,750	1,941	19,421	21,362

Consumer and other:
Student loans	89	69	-	158	490	648

Other	-	2	-	2	102	104
Total consumer and other	89	71	-	160	592	752

Total loans	$ 172	$ 194	$ 1,836	$ 2,202	$ 22,010	$ 24,212

An age analysis of past due loans, segregated by class of loans, as of December 31, 2017 is as follows:

			Accruing	Nonaccrual
	Loans	Loans 90 or		Loans 90 or
	30-89 Days	More Days		More Days	Total Past	Current
(In 000's)	Past Due	Past Due		Past Due	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$ -		$ -	$ -	$ -	$ 909	$ 909
SBA Loans	-		-	-	-	19	19
Asset-based	-		-	76	76	794	870
Total Commercial and industrial	-		-	76	76	1,722	1,798

Commercial real estate:
Commercial mortgages	50		208	935	1,193	10,478	11,671
SBA loans	-		-	81	81	588	669
Construction	-		-	-	-	419	419
Religious organizations	-		-	187	187	8,443	8,630
Total Commercial real estate	50		208	1,203	1,461	19,928	21,389

Consumer real estate:
Home equity loans	38		123	289	450	191	641
Home equity lines of credit	-		-	-	-	17	17
1-4 family residential mortgages	64		-	48	112	959	1,071
Total consumer real estate	102		123	337	561	1,168	1,729

Total real estate

Consumer and other:
Student loans	32		55	-	87	613	700
Other	6		1	-	7	102	109
Total consumer and other	38		56	-	94	715	809

Total loans	$ 190		$ 387	$ 1,616	$ 2,192	$ 23,533	$ 25,725

Loan Origination/Risk Management. The Bank has lending policies and procedures in place to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with periodic reports related to loan origination, asset quality, concentrations of credit, loan delinquencies and non-performing and emerging problem loans. Diversification in the portfolio is a means of managing risk with fluctuations in economic conditions.

Credit Quality Indicators. For commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating. The Bank uses a 1 through 8 loan grading system that follows regulatory accepted definitions as follows:

·Risk ratings of “1” through “3” are used for loans that are performing and meet and are expected to continue to meet all of the terms and conditions set forth in the original loan documentation and are generally current on principal and interest payments. Loans with these risk ratings are reflected as “Good/Excellent” and “Satisfactory” in the following table.

·Risk ratings of “4” are assigned to “Pass/Watch” loans which may require a higher degree of regular, careful attention. Borrowers may be exhibiting weaker balance sheets and positive but inconsistent cash flow coverage. Borrowers in this classification generally exhibit a higher level of credit risk and are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Loans with this rating would not normally be acceptable as new credits unless they are adequately secured and/or carry substantial guarantors. Loans with this rating are reflected as “Pass” in the following table.

·Risk ratings of “5” are assigned to “Special Mention” loans that do not presently expose the Bank to a significant degree of risks, but have potential weaknesses/deficiencies deserving Management’s closer attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned. Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit. Secondary sources of

repayment are accessible and considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result in repayment. The asset is currently protected, but is potentially weak. This category may include credits with inadequate loan agreements, control over the collateral or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material. These borrowers would have limited ability to obtain credit elsewhere.

·Risk ratings of “6” are assigned to “Substandard” loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets must have a well-defined weakness. They are characterized by the distinct possibility that some loss is possible if the deficiencies are not corrected. The borrower’s recent performance indicated an inability to repay the debt, even if restructured. Primary source of repayment is gone or severely impaired and the Bank may have to rely upon the secondary source. Secondary sources of repayment (e.g., guarantors and collateral) should be adequate for a full recovery. Flaws in documentation may leave the bank in a subordinated or unsecured position when the collateral is needed for the repayment.

·Risk ratings of “7” are assigned to “Doubtful” loans which have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weakness makes the collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. The borrower's recent performance indicates an inability to repay the debt. Recovery from secondary sources is uncertain. The possibility of a loss is extremely high, but because of certain important and reasonably- specific pending factors, its classification as a loss is deferred.

·Risk rating of “8” are assigned to “Loss” loans which are considered non-collectible and do not warrant classification as active assets. They are recommended for charge-off if attempts to recover will be long term in nature. This classification does not mean that an asset has no recovery or salvage value, but rather, that it is not practical or desirable to defer writing off the loss, although a future recovery may be possible. Loss should always be taken in the period in which they surface and are identified as non-collectible as a result there is no tabular presentation.

