UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission file number:
UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania ( | |
(State or other jurisdiction of | (IRS Employer |
incorporation or organization) | Identification No.) |
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(Address of principal | (Zip code) |
executive offices) |
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Registrant's telephone number, including area code:
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 requirements for the past 90 days.
Yes [ ]
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one): |
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Large accelerated filer [ ] | Accelerated filer [ ] |
Smaller reporting company | |
(Do not check if a smaller |
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reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of October 5, 2021 the aggregate number of the shares of the Registrant’s Common Stock issued was
The Series Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A, 7,000 as Series B, and 1,100 as Series C for which there were 99,442, 1,850, and 1,100 shares are issued, respectively as of October 5, 2021.
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EXPLANATORY NOTE
The sole purpose of this amendment to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, originally filed with the Securities and Exchange Commission on September 17, 2021, is to furnish Exhibit 101 to the Form 10-Q which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes included in Part 1, Item 1 of the Form 10-Q.
No changes have been made to the Form 10-Q other than the furnishing of Exhibit 101 described above. This amendment does not reflect subsequent events occurring after the original filing date of the Form 10-Q or modify or update in any way disclosures made in the Form 10-Q.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data File on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.
PART I - OTHER INFORMATION
Item 1. Financial Statements (unaudited)
UNITED BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2018 |
| December 31, 2017 | |
Assets: |
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Cash and due from banks |
| $ |
| $ |
Interest-bearing deposits with banks |
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Federal funds sold and other cash equivalents |
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Cash and cash equivalents |
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Investment securities available-for-sale, at fair value |
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Loans held for sale |
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Loans held at fair value |
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Loans, net of unearned discounts and deferred fees |
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Less allowance for loan losses |
| ( |
| ( |
Net loans |
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Bank premises and equipment, net |
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Accrued interest receivable |
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Other real estate owned |
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Servicing asset |
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Prepaid expenses and other assets |
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Total assets |
| $ |
| $ |
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Liabilities and Shareholders’ Equity |
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Liabilities: |
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Demand deposits, noninterest-bearing |
| $ |
| $ |
Demand deposits, interest-bearing |
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Savings deposits |
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Time deposits, under $250,000 |
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Time deposits, $250,000 and over |
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Total deposits |
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Accrued interest payable |
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Accrued expenses and other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Series A preferred stock, noncumulative, |
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Series B preferred stock, noncumulative, |
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Common stock, $ |
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Additional paid-in-capital |
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Accumulated deficit |
| ( |
| ( |
Accumulated other comprehensive loss |
| ( |
| ( |
Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
| $ |
| $ |
See accompanying notes to the unaudited consolidated financial statements.
UNITED BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months ended September 30, 2018 |
| Three Months ended September 30, 2017 |
| Nine Months ended September 30, 2018 |
| Nine Months ended September 30, 2017 | |
Interest income: |
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Interest and fees on loans |
| $ |
| $ |
| $ |
| $ |
Interest on investment securities |
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Interest on federal funds sold |
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Interest on time deposits with other banks |
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Total interest income |
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Interest expense: |
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Interest on time deposits |
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Interest on demand deposits |
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Interest on savings deposits |
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Total interest expense |
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Net interest income |
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Provision (credit) for loan losses |
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| ( |
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| ( |
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Net interest income after provision (credit) for loan losses |
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Noninterest income: |
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Customer service fees |
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ATM fee income |
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Gain on sale of loans |
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Net change in fair value of financial instruments |
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Gain (loss) on sale of other real estate |
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| ( |
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Loan Syndication Fees |
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Other income |
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Total noninterest income |
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Noninterest expense: |
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Salaries, wages and employee benefits |
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Occupancy and equipment |
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Office operations and supplies |
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Marketing and public relations |
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Professional services |
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Data processing |
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Deposit insurance assessments |
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Other real estate expense |
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Loan and collection expense |
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Other operating |
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Total noninterest expense |
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Net (loss) income before income taxes |
| ( |
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| ( |
| ( |
Provision for income taxes |
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Net (loss) income |
| $ ( |
| $ |
| $ ( |
| $ ( |
Net (loss) income per common share—basic and diluted |
| $ ( |
| $ |
| $ ( |
| $ ( |
Weighted average number of common shares outstanding |
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Comprehensive (loss) income: |
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Net (loss) income |
| $ ( |
| $ |
| $ ( |
| $ ( |
Unrealized (losses) gains on available for sale securities, net of taxes |
| ( |
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| ( |
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Total comprehensive (loss) income |
| $ ( |
| $ |
| $ ( |
| $ ( |
See accompanying notes to the unaudited consolidated financial statements.
