SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _____________ |
(Exact name of registrant as specified in its charter) |
Commission File Number
| ||
(State or other jurisdiction of |
| (I.R.S. Employer |
Incorporation or organization) |
| Identification No.) |
| ||
(Address of principal executive office) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether 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 twelve months (or such shorter period that the registrant was required to filed such reports), and (2) has been subject to such filing requirements for the past 90 day.
Yes ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller Reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐ Not Applicable.
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
United Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of capital stock authorized 2,000,000 shares of $0.01 par value Common Stock and 500,000 shares of $0.01 par value Series Preferred Stock. The 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 issued, respectively as of October 24, 2022.
The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998. This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights. Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock. There is no market for the Common Stock. As of October 24, 2022, the aggregate number of the shares of the Registrant’s Common Stock issued was
FORM 10-Q
Index
2 |
Table of Contents |
PART I - OTHER INFORMATION
Item 1. Financial Statements (unaudited)
United Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Assets: |
|
|
|
|
|
| ||
Cash and due from banks |
| $ |
|
| $ |
| ||
Interest-bearing deposits with banks |
|
|
|
|
|
| ||
Federal funds sold and other cash equivalents |
|
|
|
|
|
| ||
Cash and cash equivalents |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale, at fair value |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Loans held at fair value |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Loans, net of unearned discounts and deferred fees |
|
|
|
|
|
| ||
Less allowance for loan losses |
|
| ( | ) |
|
| ( | ) |
Net loans |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Operating lease right of use asset |
|
|
|
|
|
| ||
Bank premises and equipment, net |
|
|
|
|
|
| ||
Accrued interest receivable |
|
|
|
|
|
| ||
Other real estate owned |
|
|
|
|
|
| ||
Servicing asset |
|
|
|
|
|
| ||
Prepaid expenses and other assets |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Demand deposits, noninterest-bearing |
| $ |
|
| $ |
| ||
Demand deposits, interest-bearing |
|
|
|
|
|
| ||
Savings deposits |
|
|
|
|
|
| ||
Time deposits, under $250,000 |
|
|
|
|
|
| ||
Time deposits, $250,000 and over |
|
|
|
|
|
| ||
Total deposits |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Operating lease liability |
|
|
|
|
|
| ||
Accrued interest payable |
|
|
|
|
|
| ||
Accrued expenses and other liabilities |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Series A preferred stock, noncumulative, 6%, $ |
|
|
|
|
|
| ||
Series B preferred stock, noncumulative, 7%, $ |
|
|
|
|
|
| ||
Common stock, $ |
|
|
|
|
|
| ||
Additional paid-in-capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive loss |
|
| ( | ) |
|
| ( | ) |
Total shareholders’ equity |
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity |
| $ |
|
| $ |
|
See accompanying notes to the unaudited consolidated financial statements.
3 |
Table of Contents |
United Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
|
| Three Months ended March 31, 2019 |
|
| Three Months ended March 31, 2018 |
| ||
Interest income: |
|
|
|
|
|
| ||
Interest and fees on loans |
| $ |
|
| $ |
| ||
Interest on investment securities |
|
|
|
|
|
| ||
Interest on federal funds sold |
|
|
|
|
|
| ||
Interest on interest bearing deposits with other banks |
|
|
|
|
|
| ||
Total interest income |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Interest on time deposits |
|
|
|
|
|
| ||
Interest on demand deposits |
|
|
|
|
|
| ||
Interest on savings deposits |
|
|
|
|
|
| ||
Total interest expense |
|
|
|
|
|
| ||
Net interest income |
|
|
|
|
|
| ||
(Credit) provision for loan losses |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net interest income after (credit) provision for loan losses |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
Customer service fees |
|
|
|
|
|
| ||
ATM fee income |
|
|
|
|
|
| ||
Gain on sale of loans |
|
|
|
|
|
| ||
Net change in fair value of financial instruments |
|
| ( | ) |
|
|
| |
Loss on sale of other real estate |
|
| ( | ) |
|
| ( | ) |
Servicing fees on loans |
|
|
|
|
|
| ||
Other income |
|
|
|
|
|
| ||
Total noninterest income |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
|
|
|
|
| ||
Occupancy and equipment |
|
|
|
|
|
| ||
Office operations and supplies |
|
|
|
|
|
| ||
Marketing and public relations |
|
|
|
|
|
| ||
Professional services |
|
|
|
|
|
| ||
Data processing |
|
|
|
|
|
| ||
Other real estate expense |
|
|
|
|
|
| ||
Loan and collection costs |
|
|
|
|
|
| ||
Deposit insurance assessments |
|
|
|
|
|
| ||
Other operating |
|
|
|
|
|
| ||
Total noninterest expense |
|
|
|
|
|
| ||
Net loss before income taxes |
| $ | ( | ) |
| $ | ( | ) |
Provision for income taxes |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Net loss per common share—basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
Weighted average number of common shares outstanding |
|
|
|
|
|
| ||
Comprehensive loss: |
|
|
|
|
|
|
|
|
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Unrealized gains (losses) on available for sale securities, net of taxes |
|
|
|
|
| ( | ) | |
Total comprehensive loss |
| $ | ( | ) |
| $ | ( | ) |
See accompanying notes to the unaudited consolidated financial statements.
4 |
Table of Contents |
United Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 2019
|
| Series A Preferred stock |
|
| Series B Preferred stock |
|
| Common stock |
|
| Additional paid-in |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total Shareholders’ |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| Deficit |
|
| Income (Loss) |
|
| Equity |
| ||||||||||
Balance at December 31, 2018 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Cumulative effect of adoption of ASU 2016-02, Leases (Topic 842) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Other comprehensive income, net of tax |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at March 31, 2019 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
Three Months Ended March 31, 2018
|
| Series A Preferred stock |
|
| Series B Preferred stock |
|
| Common stock |
|
| Additional paid-in |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total Shareholders’ |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||||||
Balance at December 31, 2017 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Other comprehensive loss, net of tax |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance at March 31, 2018 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
See accompanying notes to the unaudited consolidated financial statements.
5 |
Table of Contents |
United Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
(Credit) provision for loan losses |
|
| ( | ) |
|
|
| |
Amortization of premiums on investments |
|
|
|
|
|
| ||
Loss on sale of other real estate |
|
|
|
|
|
| ||
Amortization of servicing asset |
|
|
|
|
|
| ||
Depreciation on fixed assets |
|
|
|
|
|
| ||
Net change in fair value of financial instruments |
|
|
|
|
| ( | ) | |
Gain on sale of loans |
|
| ( | ) |
|
| ( | ) |
Proceeds from the sale of loans held-for-sale |
|
|
|
|
|
| ||
Loans originated for sale (net of payments) |
|
|
|
|
| ( | ) | |
Increase in accrued interest receivable and other assets |
|
| ( | ) |
|
| ( | ) |
Increase in accrued interest payable and other liabilities |
|
|
|
|
|
| ||
Net cash provided by (used in) operating activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from maturity and principal reductions of available-for-sale investment securities |
|
|
|
|
|
| ||
Purchase of securities available-for-sale |
|
|
|
|
| ( | ) | |
Net decrease in loans |
|
|
|
|
|
| ||
Proceeds from sale of other real estate |
|
|
|
|
|
| ||
Purchase of bank premises and equipment |
|
| ( | ) |
|
|
| |
Net cash provided by investing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
| ( | ) |
|
|
| |
Net cash (used in) provided by financing activities |
|
| ( | ) |
|
|
| |
Net increase in cash and cash equivalents |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ |
|
| $ |
| ||
Investments transferred to other cash equivalents |
| $ |
|
| $ |
| ||
Loans transferred from held for sale to held at fair value |
| $ |
|
| $ |
| ||
Non-cash addition of operating lease right of use asset |
| $ | ( | ) |
| $ |
| |
Non-cash addition of operating lease liability |
| $ |
|
| $ |
|
See accompanying notes to the unaudited consolidated financial statements.
6 |
Table of Contents |
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, 2018 when reviewing this Form 10-Q. Because this report is based on an interim period, certain information and footnote disclosures normally included in the Annual Report on Form 10-K have been condensed or omitted. Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company’s consolidated financial position as of March 31, 2019 and December 31, 2018 and the consolidated results of its operations and its cash flows for the three months ended March 31, 2019 and 2018.