For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt as well as loans that are 90 days or more past due and have not been placed on nonaccrual. These credit quality indicators are updated on an ongoing basis. A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan.

The tables below detail the Bank’s loans by class according to their credit quality indictors discussed above.

(In 000's)			Commercial Loans March 31, 2018
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$ 250	$ 691	$ -	$ 15	$ 216	$ -	1,172
SBA Loans	-	-	16	-	-	-	16
Asset-based	-	594	148	-	92	76	910
	250	1,285	164	15	308	76	2,098
Commercial real estate:
Commercial mortgages	-	7,934	1,693	459	779	217	11,082
SBA loans	-	184	-	-	78	-	262
Construction	-	106	-	-	-	-	106
Religious organizations	41	7,255	826	-	184	-	8,306
	41	15,479	2,519	459	1,041	217	19,756

Total commercial loans	$ 291	$ 16,764	$ 2,683	$ 474	$ 1,349	$ 293	$ 21,854

(In 000's)			Commercial Loans, December 31, 2017
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total

Commercial and industrial:
Commercial	$ 250	$ 423	$ -	$ 19	$ 217	$ -	$ 909
SBA Loans	-	-	19	-	-	-	19
Asset-based	-	549	152	-	93	76	870
	250	972	171	19	310	76	1,798

Commercial real estate:
Commercial mortgages	-	7,876	2,764	17	797	217	11,671
SBA loans	-	588	-	-	81	-	669
Construction	-	419	-	-	-	-	419
Religious organizations	48	7,560	835	-	187	-	8,630
	48	16,443	3,599	17	1,065	217	21,389

Total commercial loans	$ 298	$ 17,415	$ 3,770	$ 36	$ 1,375	$ 293	$ 23,187

	Residential Mortgage and Consumer Loans December 31, 2017
	Performing	Nonperforming	Total

Consumer Real Estate:
Home equity	$ 352	$ 289	$ 641
Home equity line of credit	17	-	17
1-4 family residential mortgages	1,023	48	1,071
	1,392	337	1,729

Consumer Other:
Student loans	700	-	700
Other	109	-	109
	809	-	809

Total consumer loans	$ 2,201	$ 337	$ 2,538

Impaired Loans. The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis.

In accordance with guidance provided by ASC 310-10, Accounting by Creditors for Impairment of a Loan, management employs one of three methods to determine and measure impairment: The Present Value of Future Cash Flow Method; the Fair Value of Collateral Method; or the Observable Market Price of a Loan Method. To perform an impairment analysis, the Company reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented. Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.

The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss. Specific reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. There were no partial charge-offs during the three months ended March 31, 2018.

Consumer real estate and other loans are not individually evaluated for impairment, but collectively evaluated, because they are pools of smaller balance homogeneous loans.

Impaired loans as of March 31, 2018 are set forth in the following table.

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance

Commercial and industrial:
Commercial	$ -	$ -	$ -	$ -	$ -
SBA loans	-	-	-	-	-

Asset-based	76	76	-	76	-
Total commercial and industrial	76	76	-	76	-

Commercial real estate:
Commercial mortgages	964	790	174	964	31
SBA Loans	78	78	-	78	-
Religious organizations	184	184	-	184	-
Total commercial real estate	1,226	1,052	174	1,226	31

Total loans	$ 1,302	$ 1,128	$ 174	$ 1,302	$ 31

Impaired loans as of December 31, 2017 are set forth in the following table.

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance

Commercial and industrial:
Commercial	$ -	$ -	$ -	$ -	$ -
SBA	-	-	-	-	-
Asset based	76	76	-	76	-
Total Commercial and industrial	76	76	-	76	-

Commercial real estate:
Commercial mortgages	933	933	-	933	-
SBA Loans	81	81	-	81	-
Religious Organizations	187	187	-	187	-
Total Commercial real estate	1,201	1,201	-	1,201	-
Total loans	$ 1,277	$ 1,277	$ -	$ 1,277	-

The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis. The following tables present additional information about impaired loans.