UNITED BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Nine Months Ended September 30, 2018
| Series A Preferred stock | Series B Preferred stock | Common stock | Additional | Accumulated | Accumulated Other | Total | |||
Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Loss | Equity | |
Balance at December 31, 2017 | | $ | | $ | | $ | $ | ($ | ($ | $ |
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Net loss | | | | | | | | ( | | ( |
Other comprehensive loss, net of tax | | | | | | | | | ( | ( |
Issuance of Series B Preferred Stock | - | - |
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| - | - | - | - | - | - |
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| - | - |
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Balance at March 31, 2018 | | $ | | $ | | $ | $ | ( | ( | |
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Net loss |
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Other comprehensive loss, net of tax | | | | | | | | | ( | ( |
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Balance at June 31, 2018 | | $ | | $ | | $ | $ | $ ( | $ ( | $ |
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Net loss | | | | | | | | ( | | ( |
Other comprehensive loss, net of tax | | | | | | | | | ( | ( |
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Balance at September 31, 2018 | | $ | | $ | | $ | $ | $ ( | $ ( | $ |
See accompanying notes to the unaudited consolidated financial statements.
UNITED BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Nine Months Ended September 30, 2017
| Series A Preferred stock | Series B Preferred stock | Common stock | Additional | Accumulated | Accumulated Other | Total | |||
Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Loss | Equity | |
Balance at December 31, 2016 | | $ | | $ | | $ | $ | $ ( | $ ( | $ |
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Net loss | | | | | | | | ( | | ( |
Other comprehensive loss, net of tax | | | | | | | | | | |
Issuance of Series B Preferred Stock |
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Balance at March 31, 2017 | | | | | | | | ( | ( | |
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Net loss | | | | | | | | ( | | ( |
Other comprehensive income, net of tax | | | | | | | | | | |
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Balance at June 30, 2017 | | $ | | $ | | $ | $ | $ ( | $ ( | $ |
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Net loss | | | | | | | | | | |
Other comprehensive income, net of tax | | | | | | | | | | |
Issuance of Series B Preferred Stock |
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Balance at September 30, 2017 | | $ | | $ | | $ | $ | $ ( | $ ( | $ |
See accompanying notes to the unaudited consolidated financial statements.
.
UNITED BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
| 2018 |
| 2017 | |
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Cash flows from operating activities: |
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Net loss |
| $ ( |
| $ ( |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Provision (credit) for loan losses |
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| ( |
Amortization of premiums on investments, net |
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Loss on disposition of other real estate |
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Write-down of other real estate |
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Amortization of servicing asset |
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Depreciation on fixed assets |
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Net change in fair value of financial instruments |
| ( |
| ( |
Gain on sale of loans |
| ( |
| ( |
Proceeds from the sale of loans held-for-sale |
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Loans originated for sale |
| ( |
| ( |
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Increase in accrued interest receivable and other assets |
| ( |
| ( |
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Increase in accrued interest payable and other liabilities |
| ( |
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Net cash used in operating activities |
| ( |
| ( |
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Cash flows from investing activities: |
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Proceeds from maturity and principal reductions of |
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Purchase of securities available-for-sale |
| ( |
| ( |
Net decrease in loans |
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Proceeds from sale of other real estate |
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Purchase of bank premises and equipment |
| ( |
| ( |
Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from the sale of preferred stock |
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Net decrease in deposits |
| ( |
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Net cash (used in) provided by financing activities |
| ( |
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Net (decrease) increase in cash and cash equivalents |
| ( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
| $ |
| $ |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
| $ |
| $ |
Transfer of investment to other cash equivalents |
| $ |
| $ |
Transfer of loans from held-for-sale to held at fair value |
| $ |
| $ |