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 for sale and 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. SBA loans that are held for sale that fail to meet the criteria for SBA sale in the secondary market are transferred to loans held at fair value.
Loans Held at Fair Value
The Bank originates SBA loans for which the un-guaranteed portion is retained after the guaranteed portion is sold in the secondary market. Management has elected to carry these loans at fair value in accordance with the irrevocable option permitted under Accounting Standards Codification (“ASC”) 825-10-25 Financial Instruments. Fair value of these loans is estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries. When a SBA loan held at fair value becomes nonperforming, the fair value estimate is based on the net liquidation value of collateral or the present value of future cashflows.
7 |
Table of Contents |
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.
8 |
Table of Contents |
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, other than the asset/liability related to the available for sale investments, has been recognized to offset the net deferred tax assets related to cumulative temporary differences and tax loss carryforwards. If management determines that the Company may be able to realize all or part of the deferred tax asset in the future, an income tax benefit may be required to increase the recorded value of the net deferred tax asset to the expected realizable amount.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.
2. Net Loss Per Share
The calculation of net loss per share follows:
|
| Three Months Ended March 31, 2019 |
|
| Three Months Ended March 31, 2018 |
| ||
Basic: |
|
|
|
|
|
| ||
Net loss available to common shareholders |
| $ | ( | ) |
| $ | ( | ) |
Average common shares outstanding-basic |
|
|
|
|
|
| ||
Net loss per share-basic |
| $ | ( | ) |
| $ | ( | ) |
Diluted: |
|
|
|
|
|
|
|
|
Average common shares-diluted |
|
|
|
|
|
| ||
Net loss 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, which is solely comprised of the unrealized gain or loss of available for sale investment securities:
|
| Three Months Ended March 31, 2019 |
| |||||||||
|
| Before tax |
|
| Deferred |
|
| Net of tax |
| |||
(in (000’s) |
| Amount |
|
| Taxes |
|
| Amount |
| |||
Beginning balance |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Unrealized holding gain arising during period |
|
|
|
|
| ( | ) |
|
|
| ||
Other comprehensive income, net |
|
|
|
|
| ( | ) |
|
|
| ||
Ending balance |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
|
| Three Months Ended March 31, 2018 |
| |||||||||
|
| Before tax |
|
| Deferred |
|
| Net of tax |
| |||
(in (000’s) |
| Amount |
|
| Taxes |
|
| Amount |
| |||
Beginning balance |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Unrealized holding loss arising during period |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Other comprehensive loss, net |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Ending balance |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
9 |
Table of Contents |
4. New Authoritative Accounting Guidance
Adoption of Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The standard 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. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) — Targeted Improvements , which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASU 2016-02 and its related amendments as of January 1, 2019, which resulted in the recognition of operating right-of-use assets totaling $
Effect of Upcoming Accounting Standards
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.
In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from LIBOR to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company has identified its LIBOR exposure across product categories and is analyzing the risks associated with the LIBOR transition. However, it is too early to predict whether a new rate index replacement and the adoption of this ASU will have a material impact on the Company’s financial statements.
10 |
Table of Contents |
5. Investment Securities
The following is a summary of the Company’s investment portfolio:
(In 000’s) |
| March 31, 2019 |
| |||||||||||||
|
|
|
| Gross |
|
| Gross |
|
|
| ||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
U.S. Government agency securities |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Government Sponsored Enterprises residential mortgage-backed securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
|
| December 31, 2018 |
| |||||||||||||
|
|
|
| Gross |
|
| Gross |
|
|
| ||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||
U.S. Government agency securities |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Government Sponsored Enterprises residential mortgage-backed securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
The amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of March 31, 2019, 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 months ended March 31, 2019 and 2018.
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2019:
(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 mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired investment Securities |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
11 |
Table of Contents |
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 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 mortgage-backed securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2019, and December 31, 2018, 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) |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Commercial and industrial |
| $ |
|
| $ |
| ||
Commercial real estate |
|
|
|
|
|
| ||
Consumer real estate |
|
|
|
|
|
| ||
Consumer loans other |
|
|
|
|
|
| ||
Total loans |
| $ |
|
| $ |
|
There were no unearned discounts at March 31, 2019 and December 31, 2018.
12 |
Table of Contents |
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 quarter ended March 31, 2019 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. Credits to the provision for the three months ended March 31, 2019 were primarily related to decreases in the balance of loans, reductions in specific reserves for impaired 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 March 31, 2019 |
| |||||||||||||||||||||
|
| 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 Three months ended March 31, 2018 |
| |||||||||||||||||||||
|
| Commercial and industrial |
|
| Commercial real Estate |
|
| Consumer real estate |
|
| Consumer loans Other |
|
| Unallocated |
|
| Total |
| ||||||
Beginning balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Credit for loan losses |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
(in 000’s) |
| March 31, 2019 |
| |||||||||||||||||||||
|
| 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
13 |
Table of Contents |
(in 000’s) |
| December 31, 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
Nonperforming and Nonaccrual and Past Due Loans
An age analysis of past due loans, segregated by class of loans, as of March 31, 2019 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
14 |
Table of Contents |
An age analysis of past due loans, segregated by class of loans, as of December 31, 2018 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. |
15 |
Table of Contents |
| · | 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.
16 |
Table of Contents |
The tables below detail the Bank’s loans by class according to their credit quality indicators discussed above.
(In 000’s) |
| Commercial Loans March 31, 2019 |
| |||||||||||||||||||||||||
|
| 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 March 31, 2019 |
| |||||||||
|
| 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 |
| $ |
|
| $ |
|
| $ |
|
17 |
Table of Contents |
(In 000’s) |
| Commercial Loans, December 31, 2018 |
| |||||||||||||||||||||||||
|
| 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 December 31, 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 |
| $ |
|
| $ |
|
| $ |
|
Impaired Loans. The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis.
In accordance with guidance provided by ASC 310-10, Accounting by Creditors for Impairment of a Loan, management employs one of three methods to determine and measure impairment: The Present Value of Future Cash Flow Method; the Fair Value of Collateral Method; or the Observable Market Price of a Loan Method. To perform an impairment analysis, the Company reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented. Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.
The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss. Specific reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. There were no partial charge-offs during the three months ended March 31, 2019.
18 |
Table of Contents |
Consumer real estate and other loans are not individually evaluated for impairment, but collectively evaluated, because they are pools of smaller balance homogeneous loans.
Impaired loans as of March 31, 2019 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 |
|
| 894 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBA Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Religious organizations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
Impaired loans as of December 31, 2018 are set forth in the following table.
(In 000’s) |
| Unpaid Contractual |
|
| Recorded Investment |
|
| Recorded Investment |
|
| Total |
|
|
| ||||||
|
| Principal |
|
| With No |
|
| With |
|
| Recorded |
|
| Related |
| |||||
|
| Balance |
|
| Allowance |
|
| Allowance |
|
| Investment |
|
| Allowance |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
SBA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
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 March 31, 2019 |
|
| Three Months Ended March 31, 2018 |
| ||||||||||
|
| 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 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
19 |
Table of Contents |
Troubled debt restructurings (“TDRs”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal. The terms of these loans do not include any financial concessions and are not consistent with the current market. Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties). Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring. Therefore, the Company had no troubled debt restructurings at March 31, 2019 and December 31, 2018.
7. Other Real Estate Owned
Other real estate owned (“OREO”) consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense. Activity in other real estate owned for the periods was as follows:
(in 000’s) |
| Three Months Ended |
|
| Three Months Ended |
| ||
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Additions, transfers from loans |
|
|
|
|
|
| ||
Sales |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
Write-ups (Write-downs) |
|
|
|
|
|
| ||
Ending Balance |
| $ |
|
| $ |
|
There were no loans in the process of foreclosure at March 31, 2019 and December 31, 2018.
The following schedule reflects the components of other real estate owned:
(in 000’s) |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Commercial real estate |
| $ |
|
| $ |
| ||
Residential real estate |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
8. Lease Commitments
Due to the adoption of ASU 2016-02, Leases (Topic 842) , the Company completed a comprehensive review and analysis of all its property contracts. As a result of this review, it was determined that the Company leases two office locations and office equipment under operating leases. Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company’s existing lease commitments, including the allocation of consideration in the contracts between lease and non-lease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.