(In 000's)	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
	Average	Interest recognized	Average	Interest recognized
	Recorded	on impaired	Recorded	on impaired
	Investment	Loans	Investment	Loans

Commercial and industrial:
Commercial	$ 76	$ -	$ 33	$ -
SBA loans	-	-	-	-
Asset-based	-	-	319	-
Total commercial and industrial	76	-	352	-

Commercial real estate:
Commercial mortgages	965	-	1,280	-
SBA loans	79	-	254	-
Religious organizations	185	-	194	-
Total commercial real estate	1,229	-	1,728	-

Total loans	$ 1,305	$ -	$ 2,080	$ -

Troubled debt restructurings (“TDRs”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal. The terms of these loans do not include any financial concessions and are not consistent with the current market. Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties). Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring. Therefore, the Company had no troubled debt restructurings at March 31, 2018 and December 31, 2017.

7. Other Real Estate Owned

Other real estate owned (“OREO”) consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of carrying

value or fair value, less estimated costs to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense. Activity in other real estate owned for the periods was as follows:

(in 000's)	Three Months Ended	Three Months Ended
	March 31, 2018	March 31, 2017

Beginning balance	$ 626	$ 447
Additions, transfers from loans	-	-
Sales	(57)	-
	569	447
Write-ups (Write-downs)	-	-
Ending Balance	$ 569	$ 447

There were no loans in the process of foreclosure at March 31, 2018 and December 31, 2017.

The following schedule reflects the components of other real estate owned:

(in 000's)	March 31, 2018	December 31, 2017
Commercial real estate	$ 316	$ 317
Residential real estate	253	309
Total	$ 569	$ 626

The following table details the components of net expense of other real estate owned:

	Three Months Ended	Three Months Ended
(in 000's)	March 31, 2018	March 31, 2017
Insurance	$ 5	$ 4
Professional fees	-	5
Real estate taxes	4	3
Maintenance	2	9
Utilities	2	-
Transfer-in write-up	-	-
Impairment charges (net)	-	-
Other	1	-
Total	$ 14	$ 21

8. Fair Value

Fair Value Measurement

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance in FASB ASC 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1

·Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2

·Quoted prices for similar assets or liabilities in active markets.

·Quoted prices for identical or similar assets or liabilities in markets that are not active.

·Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

Level 3

·Prices or valuation techniques that require inputs that are both unobservable (i.e., supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

·These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Fair Value on a Recurring Basis

Securities Available for Sale (“AFS”): Where quoted prices are available in an active market, securities would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow models. Level 2 securities include U.S. agency securities and mortgage backed agency securities.

Loans Held for Sale. Fair values are estimated by using actual indicative market bids on a loan by loan basis.

Loans Held at Fair Value. Fair values for loans for which the guaranteed portion is intended to be sold are estimated by using actual quoted market bids on a loan by loan basis. Fair values for the un-guaranteed portion of SBA loans are estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.

Servicing Assets. Fair values for servicing assets related to SBA loans are estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.

Assets on the consolidated balance sheets measured at fair value on a recurring basis are summarized below.

(in 000’s)	Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
U.S. Government agency securities	$ 2,252	$ -	$ 2,252	$ -
Government Sponsored Enterprises residential mortgage-backed securities	2,579	-	2,579	-
Total	$ 4,831	$ -	$ 4,831	$ -
Loans held for sale	$ 10,468	$ -	$ 10,468	$ -
Loans held at fair value	$ 4,849	$ -	$ -	$ 4,849
Servicing asset	$ 318	$ -	$ -	$ 318

(in 000’s)	Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at December 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
U.S. Government agency securities	$ 2,273	$ -	$ 2,273	$ -

Government Sponsored Enterprises residential mortgage-backed securities	2,740	-	2,740	-
Money market funds	132	132	-	-
Total	$ 5,145	$ 132	$ 5,013	$ -
Loans held for sale	$ 10,297	$ -	$ 10,297	$ -
Loans held at fair value	$ 4,451	$ -	$ -	$ 4,451
Servicing asset	$ 319	$ -	$ -	$ 319

The fair value of the Bank’s AFS securities portfolio was approximately $4,963,000 and $5,145,000 at March 31, 2018 and December 31, 2017, respectively. All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”). The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar instruments and all relevant information. There were no transfers between Level 1 and Level 2 assets during the periods ended March 31, 2018 and 2017.