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 September 30, 2018 and December 31, 2017 and the consolidated results of its operations and its cash flows for the three and nine months ended September 30, 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 cash flows 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 is 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) Income Per Share
The calculation of net loss per share follows:
Three Months Ended | Three Months Ended | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | |
Basic: |
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Net (loss) income available to common shareholders | $ ( | $ | $ ( | $ ( |
Average common shares outstanding-basic | | | | |
Net (loss) income per share-basic | $ ( | $ | $ ( | $ ( |
Diluted: |
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Average common shares-diluted | | | | |
Net (loss) income per share-diluted | $ ( | $ | $ ( | $ ( |
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 September 30, 2018 | ||
| Before tax |
| Net of tax |
(in (000’s) | Amount | Taxes | Amount |
Beginning balance | $ ( | $ | $ ( |
Unrealized loss on securities: |
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Unrealized holding loss arising during period | ( | | ( |
Other comprehensive loss, net | ( | | ( |
Ending balance | $ ( | $ | $ ( |
| Three Months Ended September 30, 2017 | ||
| Before tax |
| Net of tax |
(in (000’s) | Amount | Taxes | Amount |
Beginning balance | $ ( | $ | $ ( |
Unrealized gain on securities: |
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Unrealized holding gain arising during period | | ( | |
Other comprehensive income, net | | ( | |
Ending balance | $ ( | $ | $ ( |
| Nine Months Ended September 30, 2018 | ||
| Before tax |
| Net of tax |
(in (000’s) | Amount | Taxes | Amount |
Beginning balance | $ ( | $ | $ ( |
Unrealized loss on securities: |
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Unrealized holding loss arising during period | ( | | ( |
Other comprehensive loss, net | ( | | ( |
Ending balance | $ ( | $ | $ ( |
| Nine Months Ended September 30, 2017 | ||
| Before tax |
| Net of tax |
(in (000’s) | Amount | Taxes | Amount |
Beginning balance | $ ( | $ | $ ( |
Unrealized gain on securities: |
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Unrealized holding gain arising during period | | ( | |
Other comprehensive income, net | | ( | |
Ending balance | $ ( | $ | $ ( |
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) | September 30, 2018 | |||
|
| Gross | Gross |
|
| Amortized | Unrealized | Unrealized | Fair |
| Cost | Gains | Losses | Value |
Available-for-sale: |
|
|
|
|
U.S. Government agency securities | $ | $ | $ ( | $ |
Government Sponsored Enterprises residential mortgage-backed securities | | | ( | |
| $ | | ( | $ |
| December 31, 2017 | |||
|
| Gross | Gross |
|
| Amortized | Unrealized | Unrealized | Fair |
| Cost | Gains | Losses | Value |
Available-for-sale: |
|
|
|
|
U.S. Government agency securities | $ | $ | $ ( | $ |
Government Sponsored Enterprises residential mortgage-backed securities | | | ( | |
Investments in money market funds | | | | |
| $ | $ | $ ( | $ |
Effective January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments as describe in Note 4. As a result, the Investment in Money Market Mutual Funds was reclassed to Federal Funds Sold and other cash equivalents.
The amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of September 30, 2018, are as follows:
(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 |
| |
| |
Government Sponsored Enterprises residential mortgage-backed securities |
| |
| |
|
| $ |
| $ |
Expected maturities will differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without any penalties.
There were no sales of securities during the three and nine months ended September 30, 2018 and 2017.
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at September 30, 2018:
(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 | | $ | $ | $ | $ ( | $ | $ ( |
|
|
|
|
|
|
|
|
Government Sponsored Enterprises residential | | | ( | | ( | | ( |
|
|
|
|
|
|
|
|
Total temporarily impaired investment Securities | | $ | $ ( | $ | $ ( | $ | $ ( |
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2017:
(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 | $ | $ ( | $ | $ ( | $ | $ ( | |
|
|
|
|
|
|
|
|
Government Sponsored Enterprises residential | ( | ( | ( | ||||
|
|
|
|
|
|
|
|
Total temporarily impaired investment Securities | $ | $ ( | $ | $( | $ | $ ( |
Government Sponsored Enterprises residential mortgage-backed securities. Unrealized losses on the Company’s investment in Government Sponsored Enterprises residential mortgage-backed securities were caused by market interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.
U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by market interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.
The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. On a quarterly basis, the Company reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company’s ability and intent to hold the security for a period of time that allows for the recovery in value.
As of September 30, 2018 and December 31, 2017, investment securities with a carrying value of $
6. Loans and Allowance for Loan Losses
The composition of the Bank’s loan portfolio is as follows:
(in 000’s) | September 30, 2018 | December 31, |
Commercial and industrial | $ | $ |
Commercial real estate | | |
Consumer real estate | | |
Consumer loans other | | |
Total loans | $ | $ |
At September 30, 2018, there was no unearned discount. At December 31, 2017, the unearned discount totaled $10,858 respectively, and is included in the related loan accounts.
The determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance is the accumulation of three components that are calculated based on various independent methodologies that are based on management’s estimates. The three components are as follows:
·Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans.
·Historical Charge-Off Component – Applies an eight-quarter rolling historical charge-off rate to all portfolio segments of non-classified loans.
·Qualitative Factors Component – The loan portfolio is broken down into portfolio segments, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.
All of these factors may be susceptible to significant change. During the nine months ended September 30, 2018 the Bank did not change any of its qualitative factors in any segment of the loan portfolio. In addition, the average historical loss factors were relatively unchanged as there were minimal net recoveries during the quarter. The increase in provision for commercial and industrial loans for the nine months ended September 30, 2018 is related to a specific reserve required for one impaired loan. Credits to the provision for commercial real estate loans during 2018 was related to a decrease in balance in outstanding loans as well as the origination of SBA loans that are accounted for at fair value and are not included in the calculation of the allowance for loan losses. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. The following table presents an analysis of the allowance for loan losses.
(in 000's) | For the Three months ended September 30, 2018 | |||||
Commercial and industrial | Commercial real estate | Consumer real estate | Consumer loans Other |
Unallocated |
Total | |
Beginning balance | $ | $ | $ | $ | $ | $ |
Provision (credit) for loan losses | | ( | | ( | ( | |
|
|
|
|
|
|
|
Charge-offs | | | | ( | | ( |
Recoveries | | | | | | |
Net recoveries | | | | | | |
|
|
|
|
|
|
|
Ending balance | $ | $ | $ | $ | $ | $ |
(in 000's) | For the Three months ended September 30, 2017 | |||||
Commercial and industrial | Commercial real Estate | Consumer real estate | Consumer loans Other |
Unallocated | Total | |
Beginning balance | $ | $ | $ | $ | $ | $ |
Provision (credit) for loan losses | ( | | | | | ( |
|
|
|
|
|
|
|
Charge-offs | | | | ( | | ( |
Recoveries | | | | | | |
Net recoveries | | | | ( | | |
|
|
|
|
|
|
|
Ending balance | $ | $ | $ | $ | $ | $ |
(in 000's) | For the Nine months ended September 30, 2018 | |||||
Commercial and industrial | Commercial real estate | Consumer real estate | Consumer loans Other |
Unallocated | Total | |
Beginning balance | $ | $ | $ | $ | $ | $ |
Provision (credit) for loan losses | | ( | ( | ( | | |
|
|
|
|
|
|
|
Charge-offs | ( | ( | | ( | | ( |
Recoveries | | | | |
| |
Net (charge-offs) recoveries | ( | ( | | ( | | ( |
|
|
|
|
|
|
|
Ending balance | $ | $ | $ | $ | $ | $ |
(in 000's) | For the Nine months ended September 30, 2017 | |||||
Commercial and industrial | Commercial real estate | Consumer real estate | Consumer loans Other |
Unallocated | Total | |
Beginning balance | $ | $ | $ | $ | | $ |
Provision (credit) for loan losses | ( | ( | ( | ( | ( | ( |
|
|
|
|
|
|
|
Charge-offs | | | | ( | | ( |
Recoveries | | | | | | |
Net (charge-offs) recoveries | | | | ( | | |
|
|
|
|
|
|
|
Ending balance | $ | $ | $ | $ | | $ |
(in 000's) | September 30, 2018 | |||||
Commercial and industrial | Commercial real Estate | Consumer real estate | Consumer loans Other |
Unallocated | Total | |
|
|
|
|
|
|
|
Period-end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ |
Loans collectively evaluated for impairment | | | | | | |
$ | $ | $ | $ | $ | $ | |
|
|
|
|
|
|
|
Loans, ending balance: |
|
|
|
|
|
|
Loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ |
Loans collectively evaluated for impairment | | | | | | |
Total | $ | $ | $ | $ | $ | $ |
(in 000's) | December 31, 2017 | |||||
Commercial and industrial | Commercial real Estate | Consumer real estate | Consumer loans Other |
Unallocated | Total | |
|
|
|
|
|
|
|
Period-end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ |
Loans collectively evaluated for impairment | | | | | | |
$ | $ | $ | $ | $ | $ | |
|
|
|
|
|
|
|
Loans, ending balance: |
|
|
|
|
|
|
Loans individually evaluated for impairment | $ | $ | $ | $ | $ | $ |
Loans collectively evaluated for impairment | | | | | | |
Total | $ | $ | $ | $ | $ | $ |
Nonperforming and Nonaccrual and Past Due Loans
An age analysis of past due loans, segregated by class of loans, as of September 30, 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 | $ | $ | $ | | | $ |