The Company has elected to account for the variable non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of Operations when paid. These variable non-lease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. Total operating lease expense recorded during the three-month period ended March 31, 2019 and 2018 was $
Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019.
20 |
Table of Contents |
The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, 2019.
|
| Operating |
| |
Weighted-average remaining term (years) |
|
|
| |
Weighted-average discount rate |
|
| % |
The following table presents the undiscounted cash flows due related to operating and financing leases as of March 31, 2019, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets.
|
| Operating |
| |
Undiscounted cash flows due: |
|
|
| |
Within 1 year |
| $ |
| |
After 1 year but within 2 years |
|
|
| |
After 2 years but within 3 years |
|
|
| |
After 3 years but within 4 years |
|
|
| |
After 4 years but within 5 years |
|
|
| |
After 5 years |
|
|
| |
Total undiscounted cash flows |
|
|
| |
Discount on cash flows |
|
| ( | ) |
Total lease liabilities |
| $ |
|
Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of March 31, 2019, the Company had one lease for its Mount Airy branch that had a term of twelve months or less that did not include a purchase option. This lease is excluded from total lease liabilities.
9. 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.
21 |
Table of Contents |
The fair value guidance in FASB ASC 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:
| Level 1 | |
|
|
|
| · | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
|
|
| Level 2 | |
|
|
|
| · | Quoted prices for similar assets or liabilities in active markets. |
| · | Quoted prices for identical or similar assets or liabilities in markets that are not active. |
| · | Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” |
|
|
|
| Level 3 | |
|
|
|
| · | Prices or valuation techniques that require inputs that are both unobservable (i.e., supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. |
| · | These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Fair Value on a Recurring Basis
Securities Available for Sale (“AFS”): Where quoted prices are available in an active market, securities would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow models. Level 2 securities include U.S. agency securities and mortgage backed agency securities.
Loans Held for Sale. Fair values are estimated by using actual indicative market bids on a loan by loan basis.
Loans Held at Fair Value. Fair values for loans for which the guaranteed portion is intended to be sold are estimated by using actual quoted market bids on a loan by loan basis. Fair values for the un-guaranteed portion of SBA loans are estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.
Servicing Assets. Fair values for servicing assets related to SBA loans are estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.
Assets on the consolidated balance sheets measured at fair value on a recurring basis are summarized below.
(in 000’s) |
| Fair Value Measurements at Reporting Date Using: |
| |||||||||||||
|
| Assets Measured at Fair Value at March 31, 2019 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Government agency securities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Government Sponsored Enterprises residential mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Loans held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Loans held at fair value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Servicing asset |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
22 |
Table of Contents |
(in 000’s) |
| Fair Value Measurements at Reporting Date Using: |
| |||||||||||||
|
| Assets Measured at Fair Value at December 31, 2018 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Government agency securities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Government Sponsored Enterprises residential mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Loans held for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Loans held at fair value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Servicing asset |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
The fair value of the Bank’s AFS securities portfolio was approximately $
When estimating the fair value of Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include estimated cashflows, prepayment speeds, average projected default rate and discount rates as follows:
(in 000’s)
Assets measured at fair value |
| March 31, 2019 Fair value |
|
| December 31, 2018 Fair Value |
|
| Principal valuation techniques |
| Significant observable inputs |
| March 31, 2019 Range of inputs |
| December 31, 2018 Range of inputs | |||
Loans held at fair value: |
| $ |
|
| $ |
|
| Discounted cash flow |
| Constant prepayment rate |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| Discount rate |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| Weighted average life |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| Projected default rate |
|
|
(in 000’s)
Assets measured at fair value |
| March 31, 2019 Fair value |
|
| December 31, 2018 Fair Value |
|
| Principal valuation techniques |
| Significant observable inputs |
| March 31, 2019 Range of inputs |
| December 31, 2018 Range of inputs | |||
Servicing asset |
| $ |
|
| $ |
|
| Discounted cash flow |
| Constant prepayment rate |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| 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.
23 |
Table of Contents |
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 for the three months ended March 31, 2019:
(in 000’s) |
| Loans held at fair value |
|
| Servicing Asset |
| ||
Balance at December 31, 2018 |
| $ |
|
| $ |
| ||
Origination of loans/transfers |
|
|
|
|
|
| ||
Principal repayments/amortization |
|
| ( | ) |
|
| ( | ) |
Change in fair value of financial instruments |
|
| ( | ) |
|
| - |
|
Balance at March 31, 2019 |
| $ |
|
| $ |
|
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 for the three months ended March 31, 2018:
(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 March 31, 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 March 31, 2019 and December 31, 2018, for which a nonrecurring change in fair value has been recorded during the three months ended March 31, 2019 and year ended December 31, 2018.
Carrying Value at March 31, 2019:
(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, 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”) |
| $ |
|
|
|
|
|
|
|
| $ |
|
24 |
Table of Contents |
The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. At March 31, 2019 and December 31, 2018, the fair values shown above exclude estimated selling costs of $
OREO is carried at the lower of cost or fair value, which is measured at the foreclosure date. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level 2 measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as Level 3 measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.
Fair Value of Financial Instruments
FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value of assets and liabilities not previously disclosed are depicted below:
|
|
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||||
|
| 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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. |
10. 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.
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.
25 |
Table of Contents |
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2019 and 2018.
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
(Dollars in thousands) |
|
|
|
| ||||
Noninterest income: |
|
|
|
|
|
| ||
In-scope of Topic 606 |
|
|
|
|
|
| ||
Customer Service Fees |
| $ |
|
| $ |
| ||
ATM Fee Income |
|
|
|
|
|
| ||
Other income |
|
|
|
|
|
| ||
Noninterest income (in-scope of Topic 606) |
|
|
|
|
|
| ||
Noninterest income (out-of-scope of Topic 606) |
|
|
|
|
| |||
Total noninterest income |
| $ |
|
| $ |
|
11. 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 |
| · | 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; |
26 |
Table of Contents |
As of March 31, 2019, and December 31, 2018, 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 2018, the Company received external investments of $925,000 and from other financial institutions. In May 2020, the Bank received an investment of $600,000 from another financial institution. External capital investments will continue to be sought. |
| · | Performance grants—Management has developed a performance grant strategy to attract funding based on economic impact and job creation/retention. The goal is to obtain grant funding from local entities that are seeking a “return on impact”. In April 2019, the Bank received a $ |
| · | Other grants---In September 2020, the Bank received a grant totaling $ |
| · | Further, in August 2021, the Bank was awarded a grant totaling $ |
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. At June 30, 2022, the Bank’s Tier 1 leverage ratio was
12. 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 $
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 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 approximately $ |
|
|
|
| · | Strengthen Capital: A concentrated effort will continue to be made to stabilize and strengthen the Bank’s capital. Management has identified 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. At June 30, 2022, the Bank’s Tier 1 leverage ratio was |
|
|
|
| · | 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 March 2021. Management plans to implement the Restoration Plan to comply with the terms and conditions of the Orders. |
27 |
Table of Contents |
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.
13. Subsequent Events
In April 2019, the Bank received an economic stimulus grant from the City of Philadelphia of $
Beginning in March 2020, the onset of the COVID-19 pandemic had an adverse economic effect on a global, national, and local level. Following the outbreak, market interest rates have declined significantly, as the 10-year Treasury bond fell below 1.00% in early March 2020 that could lead to a reduction in the Bank’s net interest margin. In addition, this event may adversely affect asset quality related to the Company’s small business loan customers that have been affected by a reduction in their business operations because of government-imposed restrictions. As a result, the Company has deferred loan payments as necessary for those customers that have been impacted by the pandemic. The pandemic has also affected the way that the Company is conducting business. Since notice of the pandemic, the Company has temporarily closed its Center City branch office and consolidated all customer service activity at its Progress Plaza branch. In addition, the Company has maintained limited on-site presence of four employees or less in the Lending Department while all other employees work remotely in an effort to slow the spread of the pandemic. The full extent of the effect of the pandemic is not yet known.
In September 2020, the Bank received a grant totaling $
In May 2021, the Company received an external investment of $
At June 30, 2022, the Bank’s Tier 1 leverage ratio was
On October 31, 2022, the Board of Directors unanimously approved an Offer of Settlement with the Securities and Exchange Commission over the Company’s failure to comply with the Exchange Act Section 12(a) and Rules 13a-1 and 13a-13 thereunder because it has not filed periodic reports with the Commission since the period ended December 31, 2018. The Offer of Settlement revokes the registration of each class of the Company’s securities registered pursuant to Section 12 of the Exchange Act as of the effective date of the Offer of Settlement until there are two consecutive timely filings. There is currently no financial impact related to the revocation; however, management is working to remedy the matter to avoid further action.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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”).