When estimating the fair value of Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include estimated cashflows, prepayment speeds, average projected default rate and discount rates as follows:

(in 000’s)

Assets measured at fair value	March 31, 2018 Fair value	December 31, 2017 Fair Value	Principal valuation techniques	Significant observable inputs	March 31, 2018 Range of inputs	December 31, 2017 Range of inputs
Loans held at fair value:	$ 4,849	$ 4,451	Discounted cash flow	Constant prepayment rate	9.17% to 5.00%	8.54% to 10.41 %
				Weighted average discount rate	9.61% to 1.65%	9.00% to 11.62%
				Weighted average life	2.62 yrs. to 8.89 yrs.	2.67 yrs. to 9.29 yrs.
				Projected default rate	1.13% to 0.76%	0.75% to 7.61%

(in 000’s)

Assets measured at fair value	March 31, 2018 Fair value	December 31, 2017 Fair Value	Principal valuation techniques	Significant observable inputs	March 31, 2018 Range of inputs	December 31, 2017 Range of inputs
Servicing asset	$318	$ 319	Discounted cash flow	Constant prepayment rate	7.36% to 14.64%	5.58% to 10.67 %
				Weighted average discount rate	11.45% to 28.59%	11.75% to 19.74%
				Weighted average life	2.23 yrs. to 7.13 yrs.	2.67 yrs. to 9.09 yrs.

Due to the inherent uncertainty of determining the fair value of assets that do not have a readily available market value, fair value as determined by management may fluctuate from period to period.

The following table summarizes additional information about assets measured at fair value on a recurring basis for which level 3 inputs were utilized to determine fair value:

(in 000’s)	Loans held at fair value	Servicing Asset
Balance at December 31, 2017	$ 4,451	$ 319
Origination of loans/additions	398	33
Principal repayments/amortization	(45)	(34)
Change in fair value of financial instruments	45	-
Balance at March 31, 2018	$ 4,849	$ 318

Fair Value on a Nonrecurring Basis

Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of March 31, 2018 and December 31, 2017, for which a nonrecurring change in fair value has been recorded during the three months ended March 31, 2018 and year ended December 31, 2017.

Carrying Value at March 31, 2018:

(in 000’s)

Total

Quoted Prices in

Active markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable Inputs

(Level 3)

Impaired loans

$174

Other real estate owned (“OREO”)

$569

$ 569

Carrying Value at December 31, 2017:

(in 000’s)

Total

Quoted Prices in
Active markets for
Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant
Unobservable Inputs

(Level 3)

Impaired Loans

$134

Other real estate owned (“OREO”)

$626

$ 626

The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. At March 31, 2018 and December 31, 2017, the fair values shown above exclude estimated selling costs of $57,000.

OREO is carried at the lower of cost or fair value, which is measured at the foreclosure date. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level 2 measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as Level 3 measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

Fair Value of Financial Instruments

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value of assets and liabilities not previously disclosed are depicted below:

		March 31, 2018		December 31, 2017
	Level in	Carrying	Fair	Carrying	Fair
	Value Hierarchy	Amount	Value	Amount	Value
(Dollars in thousands)
Assets:
Cash and cash equivalents	Level 1	$ 13,170	$ 13,170	$ 11,671	$ 11,671
Loans, net of allowance for loan losses	(1)	24,011	23,951	25,545	25,831
Servicing asset	Level 3	318	318	319	319
Accrued interest receivable	Level 1	120	120	153	153
Liabilities:
Demand deposits	Level 1	34,561	34,561	34,610	34,610
Savings deposits	Level 1	11,690	11,690	11,505	11,505
Time deposits	(2)	9,575	9,491	9,339	9,280
Accrued interest payable	Level 1	22	22	14	14

(1)Level 2 for non-impaired loans; Level 3 for impaired loans.

(2)Level 1 for variable rate instruments, level 3 for fixed rate instruments.

9. Revenue Recognition

Management determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including gains on the sale of loans, the change in fair value of financial instruments, are not within the scope of Topic 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 85.1% of the total revenue of the Company.