SBA loans | | | | | | |
Asset-based | | | | | | |
Total Commercial and industrial | | | | | | |
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
Commercial mortgages | | | | | | |
SBA loans | | | | | | |
Construction | | | | | | |
Religious organizations | | | | | | |
Total Commercial real estate | | | | | | |
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
Home equity loans | | | | | | |
Home equity lines of credit | | | | | | |
1-4 family residential mortgages | | | | | | |
Total consumer real estate | | | | | | |
|
|
|
|
|
|
|
Total real estate | 175 | 276 | 1,668 | 2,119 | 17,458 | 19,577 |
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
Student loans | | | | | | |
Other | | | | | | |
Total consumer and other | | | | | | |
|
|
|
|
|
|
|
Total loans | $ | $ | $ | $ | $ | $ |
|
|
|
|
|
|
|
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 | $ | $ | $ | $ | $ | $ |
SBA Loans | | | | | | |
Asset-based | | | | | | |
Total Commercial and industrial | | | | | | |
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
Commercial mortgages | | | | | | |
SBA loans | | | | | | |
Construction | | | | | | |
Religious organizations | | | | | | |
Total Commercial real estate | | | | | | |
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
Home equity loans | | | | | | |
Home equity lines of credit | | | | | | |
1-4 family residential mortgages | | | | | | |
Total consumer real estate | | | | | | |
|
|
|
|
|
|
|
Total real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
Student loans | | | | | | |
Other | | | | | | |
Total consumer and other | | | | | | |
|
|
|
|
|
|
|
Total loans | $ | $ | $ | $ | $ | $ |
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 | |||||||
Good/ Excellent | Satisfactory | Pass | Special Mention | Substandard | Doubtful | Total | ||
Commercial and industrial: |
|
|
|
|
|
|
| |
Commercial | $ | $ | $ | $ | $ | $ | $ | |
SBA loans | | | | | | | | |
Asset-based | | | | | | | | |
| | | | | | | ||
Commercial real estate: |
|
|
|
|
|
|
| |
Commercial mortgages | | | | | | | | |
SBA Loans | | | | | | | | |
Construction | | | | | | | | |
Religious organizations | | | | | | | | |
| | | | | | | ||
|
|
|
|
|
|
|
| |
Total commercial loans | $ | $ | $ | $ | $ | $ | $ |
| Residential Mortgage and Consumer Loans September 30, 2018 | ||
Performing | Nonperforming | Total | |
|
|
|
|
Consumer Real Estate: |
|
|
|
Home equity | $ | $ | $ |
Home equity line of credit | |||
1-4 family residential mortgages | |||
|
|
|
|
Consumer Other: |
|
|
|
Student loans | |||
Other | |||
|
|
|
|
Total consumer loans | $ | $ | $ |
(In 000's) | Commercial Loans, | ||||||
Good/ Excellent |
Satisfactory | Pass | Special Mention |
Substandard |
Doubtful |
Total |
|
|
|
|
|
|
|
|
Commercial and industrial: |
|
|
|
|
|
|
|
Commercial | $ | $ | $ | $ | $ | $ | $ |
SBA loans | | | | | | | |
Asset-based | | | | | | | |
| | | | | | | |
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
Commercial mortgages | | | | | | | |
SBA Loans | | | | | | | |
Construction | | | | | | | |
Religious organizations | | | | | | | |
| | | | | | | |
|
|
|
|
|
|
|
|
Total commercial loans | $ | $ | $ | $ | $ | $ | $ |
| Residential Mortgage and | |||
Performing | Nonperforming | Total | ||
|
|
|
| |
Consumer Real Estate: |
|
|
| |
Home equity | $ | $ | $ | |
Home equity line of credit | | | | |
1-4 family residential mortgages | | | | |
| | | ||
|
|
|
| |
Consumer Other: |
|
|
| |
Student loans | | | | |
Other | | | | |
| | | ||
|
|
|
| |
Total consumer loans | $ | $ | $ |
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 was one commercial real estate partial charge-off totaling $18,000 for the nine months ended September 30, 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 September 30, 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 | | | | | |
Total commercial and industrial | | | | | |
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
Commercial mortgages | | | | | |
SBA Loans | | | | | |
Religious organizations | | | | | |
Total commercial real estate | | | | | |
|
|
|
|
|
|
Total loans | $ | $ | $ | $ | $ |
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 | | | | | |
Total Commercial and industrial | | | | | |
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
Commercial mortgages | | | | | |
SBA Loans | | | | | |
Religious Organizations | | | | | |
Total Commercial real estate | | | | | |
Total loans | $ | $ | $ | $ | |
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 September 30, 2018 | Three Months Ended September 30, 2017 | ||
| Average | Interest recognized | Average | Interest recognized |