28 |
Table of Contents |
Special Cautionary Notice Regarding Forward-looking Statements
Certain of the matters discussed in this document and the documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may constitute forward looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of United Bancshares, Inc (“UBS”) to be materially different from future results, performance or achievements expressed or implied by such forward looking statements. The words “expect,” “anticipate,” “intended,” “plan,” “believe,” “seek,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include: (a) statements of goals, intentions and expectations; and (b) statements regarding business prospects, asset quality, credit risk, reserve adequacy and liquidity. UBS’ actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation: (a) the effects of future economic conditions on UBS and its customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and consumer saving patterns; (b) UBS interest rate risk exposure and credit risk; (c) changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets; (d) governmental monetary and fiscal policies, as well as legislation and regulatory changes; (e) changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral and securities, as well as interest-rate risks; (f) changes in accounting requirements or interpretations; (g) the effects of competition from other commercial banks, thrifts, mortgage companies, consumer finance companies, credit unions securities brokerage firms, insurance companies, money-market and mutual funds and other financial institutions operating in the UBS’ trade market area and elsewhere including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; (h) any extraordinary events (such as the September 11, 2001 events), the war on terrorism and the U.S. Government’s response to those events or the U.S. Government becoming involved in a conflict in a foreign country including the war in Iraq; (i) the failure of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, and various financial assets and liabilities and technological changes being more difficult or expensive than anticipated; (j) UBS’ success in generating new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time; (k) UBS’ timely development of competitive new products and services in a changing environment and the acceptance of such products and services by its customers; (l) any downgrades, in the credit rating of the United States Government and federal agencies; (m) changes in technology being more expensive or difficult than expected; (n) the ability of key third party providers to perform their obligations to UBS and; (o) the Bank and UBS’ success in managing the risks involved in the foregoing, and (p) failure to comply with the Consent Orders with the FDIC and the Pennsylvania Department of Banking.
All written or oral forward-looking statements attributed to the Company are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Report are based upon information presently available, and UBS assumes no obligation to update any forward-looking statement.
29 |
Table of Contents |
Overview
The Company reported a net loss of approximately $228,000 ($0.28 per common share) for the quarter ended March 31, 2019 compared to a net loss of approximately $198,000 ($0.24 per common share) for the same quarter in 2018. The decline in financial performance is primarily related to the net decrease in the fair value of financial instruments of $169,000 recognized for the quarter ended March 31, 2019 as well as reduction in the gain on sale of loans. Management remains committed to improving the Company’s operating performance by continuing to implement its profit enhancement strategies that are centered on small business lending products and services. The following actions are critical to ensure continued improvement in the Company’s financial performance:
Increase Capital. The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood; however, capital declined as a result of operating losses. A concentrated effort will be made to further stabilize and strengthen the Bank’s capital by the following:
| · | Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital. Refer to the Earnings Enhancement discussion below. |
|
|
|
| · | External equity investments— Utilizing a CRA platform, instead of seeking one large investor, the Board will continue to solicit a number of smaller investments from institutional and individual investors. During 2017, the Company received external investments of $925,000 from other financial institutions through issuance of Series B Preferred Stock. In May 2021, the Company received an external investment of $600,000 from another financial institution from the issuance of a combination of Common voting and Series C Preferred Stock. |
|
|
|
| · | 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 $2.8 million of this grant was recorded as grant revenue 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. |
|
|
|
|
| In August 2021, the Bank received a Rapid Response grant from the U.S. Department of Treasury totaling approximately $1.3 million to provide support related to the economic impact of the COVID-19 pandemic on the Bank and its small business customers. |
Manage asset quality to minimize credit losses and reduce collection costs. Asset quality trends as a percentage of total loans have improved slightly as a result of charge-off activity in 2018; however, there was a modest increase in the Bank’s total classified assets. In conjunction with its regulatory orders, management has developed a Classified Asset Reduction Plan that is being utilized to manage the level of non-performing assets. Forbearance, foreclosure and/or other appropriate collection methods will be used as necessary and may result in increased loan and collection expense.
Earnings enhancement plan. Management seeks to increase noninterest income and further reduce noninterest expense to achieve core earnings. The primary strategy will continue to focus on increasing SBA loan origination activity and selling the guaranteed portion in the secondary market for gains. Approximately $81,000 gains on the sale of SBA loans and related income was recognized for the quarter ended March 31, 2019 compared to $157,000 for the same quarter in 2018. Management is seeking to grow the SBA loan pipeline through relationships with feeder organizations to maximize this income.
Expense reductions were achieved during the quarter ended March 31, 2019 compared to the same quarter in 2018 in salaries, occupancy and office operations. Management will continue to seek additional expense reductions, where possible, by performing a line-by-line expense review to identify additional savings.
Another challenge to increased earnings is the restriction on asset growth because of the Bank’s capital levels; however, the Bank’s net interest margin has remained a significant strength. To further increase the Bank’s net interest margin, management will seek to shift excess liquidity into higher yielding loans instead of investments and Federal Funds Sold while managing the cost of funds. In addition, management will continue to balance asset growth with capital adequacy requirements.
30 |
Table of Contents |
Significant Accounting Policies
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.
The Company considers that the determinations of the allowance for loan losses and the fair value of loans involve a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses. The fair value of loans depends on a variety of factors including estimates of prepayment speed, discount rates, and credit quality of the receivables. All of these factors may be susceptible to significant change. 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 Company’s significant accounting policies are presented in Note 1 to the Company’s audited consolidated financial statements filed as part of the 2018 Annual Report on Form 10-K and in the footnotes to the Company’s unaudited financial statements filed as part of this Form 10-Q.
Selected Financial Data
The following table sets forth selected financial data for each of the following periods:
(Thousands of dollars, except per share data) |
| Quarter ended March 31, 2019 |
|
| Quarter ended March 31, 2018 |
| ||
Statement of operations information: |
|
|
|
|
|
| ||
Net interest income |
| $ | 551 |
|
| $ | 598 |
|
(Credit) provision for loan losses |
|
| (52 | ) |
|
| 20 |
|
Noninterest income |
|
| 170 |
|
|
| 314 |
|
Noninterest expense |
|
| 1,000 |
|
|
| 1,090 |
|
Net loss |
|
| (228 | ) |
|
| (198 | ) |
Net loss per share-basic and diluted |
|
| (0.28 | ) |
|
| (0.24 | ) |
Balance Sheet information: |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Total assets |
| $ | 51,219 |
|
| $ | 50,195 |
|
Net loans |
|
| 19,225 |
|
|
| 20,265 |
|
Loans held for sale |
|
| 8,593 |
|
|
| 10,073 |
|
Investment securities |
|
| 4,565 |
|
|
| 4,581 |
|
Deposits |
|
| 47,606 |
|
|
| 48,272 |
|
Shareholders’ equity |
|
| 1,541 |
|
|
| 1,760 |
|
Ratios*: |
| Quarter ended March 31, 2019 |
|
| Quarter ended March 31, 2018 |
| ||
Return on assets |
|
| (1.80 | )% |
|
| (1.37 | )% |
Return on equity |
|
| (55.27 | )% |
|
| (29.77 | )% |
*annualized
31 |
Table of Contents |
Financial Condition
Sources and Uses of Funds
The financial condition of the Bank can be evaluated in terms of trends in its sources and uses of funds. The comparison of average balances in the following table indicates how the Bank has managed these elements. Average funding uses decreased approximately $1.5 million, or 3.02% during the quarter ended March 31, 2019 compared to the quarter ended December 31, 2018. Average funding sources decreased approximately $1.6 million, during the quarter ended March 31, 2019 or 3.27%, compared to the quarter ended December 31, 2018.