The significant components of noninterest income within the scope of Topic 606 are as follows:

Customer Service Fees and ATM Fees — The Company has contracts with its deposit account customers where fees are charged for certain items or services. Service charges include account analysis fees, monthly service fees, overdraft fees, and other deposit account related fees. Additionally, the Company collects revenue when outside customers utilize the Bank’s ATM machines for transactions. Revenue related to account analysis fees, ATM transactions and service fees is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. Fees attributable to specific performance obligations of the Company (i.e. overdraft fees, etc.) are recognized at a defined point in time based on completion of the requested service or transaction.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2018 and 2017.

	Three Months Ended March 31,
	2018	2017
(Dollars in thousands)
Noninterest income:
In-scope of Topic 606
Customer Service Fees	$ 100	$ 96
ATM Fee Income	25	31
Other income	25	28
Noninterest income (in-scope of Topic 606)	150	155
Noninterest income (out-of-scope of Topic 606)	165	86
Total noninterest income	$ 315	$ 241

10. Regulatory

On April 25, 2018, the Bank entered into stipulations consenting to the issuance of amended and restated Consent Orders with the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“Department”) which serve as a prescriptive Restoration Plan providing benchmarks for capital, earnings and asset quality. The material terms of the Consent Orders are identical. The requirements and status of items included in the Orders are as follows:

The Orders will remain in effect until modified or terminated by the FDIC and the Department and do not restrict the Bank from transacting its normal banking business. The Bank will continue to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions. Customer deposits remain fully insured to the highest limits set by the FDIC. The FDIC and the Department did not impose or recommend any monetary penalties in connection with the Consent Orders. The Board of Directors is optimistic about the Bank’s ability to achieve the requirements as stated. These Orders represent a more tailored approach by regulators to strengthen and preserve minority-owned financial institutions like United Bank of Philadelphia. The priority for the Board of Directors and management is to comply with the Order promptly. The requirements of the Orders are as follows:

·Increase participation of the Bank’s board of directors in the Bank’s affairs by having the board assume full responsibility for approving the Bank’s policies and objectives and for supervising the Bank’s management;

·Have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers. Add two additional board members with banking experience.

·Complete audited financial statements for 2016, 2017, and 2018.

·Formulate and implement a Restoration/Strategic Plan to increase profitability reduce expenses and improve operating performance and related ratios.

·Develop and implement a Strategic Plan for each year during which the orders are in effect, to be revised Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, by September 2019;

·Formulate a written plan to improve asset quality and reduce the Bank’s risk positions in assets classified as “Doubtful” or “Substandard” at its regulatory examination;

·Eliminate all assets classified as “Loss” at its current regulatory examination;

·Refrain from accepting any brokered deposits;

·Prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the Orders.

·Refrain from paying cash dividends without prior approval of the FDIC and the Department;

As of March 31, 2018, and December 31, 2017, the Bank’s tier one leverage capital ratio was 4.87% and 5.51%, respectively, and its total risk-based capital ratio was 9.31% and 10.11%, respectively. These ratios are below the levels required by the Consent Orders. Management is in the process of addressing all matters outlined in the Consent Orders. The net loss during the quarter resulted in a decrease in the capital ratios. Management has developed and submitted a Capital Plan that focuses on the following:

·Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital.

·External equity investments—During 2017, the Company received external investments of $925,000 and from other financial institutions. In May 2020, the Bank received an investment of $600,000 from another financial institution. External capital investments will continue to be sought.

·Performance grants—Management has developed a performance grant strategy to attract funding based on economic impact and job creation/retention. The goal is to obtain grant funding from local entities that are seeking a “return on impact”. In April 2019, the Bank received a $2.5 million economic stimulus grant from the City of Philadelphia.

In September 2020, the Bank received a grant totaling $3.4 million from the Pennsylvania CDFI Network to provide financial assistance related to potential losses related to the COVID-19 pandemic. Approximately $614,000 of the grant was allocated to make principal and interest payments for up to six months for struggling small businesses in the Bank’s loan portfolio and mitigate potential deterioration in asset quality.

Further, in June 2021, the was notified that it would be awarded a grant totaling $1,286,000 from the US Treasury’s CDFI Rapid Response Program that was geared to strengthen the Bank as the economy recovers from the effects of the COVID-19 pandemic.

As a result of the above actions, management believes that the Bank has and will be able to comply with the terms and conditions of the Orders.