| Recorded | on impaired | Recorded | on impaired |
| Investment | Loans | Investment | Loans |
Commercial and industrial: |
|
|
|
|
Commercial | $ | $ | $ | $ |
SBA loans | | | | |
Asset-based | | | | |
Total commercial and industrial | | | | |
|
|
|
|
|
Commercial real estate: |
|
|
|
|
Commercial mortgages | | | | |
SBA loans | | | | |
Religious organizations | | | | |
Total Commercial real estate | | | | |
|
|
|
|
|
Total loans | $ | $ | $ | $ |
(In 000's) | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2017 | ||
| Average | Interest recognized | Average | Interest recognized |
| Recorded | on impaired | Recorded | on impaired |
| Investment | Loans | Investment | Loans |
Commercial and industrial: |
|
|
|
|
Commercial | $ | $ | $ | $ |
SBA loans | | | | |
Asset-based | | | | |
Total commercial and industrial | | | | |
|
|
|
|
|
Commercial real estate: |
|
|
|
|
Commercial mortgages | | | | |
SBA loans | | | | |
Religious organizations | | | | |
Total commercial real estate | | | | |
|
|
|
|
|
Total loans | $ | $ | $ | $ |
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 September 30, 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 | Nine Months Ended | Nine Months Ended |
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |
|
|
|
|
|
Beginning balance | $ | $ | $ | $ |
Additions, transfers from loans | | | | |
Sales | ( | | ( | |
| | | | |
Write-ups (downs) | | | ( | |
Ending Balance | $ | $ | $ | $ |
There were no loans in the process of foreclosure at September 30, 2018 and December 31, 2017.
The following schedule reflects the components of other real estate owned:
(in 000's) | September 30, 2018 | December 31, 2017 |
Commercial real estate | $ | $ |
Residential real estate | | |
Total | $ | $ |
The following table details the components of net expense of other real estate owned:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended |
(in 000's) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 |
Insurance | $ | $ | $ | $ |
Legal Fees | | | | |
Professional fees | | | | |
Real estate taxes | | | | |
Utilities | | | | |
Maintenance | | | | |
Write downs | | | | |
Other | | | | |
Total | $ | $ | $ | $ |
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 | Quoted Prices in Active | Significant Other | Significant Unobservable | |
Investment securities available-for-sale: |
|
|
|
|
U.S. Government agency securities | $ | $ | $ | $ |
Government Sponsored Enterprises residential mortgage-backed securities | | | | |
Total | $ | $ | $ | |
Loans held for sale | $ | | $ |
|
Loans held at fair value | $ | | | $ |
Servicing asset | $ | | | $ |
(in 000’s) | Fair Value Measurements at Reporting Date Using: | |||
Assets Measured at | Quoted Prices in Active | Significant Other | Significant Unobservable | |
Investment securities available-for-sale: |
|
|
|
|
U.S. Government agency securities | $ | $ | $ | $ |
Government Sponsored Enterprises residential mortgage-backed securities | | | | |
Money market funds | | | | |
Total | $ | $ | $ | $ |
Loans held for sale | $ | $ | $ | $ |
Loans held at fair value | $ | $ | $ | $ |
Servicing asset | $ | $ | $ | $ |
The fair value of the Bank’s AFS securities portfolio was approximately $4,914,000 and $5,145,000 at September 30, 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 September 30, 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 | September 30, 2018 Fair value | December 31, 2017 Fair Value | Principal valuation techniques | Significant observable inputs | September 30, 2018 Range of inputs | December 31, 2017 Range of inputs |
Loans held at fair value: | $ | $ | Constant prepayment rate | |||
|
|
|
| Weighted average discount rate | ||
|
|
|
| Weighted average life | ||
|
|
|
| Projected default rate |
(in 000’s)
Assets measured at fair value | September 30, 2018 Fair value | December 31, 2017 Fair Value | Principal valuation techniques | Significant observable inputs | September 30, 2018 Range of inputs | December 31, 2017 Range of inputs |
Servicing asset | $ | $ | Constant prepayment rate | |||
|
|
|
| Weighted average discount rate | ||
|
|
|
| Weighted average life |
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 | $ | $ |
Origination of loans/additions | ||
Principal repayments/amortization | ( | ( |
Change in fair value of financial instruments | ( | |
Balance at September 30, 2018 | $ | $ |
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 September 30, 2018 and December 31, 2017, for which a nonrecurring change in fair value has been recorded during the nine months ended September 30, 2018 and year ended December 31, 2017.