Sources and Uses of Funds Trends
( dollars in 000’s) |
| Quarter Ended March 31, 2019 |
|
| Increase |
|
| Increase |
|
| Quarter Ended December 31, 2018 |
| ||||
|
| Average |
|
| (Decrease) |
|
| (Decrease) |
|
| Average |
| ||||
|
| Balance |
|
| Amount |
|
| % |
|
| Balance |
| ||||
Funding uses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans* |
| $ | 36,052 |
|
| $ | (3,329 | ) |
|
| (8.45 | )% |
| $ | 39,381 |
|
Investment Securities |
|
| 4,804 |
|
|
| (80 | ) |
|
| (1.64 | )% |
|
| 4,884 |
|
Federal funds sold |
|
| 4,759 |
|
|
| 1,535 |
|
|
| 47.61 | % |
|
| 3,224 |
|
Balances with other banks |
|
| 3,683 |
|
|
| 339 |
|
|
| 10.14 | % |
|
| 3,344 |
|
Total uses |
| $ | 49,298 |
|
| $ | (1,535 | ) |
|
| (3.02 | )% |
| $ | 50,833 |
|
Funding sources: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing |
| $ | 16,583 |
|
| $ | 180 |
|
|
| 1.10 | % |
| $ | 16,403 |
|
Interest-bearing |
|
| 13,228 |
|
|
| (1,466 | ) |
|
| (9.98 | )% |
|
| 14,694 |
|
Savings deposits |
|
| 10,567 |
|
|
| (112 | ) |
|
| (1.05 | )% |
|
| 10,679 |
|
Time deposits |
|
| 7,863 |
|
|
| (231 | ) |
|
| (2.85 | )% |
|
| 8,094 |
|
Total sources |
| $ | 48,241 |
|
| $ | (1,629 | ) |
|
| (3.27 | )% |
| $ | 49,870 |
|
*Total includes loans held for sale, loans held at fair value, and net loans.
Loans
Average loans decreased by approximately $3.3 million, or 8.45%, during the quarter ended March 31, 2019. As a result of loan sales and repayment activity. Management continues to focus on the growth of small business loans specifically targeting SBA loans. This strategy is designed to generate fee income from sales of the guaranteed portion as well as build loan volume. There are a significant number of small businesses in the region that may fall below minimum business loan levels of the money center banks in the region which provides an opportunity for the Bank to continue to grow its SBA lending as a niche business. Management will continue to work in alliance with its third-party SBA loan origination group, commercial real estate brokers, accountants, lawyers, SBA brokers, and other centers of influence to build loan volume.
The Bank’s consumer and residential mortgage loan portfolios continue to decline as a result of repayment activity as consumers repay loans and refinance to take advantage of the low interest rate environment. The Bank does not originate residential mortgage loans and made a strategic shift in its lending program in 2012 to phase out consumer lending, including home equity loans and lines of credit.
The Bank’s loan portfolio continues to be concentrated in commercial real estate loans that comprise approximately $16.2 million, or 83%, of total loans at March 31, 2019 for which majority are owner occupied. The Bank continues to have a strong niche in lending to religious organizations for which total loans at March 31, 2019 were approximately $7 million, or 43%, of the commercial real estate portfolio. Management closely monitors this concentration to proactively identify and manage credit risk for any conditions that might negatively affect the level of tithes and offerings that provide cash flow for repayment.
32 |
Table of Contents |
The composition of the net loans is as follows:
|
| March 31, |
|
| December 31, |
| ||
(In 000’s) |
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Commercial and industrial: |
|
|
|
|
|
| ||
Commercial |
| $ | 1,067 |
|
| $ | 1,055 |
|
SBA Loans |
|
| - |
|
|
| 18 |
|
Asset-based |
|
| 349 |
|
|
| 472 |
|
Total commercial and industrial |
|
| 1,416 |
|
|
| 1,545 |
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages |
|
| 8,914 |
|
|
| 9,532 |
|
SBA loans |
|
| 242 |
|
|
| 248 |
|
Construction |
|
| - |
|
|
| - |
|
Religious organizations |
|
| 6,999 |
|
|
| 7,257 |
|
Total commercial real estate |
|
| 16,155 |
|
|
| 17,038 |
|
|
|
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
|
|
Home equity loans |
|
| 594 |
|
|
| 628 |
|
Home equity lines of credit |
|
| 14 |
|
|
| 15 |
|
1-4 family residential mortgages |
|
| 564 |
|
|
| 583 |
|
Total consumer real estate |
|
| 1,172 |
|
|
| 1,226 |
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
| 17,327 |
|
|
| 18,264 |
|
|
|
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
|
|
Student loans |
|
| 620 |
|
|
| 622 |
|
Other |
|
| 85 |
|
|
| 112 |
|
Total consumer and other |
|
| 705 |
|
|
| 734 |
|
Allowance for loan losses |
|
| (223 | ) |
|
| (278 | ) |
Loans, net |
| $ | 19,225 |
|
| $ | 20,265 |
|
Allowance for Loan Losses
The allowance for loan losses reflects management’s continuing evaluation of the loan portfolio, the diversification and size of the portfolio, and adequacy of collateral. Provisions are made to the allowance for loan losses in accordance with a detailed periodic analysis. This analysis includes specific reserves allocated to impaired loans based on underlying recovery values as well as a general reserve based on charge-off history and various qualitative factors including delinquency trends, loan terms, regulatory environment, economic conditions, concentrations of credit risk and other relevant data. The Bank utilizes an eight rolling quarter historical loss factor as management believes this best represents the current trends and market conditions. The allowance for loan losses as a percentage of total loans was 1.15% at March 31, 2019 compared to 1.35% at December 31, 2018.
33 |
Table of Contents |
Loans deemed “impaired” are those for which borrowers are no longer able to pay in accordance with the terms of their loan agreements. The Bank’s source of repayment is generally the net liquidation value of the underlying collateral. Impaired loans totaled approximately $1,435,000 at March 31, 2019 compared to $1,437,000 at December 31, 2018. There was an $81,000 allowance associated with impaired loans at March 31, 2019 compared to $139,000 at December 31, 2018. The reduction in specific reserves was because of an increase in the appraised value of underlying collateral. Management continues to work to reduce the level of classified and impaired loans.
At March 31, 2019 and December 31, 2018, loans to religious organizations represented approximately $179,000 of total impaired loans. Management continues to work closely with its attorneys and the leadership of these organizations in an attempt to develop suitable repayment plans to avoid foreclosure. In general, loans to religious organizations are being monitored closely to proactively identify potential weaknesses in this area of high concentration.
Management uses all available information to recognize losses on loans; however, future additions may be necessary based on further deterioration in economic conditions and market conditions affecting underlying real estate collateral values. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of the examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.
The percentage of allowance to nonperforming loans was 13.00% and 14.93% at March 31, 2019 and December 31, 2018 respectively. The percentage of nonperforming loans to total loans decreased from 9.06% at December 31, 2018 to 8.82% at March 31, 2019. Approximately 95% of nonperforming loans are secured by real estate which serves to mitigate the risk of loss.
34 |
Table of Contents |
The following table sets forth information concerning nonperforming loans and nonperforming assets.
(In 000’s) |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Commercial and industrial: |
|
|
|
|
|
| ||
Commercial |
| $ | - |
|
| $ | - |
|
SBA |
|
| - |
|
|
| 18 |
|
Asset-based |
|
| 76 |
|
|
| 76 |
|
Total commercial and industrial |
|
| 76 |
|
|
| 94 |
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Commercial mortgages |
|
| 882 |
|
|
| 902 |
|
SBA loans |
|
| 67 |
|
|
| 69 |
|
Religious organizations |
|
| 179 |
|
|
| 179 |
|
Total commercial real estate |
|
| 1,128 |
|
|
| 1,150 |
|
|
|
|
|
|
|
|
|
|
Consumer real estate: |
|
|
|
|
|
|
|
|
Home equity loans |
|
| 280 |
|
|
| 281 |
|
1-4 family residential mortgages |
|
| 54 |
|
|
| 85 |
|
Total consumer real estate |
|
| 334 |
|
|
| 366 |
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
| 1,462 |
|
|
| 1,516 |
|
|
|
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
|
|
Student loans |
|
| - |
|
|
| - |
|
Other |
|
| - |
|
|
| - |
|
Total consumer and other |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total nonaccrual |
|
| 1,538 |
|
|
| 1,610 |
|
Total past due 90 days and still accruing |
|
| 221 |
|
|
| 252 |
|
OREO |
|
| 236 |
|
|
| 392 |
|
Total nonperforming assets |
| $ | 1,995 |
|
| $ | 2,254 |
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Nonperforming loans to total loans |
|
| 9.04 | % |
|
| 9.06 | % |
Nonperforming assets to total loans and OREO |
|
| 10.14 | % |
|
| 10.77 | % |
Nonperforming assets to total assets |
|
| 3.90 | % |
|
| 4.49 | % |
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of: |
|
|
|
|
|
|
|
|
Total loans |
|
| 1.15 | % |
|
| 1.35 | % |
Total nonperforming loans |
|
| 12.68 | % |
|
| 14.93 | % |
35 |
Table of Contents |
The following table sets forth information related to loans past due 90 days or more and still accruing interest.