11. Going Concern

The Company’s consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its consolidated financial statements, the Company reported a net loss of approximately $198,000 for the quarter ended March 31, 2018 and approximately $203,000 for the same quarter in 2017, additionally, the Company reported a net loss of $319,000 for the year ended 2017 and net income of $25,000 for the year ended 2016. Further, the Company has entered into Consent Orders with the FDIC and the Department which, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.00% and its total risk-based capital ratio to 12.50%. As of March 31, 2018, the Bank’s tier one leverage capital ratio was 4.87% and its total risk-based capital ratio was 9.31%. The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory supervision and/or actions. The ability of the Bank to continue as a going concern is dependent on many factors, including achieving required capital levels, earnings and fully complying with the Consent Orders. The Consent Orders raise substantial doubt about the Company’s ability to continue as a going concern.

Management has developed a plan to alleviate the substantial doubt about the Company’s ability to continue as a going concern. This plan is primarily based on the following:

·Increase earnings: Core profitability is essential to stop the erosion of capital. Noninterest income will continue to be an important element of the Bank’s earnings enhancement plan, specifically noninterest income from SBA loans will continue to be an important income strategy for the Bank. In addition, management will seek to reduce noninterest expense by reducing targeted areas of overhead including the closure of the Mount Airy branch in 2018 as well as the projected recovery of SBA loan fair value write-downs and other cost reduction strategies. During the fourth quarter of 2018 and in 2019, there were SBA fair value write-downs on defaulted loans that totaled more than $1 million. Management has developed forbearance agreements and implemented other collection strategies including the sale of underlying collateral to mitigate the exposure on these loans that management believes will result in the recovery of some fair value write-downs.

·Strengthen Capital: A concentrated effort will continue to be made to stabilize and strengthen the Bank’s capital. Management has identified potential sources of external capital that have been received in 2020 and 2021. This capital will be used to further strengthen the Bank’s balance sheet.

·Comply with the Consent Orders: Management has developed a Restoration Plan to address matters outlined in the Consent Orders including strengthening management, asset quality, profitability and capital. This plan received a “non-objection” from the Bank’s primary regulators in May 2021. Management plans to implement the Restoration Plan in an attempt to comply with the terms and conditions of the Orders.

Based on management’s assessment of the Company’s ability to alleviate the substantial doubt about the its ability to continue as a going concern, these consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

12. Subsequent Events

In December 31, 2018, there was a significant decline in asset quality that resulted in fair value write-downs of defaulted SBA loans totaling $473,000. In addition, an increase of $139,000 in specific reserves related to non-SBA loans was required due to an increase in impaired loan exposure. These write-downs resulted in a reduction in the Bank’s Tier 1 Capital Ratio to 3.75%, below the minimum of 4% considered to be “adequately” capitalized. Also, there was a reduction in the total risk-based capital ratio to 7.44%, below the minimum of 8.00% considered to be adequately capitalized.

In April 2019, the Bank received an economic stimulus grant from the City of Philadelphia of $2,500,000 that served to improve its Tier I leverage capital ratio. At December 31, 2019, the Bank’s tier one leverage capital ratio was 5.66% and its total risk-based capital ratio was 11.91% that is considered “adequately capitalized” under the regulatory framework for prompt and corrective action.

Beginning in March 2020, the onset of the COVID-19 pandemic had an adverse economic effect on a global, national, and local level. Following the outbreak, market interest rates have declined significantly, as the 10-year Treasury bond fell below 1.00% in early March 2020 that could lead to a reduction in the Bank’s net interest margin. In addition, this event may adversely affect asset quality related to the Company’s small business loan customers that have been affected by a reduction in their business operations because of government-imposed restrictions. As a result, the Company has deferred loan payments as necessary for those customers that have

been impacted by the pandemic. The pandemic has also affected the way that the Company is conducting business. Since notice of the pandemic, the Company has temporarily closed its Center City branch office and consolidated all customer service activity at its Progress Plaza branch. In addition, the Company has maintained limited on-site presence of four employees or less in the Lending Department while all other employees work remotely in an effort to slow the spread of the pandemic. The full extent of the effect of the pandemic is not yet known.