Carrying Value at September 30, 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 | $ | $ | ||
Other real estate owned (“OREO”) | $ | $ |
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 (Level 3) |
Impaired Loans | $ | $ | ||
Other real estate owned (“OREO”) | $ | $ |
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 September 30, 2018 and December 31, 2017, the fair values shown above exclude estimated selling costs of $39,000.
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:
|
| September 30, 2018 | December 31, 2017 | ||
(in 000’s) | Level in | Carrying | Fair | Carrying | Fair |
Value Hierarchy | Amount | Value | Amount | Value | |
(Dollars in thousands) |
|
|
|
|
|
Assets: |
|
|
|
|
|
Cash and cash equivalents | Level 1 | $ | $ | $ | $ |
Loans, net of allowance for loan losses | (1) | | | | |
Servicing asset | Level 3 | | | | |
Accrued interest receivable | Level 1 | | | | |
Liabilities: |
|
|
|
|
|
Demand deposits | Level 1 | | | | |
Savings deposits | Level 1 | | | | |
Time deposits | (2) | | | | |
Accrued interest payable | Level 1 | | | | |
(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 83.5% 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.
Loan Syndication Fees – The Company contracts with certain corporate entities as an arranging institution for loan syndications whereby a fee is earned by the Company for soliciting, assembling, and obtaining commitments from other lenders related to certain facilities of the corporate entity. A portion of the fee is paid as an up-front payment for acting as the arranger, which is earned and recognized on the date the contract is signed without further commitment. Another portion of the fee is earned, and generally paid, upon completion of the loan syndication arrangement which is the performance obligation for that portion of the fee.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended September 30, 2018 and 2017.
| Three Months Ended | Nine Months Ended | ||
2018 | 2017 | 2018 | 2017 | |
(Dollars in thousands) |
|
|
|
|
Noninterest income: |
|
|
|
|
In-scope of Topic 606 |
|
|
|
|
Customer Service Fees | $ | $ | $ | $ |
ATM Fee Income | | | | |
Loan Syndication Fees | | | | |
Other income | | | | |
Noninterest income (in-scope of Topic 606) | | | | |
Noninterest income (out-of-scope of Topic 606) | | | | |
Total noninterest income | $ | $ | $ | $ |
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 September 30, 2018 and December 31, 2017, the Bank’s tier one leverage capital ratio was
·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. 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 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.
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 $58,000 for the quarter ended September 30, 2018 and net income of approximately $29,000 for the same quarter in 2017. Additionally, the Company reported a net loss of $
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 2018 and 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 reversal 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 February 2020. 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 4.00% 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. The Bank’s growth and other operating factors such as the need for additional provisions to the allowance for loans losses may have an adverse effect on its capital ratios.
Beginning in March 2020, the onset of the COVID-19 pandemic has 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 |
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| (Registrant) |
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October 8, 2021 |
| /s/ Evelyn F. Smalls |
Date |
| Evelyn F. Smalls |
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| President and Chief Executive Officer |
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October 8, 2021 |
| /s/ Brenda Hudson-Nelson |
Date |
| Executive Vice President, |
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| Chief Financial Officer |
Exhibit No. |
Description |
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3.1 | Certificate of Incorporation (1) |
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3.2 | Bylaws (1) |
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31.1 | |
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31.2 | |
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32.1 | |
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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) |
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(1) | Filed previously. |
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(2) | Furnished herewith. |