(In 000’s) |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Commercial and industrial: |
|
|
|
|
|
| ||
Asset-based |
| $ | - |
|
| $ | - |
|
Total commercial and industrial |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Commercial mortgages |
|
| - |
|
|
| 45 |
|
SBA loans |
|
| - |
|
|
| - |
|
Total commercial real estate |
|
| - |
|
|
| 45 |
|
|
|
|
|
|
|
|
|
|
Consumer real estate: |
|
| - |
|
|
|
|
|
Home equity loans |
|
| 150 |
|
|
| 150 |
|
Total consumer real estate |
|
| 150 |
|
|
| 150 |
|
|
|
|
|
|
|
|
|
|
Consumer and other: |
|
|
|
|
|
|
|
|
Student loans |
|
| 69 |
|
|
| 57 |
|
Other |
|
| 2 |
|
|
| - |
|
Total consumer and other |
|
| 71 |
|
|
| 57 |
|
Total |
| $ | 221 |
|
| $ | 252 |
|
Investment Securities and Other Short-term Investments
Average investment securities decreased by approximately $80,000, or 1.64%, during the quarter ended March 31, 2019. The decrease was primarily related to payments received on mortgage-backed securities.
The average yield on the investment portfolio increased slightly to 2.39% for the quarter ended March 31, 2019 compared to 2.32% for the quarter ended March 31, 2018. Amortizing GSE mortgage-backed securities comprise approximately 53% of the portfolio. The payments of principal and interest on these pools of GSE loans serve to provide monthly cash flow and are guaranteed by these entities that bear the risk of default. The Bank’s risk is prepayment risk when defaults accelerate the repayment activity. These loans have longer-term contractual maturities but are sometimes paid off/down before maturity or have repricing characteristics that occur before final maturity. Management’s goal is to maintain a portfolio with a relatively short duration to allow for adequate cash flow to fund loan origination activity and to manage interest rate risk.
Deposits
During the quarter ended March 31, 2019, average deposits decreased approximately $1,629,000, or 3.27%. The decrease was concentrated in interest-bearing demand deposit accounts that decreased on average by approximately $1,466,000, or 9.98%. The Bank has several large deposit customers including a construction contractor for which there are wide fluctuations in account balance when subcontractors are paid.
Commitments and Lines of Credit
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit, which are conditional commitments issued by the Bank to guarantee the performance of an obligation of a customer to a third party. Commitments to extend credit fluctuate with the completion and conversion of construction lines of credit to permanent commercial mortgage loans and/or the closing of loans approved but not funded from one period to another.
36 |
Table of Contents |
Many of the commitments are expected to expire without being drawn upon. The total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Management believes the Bank has adequate liquidity to support the funding of unused commitments. The Bank’s financial instrument commitments are summarized below:
(in 000’s) |
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Commitments to extend credit |
| $ | 2,455 |
|
| $ | 1,903 |
|
Standby letters of credit |
|
| 45 |
|
|
| 45 |
|
The level of commitments increased during the quarter ended March 31, 2019 as a result of an increase in approved but unfunded SBA loans. Approximately $840,000 of the Bank’s outstanding commitments consist of unused lines of credit with Fortune 500 corporations for which the Bank leads and/or participates in syndications that are not expected to be drawn upon. The remainder relates to commitments to fund SBA guaranteed loans.
Liquidity
The primary functions of asset/liability management are to assure adequate liquidity and maintain appropriate balance between interest-sensitive earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.
By policy, the Bank’s minimum level of liquidity is 10.00% of total assets. At March 31, 2019, the Bank had total short-term liquidity, including cash and federal funds sold and unpledged available for sale investment securities, of approximately $11.3 million, or 22.9% of total assets, compared to $9.4 million, or 19.42%, at December 31, 2018. The increase is primarily related to a decrease in loan balances as a result of SBA loan sales and repayment activity.
The Bank’s principal sources of asset liquidity include investment securities consisting principally of U.S. Government and agency issues, particularly those of shorter maturities, and mortgage-backed securities with monthly repayments of principal and interest. In addition, the Bank’s investment portfolio is classified as available-for-sale; however, the majority of these securities are pledged as collateral for deposits of governmental/quasi-governmental agencies as well as the Discount Window at the Federal Reserve Bank. Therefore, they are restricted from use to fund loans or to meet other liquidity requirements.
Other types of assets such as federal funds sold, as well as maturing loans, are also sources of liquidity. Approximately $9.8 million in loans are scheduled to mature within one year. To ensure the ongoing adequacy of liquidity, the following contingency strategies will be utilized in order of priority, if necessary:
| · | Seek non-public deposits from existing private sector customers; specifically, additional deposits from members of the National Bankers Association (“NBA”) will be considered a potential source. |
| · | Sell participations of existing commercial credits to other financial institutions in the region and/or NBA member banks based on participation agreements. |
The Bank’s contingent funding sources include the Discount Window at the Federal Reserve Bank for which it currently has $750,000 in securities pledged that result in borrowing capacity of approximately $700,000. In light of the Bank’s regulatory Orders and “Troubled Bank” designation, liquidity will continue to be closely monitored and managed to minimize risk and ensure that adequate funds are available to meet daily customer requirements and loan demand.
Interest rate sensitivity
Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans which are tied to prime or other short-term indices differ considerably from long-term investment securities and fixed-rate loans. Similarly, time deposits are much more interest sensitive than passbook savings accounts. The shorter-term interest rate sensitivities are critical to measuring the interest sensitivity gap, or excess earning assets over interest-bearing liabilities. Management of interest sensitivity involves matching repricing dates of interest-earning assets with interest-bearing liabilities in a manner designed to optimize net interest income within the limits imposed by regulatory authorities, liquidity determinations and capital considerations. At March 31, 2019, a positive gap position is maintained on a cumulative basis through 1 year of 5.81% that is within the Bank’s policy guidelines of + /- 15% on a cumulative 1-year basis. This is compared to an asset-sensitive position of 5.73% at December 31, 2018. This positive gap position is created by a high level of loans maturing and/or repricing in one to three months as well as a higher level of federal funds sold. This position makes the Bank’s net interest income more favorable in a rising interest rate environment. Management will continue review and monitor the structure and rates on investment purchases, new loan originations and renewals to manage the interest rate risk profile within acceptable limits.
37 |
Table of Contents |
While using the interest sensitivity gap analysis is a useful management tool as it considers the quantity of assets and liabilities subject to repricing in a given time-period, it does not consider the relative sensitivity to market interest rate changes that are characteristic of various interest rate-sensitive assets and liabilities. A simulation model is used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the net income of the Bank. This model produces an interest rate exposure report that forecasts changes in the market value of portfolio equity under alternative interest rate environments. The market value of portfolio equity is defined as the present value of the Company’s existing assets, liabilities and off-balance-sheet instruments. At March 31, 2019, the change in the market value of equity in a +200-basis point interest rate change is (14.95%), within the policy limit of (25.00%), and (26.36%) in a +400-basis point interest rate change, within the policy limit of (50.00%).
Capital Resources
Total shareholders’ equity decreased approximately $219,000, or 12.44%, during the quarter ended March 31, 2019 which is attributable to the current quarter net loss of approximately $228,000 and the $49,000 cumulative effect of adoption of the new lease accounting standard partially offset by an unrealized gain on available for sale securities of approximately $58,000.
The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood. A concentrated effort will be made to stabilize and strengthen the Bank’s capital through the generation of core profitability from Bank operations and external investment utilizing investment bankers.
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 Bank’s Consent Order with its primary regulators that requires the development of a written capital plan (“Capital Plan”) that details the manner in which the Bank will meet and maintain a Leverage Ratio of at least 8.50% and a Total Risk-Based Capital Ratio of at least 12.50%. At a minimum, the Capital Plan must include specific benchmark Leverage Ratios and Total Risk-Based Capital Ratios to be met at each calendar quarter-end, until the required capital levels are achieved.