In September 2020, the Bank received a grant totaling $3.4 million from the Pennsylvania CDFI Network to provide financial assistance related to potential losses related to the COVID-19 pandemic. Approximately $2.8 million of this grant was recorded as noninterest income and $617,000 was recorded as deferred revenue. The deferred revenue portion of the grant was allocated to be used to make principal and interest payments for up to six months for struggling small businesses in the Bank’s loan portfolio. At June 30, 2021, the Bank’s tier one leverage capital ratio was 9.43% and its total risk-based capital ratio was 23.48% which is considered “well capitalized” under the regulatory framework for prompt and corrective action.

Further, in August 2021, the Bank was awarded a grant totaling $1,286,000 from the US Treasury’s CDFI Rapid Response Program that was geared to strengthen the Bank as the economy recovers from the effects of the COVID-19 pandemic. This grant resulted in further improvement in the Bank’s capital ratios.

SIGNATURES

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

		UNITED BANCSHARES, INC
		(Registrant)

October 7, 2021		/s/ Evelyn F. Smalls
Date		Evelyn F. Smalls
		President and Chief Executive Officer


October 7, 2021		/s/ Brenda Hudson-Nelson
Date		Executive Vice President,
		Chief Financial Officer

Exhibit No.	Description

3.1	Certificate of Incorporation (1)

3.2	Bylaws (1)

31.1	Rule 13a-14(a)/15d-14(a) Certifications (1)

31.2	Rule 13a-14(a)/15d-14(a) Certifications (1)

32.1	Section 1350 Certifications (1)

32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE	Section 1350 Certifications (1) XBRL Instance Document (2) XBRL Taxonomy Extension Schema Document(2) XBRL Taxonomy Extension Calculation Linkbase Document(2) XBRL Taxonomy Extension Definition Linkbase Document(2) XBRL Taxonomy Extension Label Linkbase Document(2) XBRL Taxonomy Extension Presentation Linkbase Document(2)

(1)	Filed previously.

(2)	Furnished herewith.

Pennsylvania (PA)	23-2802415
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

30 S. 15th Street
Philadelphia, PA	19102
(Address of principal	(Zip code)
executive offices)

(Check one):
Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company ☒
(Do not check if a smaller
reporting company)

	March 31, 2018	December 31, 2017
Assets:
Cash and due from banks	$ 2,198,996	$ 2,075,258
Interest-bearing deposits with banks	312,160	311,995
Federal funds sold and other cash equivalents	10,790,981	9,284,000
Cash and cash equivalents	13,302,137	11,671,253

Investment securities available-for-sale, at fair value	4,831,363	5,144,707

Loans held for sale	10,468,182	10,297,168

Loans held at fair value	4,849,036	4,450,901

Loans, net of unearned discounts and deferred fees	24,212,084	25,725,700
Less allowance for loan losses	(201,521)	(179,949)
Net loans	24,010,563	25,545,751

Bank premises and equipment, net	254,265	303,298
Accrued interest receivable	119,683	153,415
Other real estate owned	569,371	626,071
Servicing asset	317,963	319,368
Prepaid expenses and other assets	386,934	496,935
Total assets	$ 59,109,497	$ 59,008,867

Liabilities and Shareholders’ Equity

Liabilities:
Demand deposits, noninterest-bearing	$ 20,280,459	$ 19,606,017
Demand deposits, interest-bearing	14,245,136	15,004,238
Savings deposits	11,690,120	11,505,417
Time deposits, under $250,000	4,177,176	4,331,306
Time deposits, $250,000 and over	5,397,617	5,008,276
Total deposits	55,790,508	55,455,254

Accrued interest payable	22,302	13,939
Accrued expenses and other liabilities	268,070	259,152
Total liabilities	56,080,880	55,728,345

Shareholders’ equity:
Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 99,342 issued and outstanding	993	993
Series B preferred stock, noncumulative, 7%, $0.01 par value, 7,000 shares authorized; 1,850 issued and outstanding	18	18
Common stock, $0.01 par value; 2,000,000 shares authorized; 826,921 issued and outstanding	8,269	8,269
Additional paid-in-capital	15,677,626	15,677,626
Accumulated deficit	(12,547,014)	(12,348,988)
Accumulated other comprehensive loss	(111,275)	(57,396)
Total shareholders’ equity	3,028,617	3,280,522
Total liabilities and shareholders’ equity	$ 59,109,497	$ 59,008,867