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 3.00% and its total risk-based capital ratio was 6.34%. These ratios are below the levels required by the Consent Orders. Management is in the process of addressing all matters outlined in the Consent Orders.
Also, 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 to mitigate potential asset quality deterioration.
Further, in May 2021, the Bank received an equity investment of $600,000 from another financial institution. It was also notified in June 2021 that it would receive a $1,286,000 grant from the US Treasury CDFI Fund to assist the Bank in its recovery from the effects of the pandemic. These new sources of capital will serve to further improve the Bank’s capital ratios.
At March 31, 2019, capital benchmarks had not been met; however, management will continue to execute its capital strategies. The Company and the Bank do not anticipate paying dividends in the near future.
The following table presents the capital ratios of the Company and the Bank as of March 31, 2019 and December 31, 2018:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||||||||
(In 000’s) |
| Actual |
|
| Minimum to be Well Capitalized |
|
| Actual |
|
| Minimum to be Well Capitalized |
| ||||||||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||||
Total (Tier II) capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Company |
| $ | 1,492 |
|
|
| 5.44 | % |
|
| N/A |
|
|
|
|
| $ | 1,817 |
|
|
| 6.48 | % |
|
| N/A |
|
|
|
| ||
Bank |
|
| 1,492 |
|
|
| 5.44 |
|
|
| 2,745 |
|
|
| 10.00 | % |
|
| 1,777 |
|
|
| 6.34 |
|
|
| 2,803 |
|
|
| 10.00 | % |
Tier I capital to risk weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
| 1,269 |
|
|
| 4.62 |
|
|
|
|
|
|
|
|
|
|
| 1,539 |
|
|
| 5.49 |
|
|
| N/A |
|
|
|
|
|
Bank |
|
| 1,269 |
|
|
| 4.62 |
|
|
| 1,784 |
|
|
| 6.50 | % |
|
| 1,499 |
|
|
| 5.35 |
|
|
| 2,242 |
|
|
| 8.00 | % |
Common equity Tier I capital to risk weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
| 1,269 |
|
|
| 4.62 |
|
|
| N/A |
|
|
|
|
|
|
| 1,539 |
|
|
| 5.49 |
|
|
| N/A |
|
|
|
|
|
Bank |
|
| 1,269 |
|
|
| 4.62 |
|
|
| 1,784 |
|
|
| 6.50 | % |
|
| 1,499 |
|
|
| 5.35 |
|
|
| 1,822 |
|
|
| 6.50 | % |
Tier I Leverage ratio (Tier I capital to total quarterly average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
| 1,269 |
|
|
| 2.44 |
|
|
| N/A |
|
|
|
|
|
|
| 1,539 |
|
|
| 3.08 |
|
|
| N/A |
|
|
|
|
|
Bank |
|
| 1,269 |
|
|
| 2.44 |
|
|
| 2,509 |
|
|
| 5.00 | % |
|
| 1,499 |
|
|
| 3.00 |
|
|
| 2,502 |
|
|
| 5.00 | % |
38 |
Table of Contents |
Results of Operations
Summary
The Company reported a net loss of approximately $228,000 ($0.28 per common share) for the quarter ended March 31, 2019 compared to a net loss of approximately $198,000 ($0.24 per common share) for the same quarter in 2018. A detailed explanation of each component of operations is included in the sections below.
Net Interest Income
Net interest income is an effective measure of how well management has balanced the Bank’s interest rate-sensitive assets and liabilities. Net interest income, the difference between (a) interest and fees on interest-earning assets and (b) interest paid on interest-bearing liabilities, is a significant component of the Bank’s earnings. Changes in net interest income result primarily from increases or decreases in the average balances of interest-earning assets, the availability of particular sources of funds and changes in prevailing interest rates.
Average Balances, Rates, and Interest Income and Expense Summary
|
| Three months ended March 31, 2019 |
|
| Three months ended March 31, 2018 |
| ||||||||||||||||||
(in 000’s) |
| Average Balance |
|
| Interest |
|
| Yield/Rate |
|
| Average Balance |
|
| Interest |
|
| Yield/Rate |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans* |
| $ | 36,052 |
|
| $ | 486 |
|
|
| 5.39 | % |
| $ | 40,448 |
|
| $ | 547 |
|
|
| 5.41 | % |
Investment securities |
|
| 4,804 |
|
|
| 29 |
|
|
| 2.39 |
|
|
| 5,175 |
|
|
| 30 |
|
|
| 2.32 |
|
Federal funds sold |
|
| 4,759 |
|
|
| 28 |
|
|
| 2.32 |
|
|
| 11,028 |
|
|
| 41 |
|
|
| 1.49 |
|
Interest bearing balances with other banks |
|
| 3,683 |
|
|
| 27 |
|
|
| 2.91 |
|
|
| 312 |
|
|
| - |
|
|
| - |
|
Total interest-earning assets |
|
| 49,298 |
|
|
| 569 |
|
|
| 4.62 |
|
|
| 56,963 |
|
|
| 618 |
|
|
| 4.34 |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 13,228 |
|
|
| 6 |
|
|
| 0.18 |
|
|
| 14,779 |
|
|
| 7 |
|
|
| 0.19 |
|
Savings deposits |
|
| 10,567 |
|
|
| 1 |
|
|
| 0.05 |
|
|
| 11,533 |
|
|
| 1 |
|
|
| 0.03 |
|
Time deposits |
|
| 7,863 |
|
|
| 11 |
|
|
| 0.55 |
|
|
| 9,228 |
|
|
| 12 |
|
|
| 0.52 |
|
Total interest-bearing liabilities |
|
| 31,658 |
|
|
| 18 |
|
|
| 0.23 |
|
|
| 35,540 |
|
|
| 20 |
|
|
| 0.23 |
|
Net interest income |
|
|
|
|
| $ | 551 |
|
|
|
|
|
|
|
|
|
| $ | 598 |
|
|
|
|
|
Net yield on interest-earning assets |
|
|
|
|
|
|
|
|
|
| 4.47 | % |
|
|
|
|
|
|
|
|
|
| 4.20 | % |
*For purposes of computing the average balance, loans include all loans including loans held for sale and held at fair value. Loan balances are not reduced for nonperforming loans. Loan fee income is included in interest income on loans but is not considered material.
Net interest income decreased approximately $47,000, or 7.86%, for the quarter ended March 31, 2019 compared to the same quarter in 2018. The decrease was primarily related to a decrease in interest income on loans primarily related to a reduction in volume of loans.
Rate-Volume Analysis of Changes in Net Interest Income
|
| Three months ended March 31, 2019 compared to 2018 |
|
| Three months ended March 31, 2018 compared to 2017 |
| ||||||||||||||||||
|
| Increase (decrease) due to |
|
| Increase (decrease) due to |
| ||||||||||||||||||
(Dollars in thousands) |
| Volume |
|
| Rate |
|
| Net |
|
| Volume |
|
| Rate |
|
| Net |
| ||||||
Interest earned on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
| $ | (60 | ) |
| $ | (1 | ) |
| $ | (61 | ) |
| $ | 18 |
|
| $ | (60 | ) |
| $ | (42 | ) |
Investment securities |
|
| (2 | ) |
|
| 1 |
|
|
| (1 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| (2 | ) |
Federal funds sold |
|
| (30 | ) |
|
| 17 |
|
|
| (13 | ) |
|
| 6 |
|
|
| 23 |
|
|
| 29 |
|
Interest bearing balances with other banks |
|
| 23 |
|
|
| 3 |
|
|
| 26 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total Interest-earning assets |
|
| (69 | ) |
|
| 20 |
|
|
| (49 | ) |
|
| 21 |
|
|
| (36 | ) |
|
| (15 | ) |
Interest paid on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| (1 | ) |
|
| - |
|
|
| (1 | ) |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
Savings deposits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Time deposits |
|
| (1 | ) |
|
| - |
|
|
| (1 | ) |
|
| (1 | ) |
|
| 4 |
|
|
| 3 |
|
Total interest-bearing liabilities |
|
| (2 | ) |
|
| - |
|
|
| (2 | ) |
|
| - |
|
|
| 4 |
|
|
| 4 |
|
Net interest income |
| $ | (67 | ) |
| $ | 20 |
|
| $ | (47 | ) |
| $ | 21 |
|
| $ | (40 | ) |
| $ | (19 | ) |
For the quarter ended March 31, 2019 compared to the same period in 2018, there was a decrease in net interest income of approximately $47,000. This change was due to a decrease in volume of interest earning assets resulting in a reduction in net interest income of $67,000, partially offset by an increase in rates resulting in an increase in net interest income of $20,000.
39 |
Table of Contents |
Provision for Loan Losses
There was a credit to the provision for loan losses of $52,000 for the quarter ended March 31, 2019 and a provision expense of $20,000 for the quarter ended March 31, 2018. In general, provision requirements are based on credit losses inherent in the loan portfolio and the review and analysis of the loan portfolio in accordance with the Bank’s Allowance for Loan Loss policies and procedures. (Refer to Allowance for Loan Losses above for discussion and analysis of credit quality.)
Noninterest Income
The amount of the Bank’s noninterest income generally reflects the volume of the transactional and other accounts handled by the Bank and includes such fees and charges as low balance account fees, overdrafts, account analysis, ATM fees, SBA loan-related income and other customer service fees. Noninterest income decreased approximately $260,000, or 82.8%, for the quarter ended March 31, 2019 compared to the same quarter in 2018 primarily due to a net decrease in fair value of financial instruments of $178,000 as well as a decrease in the gains on the sale of SBA loans of $76,000.
Customer service fees decreased approximately $7,000, or 7.00%, for the quarter ended March 31, 2019 compared to 2018. ATM activity fees remained relatively unchanged at approximately $24,000 for the quarter ended March 31, 2019 compared to $25,000 for the same period in 2018. Servicing fees on loans of approximately $32,000 were recognized during the quarter ended March 31, 2019 compared to $15,000 in 2018. In 2019, the Bank began servicing its SBA loans without the assistance of the lender service provider for which it paid half of the 2% servicing fee in prior years.
In conjunction with its SBA loan origination strategy, the Bank recognized income of approximately $81,000 and $157,000, respectively, for the three months ended March 31, 2019 and 2018, on the sale of the guaranteed portion of SBA loans. Further, the Bank recognized a loss of approximately $53,000 on SBA loans that were held-for-sale and accounted for at fair value under ASC 825, Financial Instruments compared to income of approximately $9,000 in 2018. Management plans to continue to increase its SBA loan volume and related gains on sales as its primary strategy to enhance and stabilize earnings.
Noninterest Expense
Salaries and benefits decreased approximately $71,000, or 17.81% for the quarter ended March 31, 2019 compared to 2018 primarily as a result of the Mount Airy branch closure in October 2018 and the related employee attrition.
Occupancy and equipment expense decreased approximately $39,000 or 15.12%, for the quarter ended March 31, 2019 compared to 2018 primarily because of the Mount Airy branch closure and related operating expense. While the branch was closed in 2018, the lease expires in December 2019; therefore, lease payments continue to be made.
Office operations and supplies expense decreased by approximately $26,000, or 34.18%, for the quarter ended March 31, 2019 compared to 2018 as a result of the branch closure as well as a reduction in the utilization of paper in favor of digital reports and storage.
Marketing and public relations expense decreased approximately $16,000, or 87.44% for the quarter ended March 31, 2019 compared to 2018 because the bank did not engage in a formal marketing program during 2019 but instead utilized referral relationships.
Professional services expense increased approximately $39,000, or 105.41%, for the quarter ended March 31, 2019 compared to 2018 due to the engagement of a new external audit firm.
Federal deposit insurance assessments decreased approximately $16,000, or 62.59%, for the quarter ended March 31, 2019 compared to 2018 which was the result of an assessment credit of approximately $15,000 received in 2019. Assessments are based on many factors including the Bank’s deposit size and composition and its current regulatory ratings.
Net other real estate expenses decreased approximately $4,000, or 28.95%, for the quarter ended March 31, 2019 compared to 2018. The decrease was primarily related a reduction in the number of properties owned.
Loan and collection expenses increased approximately $47,000, or 164.44%, for the quarter ended March 31, 2019 compared to 2018 as a result of a deterioration in asset quality late in 2018 that has resulted in increased legal, appraisal and other collection-related expenses.
40 |
Table of Contents |
Dividend Restrictions
The Company has never declared or paid any cash or stock dividends. The Pennsylvania Banking Code of 1965, as amended, provides that cash dividends may be declared and paid only from accumulated net earnings and that, prior to the declaration of any dividend, if the surplus of a bank is less than the amount of its capital, the bank shall, until surplus is equal to such amount, transfer to surplus an amount which is at least ten percent (10%) of the net earnings of the bank for the period since the end of the last fiscal year or any shorter period since the declaration of a dividend. If the surplus of a bank is less than fifty percent (50%) of the amount of its capital, no dividend may be declared or paid by the Bank without the prior approval of the Pennsylvania Department of Banking.
Under the Federal Reserve Act, the Federal Reserve Board has the power to prohibit the payment of cash dividends by a bank holding company if it determines that such a payment would be an unsafe or unsound practice or constitutes a serious risk to the financial soundness or stability of the subsidiary bank. As a result of these laws and regulations, the Bank, and therefore the Company, whose only source of income is dividends from the Bank, will be unable to pay any dividends while an accumulated deficit exists. The Company does not anticipate that dividends will be paid for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
The management of the Company, including the Chief Executive Officer and the Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of the end of the period covered by this Report (the “Evaluation Date”). A control system, no matter how well designed and operated, can provide only reasonable, not absolute insurance, that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic and annual reports. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report due to the material weakness described below.
(b) Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework, management has concluded that our internal control over financial reporting was not effective as of March 31, 2019 due to the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of interim or annual financial statements will not be prevented or detected on a timely basis by the company’s internal controls. Based on our evaluation under the framework, management has concluded that material weaknesses existed in the internal controls as of March 31, 2019 in connection with credit administration matters and the timeliness of financial reporting related to the identification and support for asset quality matters that could have a material effect on the consolidated financial statements.
In June 2017, to address the material weaknesses, we have established the following procedures: (1) Implement a new credit administration monitoring system for items requiring follow-up/annual reviews; (2) Implement an appraisal monitoring procedure for all impaired loans; and (3) Together with credit administration in conjunction with monthly Asset Quality Committee Meetings, identify and provide appropriate supporting documentation for material asset quality-related matters that could affect the consolidated financial statements of the Company. Management believes that this change will address material weaknesses in the financial controls. Additional changes will be implemented as determined necessary.
Although our remediation efforts have been implemented, our material weaknesses will not be considered remediated until new internal controls are operational for a period of time and are tested, and management concludes that these controls are operating effectively.
(c) Changes in Internal Control Over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the final fiscal quarter of the year to which this Report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Act which permits small reporting companies, such as the Company, to provide only management’s report in this annual report.
41 |
Table of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Bank is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.
Item 1A. Risk Factors.
There have not been any material changes to the risk factors disclosed in the Company’s 2018 Annual Report on Form 10-K except as disclosed below. The risk factors disclosed in the Company’s 2018 Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Failure to Comply with the FDIC and Pennsylvania Department of Banking Consent Orders
The Bank has entered into Consent Orders with the FDIC and the Department which, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.50% and its total risk-based capital ratio to 12.50%. As of March 31, 2019, the Bank’s tier one leverage capital ratio was 2.22% and its total risk-based capital ratio was 5.01%. Refer to the Regulatory Orders section. The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory supervision and/or actions. The ability of the Bank to continue as a going concern is dependent on many factors, including achieving required capital levels, earnings and fully complying with the Consent Orders. The Consent Orders raise substantial doubt about the Bank’s ability to continue as a going concern.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
None
Item 5. Other Information.
None
42 |
Table of Contents |
Item 6. Exhibits.
a) Exhibits.
| ||
| ||
| ||
|
43 |
Table of Contents |
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.
Date: November 8, 2022 |
| /s/ Evelyn F. Smalls |
|
|
| Evelyn F. Smalls |
|
|
| President & Chief Executive Officer |
|
|
|
|
|
Date: November 8, 2022 |
| /s/ Brenda M. Hudson-Nelson |
|
|
| Brenda Hudson-Nelson |
|
|
| Executive Vice President/Chief Financial Officer |
|
44 |