	Three Months ended March 31, 2018	Three Months ended March 31, 2017
Interest income:
Interest and fees on loans	$ 546,462	$ 588,776
Interest on investment securities	29,534	31,757
Interest on federal funds sold	41,310	12,659
Interest on time deposits with other banks	456	181
Total interest income	617,762	633,373

Interest expense:
Interest on time deposits	11,921	9,168
Interest on demand deposits	6,502	6,178
Interest on savings deposits	1,412	1,451
Total interest expense	19,835	16,797
Net interest income	597,927	616,576
Provision (credit) for loan losses	20,000	(30,000)

Net interest income after provision (credit) for loan losses	577,927	646,576

Noninterest income:
Customer service fees	100,089	95,739
ATM fee income	24,722	31,102
Gain on sale of loans	156,547	60,458
Net change in fair value of financial instruments	9,093	25,659
Loss on sale of other real estate	(2,082)	-
Other income	25,296	27,594
Total noninterest income	313,665	240,552

Noninterest expense:
Salaries, wages and employee benefits	400,054	399,820
Occupancy and equipment	255,042	254,127
Office operations and supplies	76,910	80,256
Marketing and public relations	18,562	4,500
Professional services	36,979	49,740
Data processing	101,435	98,883
Other real estate expense	13,835	20,594
Loan and collection costs	28,580	46,590
Deposit insurance assessments	25,000	22,000
Other operating	133,221	113,239
Total noninterest expense	1,089,618	1,089,749
Net loss before income taxes	$ (198,026)	($202,621)
Provision for income taxes	-	-
Net loss	$ (198,026)	$ (202,621)
Net loss per common share—basic and diluted	$ (0.24)	$ (0.25)
Weighted average number of common shares outstanding	826,921	826,921
Comprehensive loss:
Net loss	$ (198,026)	$ (202,621)
Unrealized (losses) gains on available for sale securities, net of taxes	(53,879)	9,767
Total comprehensive loss	$ (251,905)	$ (192,854)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	Series A Preferred stock		Series B Preferred stock		Common stock		Additional paid-in	Accumulated	Accumulated Other Comprehensive	Total Shareholders’
	Shares	Amount	Shares	Amount	Shares	Amount	capital	Deficit	Loss	Equity
Balance at December 31, 2017	99,342	$ 993	1,850	$18	826,921	$ 8,269	$ 15,677,626	($12,348,988)	$ (57,396)	$ 3,280,522
Net loss	-	-	-	-	-	-	-	(198,026)	-	(198,026)
Other comprehensive loss, net of tax	-	-	-	-	-	-	-	-	(53,879)	(53,879)
Issuance of Series B Preferred Stock	-	-	-	-	-	-	-	-	-	-
Balance at March 31, 2018	99,342	$993	1,850	$18	826,921	$ 8,269	$ 15,677,626	$ (12,547,014)	$ (111,275)	$ 3,028,617

(In 000’s)	Amortized Cost	Fair Value
Due in one year	$ -	$ -
Due after one year through five years	-	-
Due after five years through ten years	2,349	2,252
Government Sponsored Enterprises residential mortgage-backed securities	2,623	2,579
	$4,972	$ 4,831

(in 000’s)	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	Securities	Value	Losses	Value	losses	Value	Losses

U.S. Government agency securities	7	242	(8)	2,010	(89)	2,252	(97)

Government Sponsored Enterprises residential mortgage-backed securities	14	1,869	(36)	358	(19)	2,227	(55)

Total temporarily impaired investment Securities	21	2,111	(44)	2,368	(108)	4,479	(152)

(in 000’s)	March 31, 2018	December 31, 2017
Commercial and industrial	$2,098	$1,798
Commercial real estate	19,756	21,389
Consumer real estate	1,606	1,729
Consumer loans other	752	809
Total loans	$24,212	$ 25,725

(in 000's)	For the Three months ended March 31, 2018
	Commercial and industrial	Commercial real estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Beginning balance	$ 7	$ 155	$ 10	$ 8	$ -	$ 180
Provision (credit) for loan losses	-	3	(4)	1	20	20

Charge-offs	-	-	-	(5)	-	(5)
Recoveries	1	-	-	6	-	7
Net recoveries	1	-	-	1	-	2

Ending balance	$ 8	$ 158	$ 6	$ 10	$ 20	$ 202