13. Regulatory Matters

12 Months Ended

Dec. 31, 2015

Notes

13. Regulatory Matters

13.  REGULATORY MATTERS 

      The Bank engages in the commercial banking business, with a particular focus on serving African Americans, Hispanics and women, and is subject to substantial competition from financial institutions in the Bank’s service area.  As a bank holding company and a banking subsidiary, the Company and the Bank, respectively, are subject to regulation by the FDIC and the Pennsylvania Department of Banking (“PADOB”) and are required to maintain capital requirements established by those regulators. Effective January 1, 2010, the FDIC became the Bank’s primary regulator after it voluntarily surrendered its Federal Reserve Membership.

      Prompt corrective actions may be taken by those regulators against banks that do not meet minimum capital requirements.  Prompt corrective actions range from restriction or prohibition of certain activities to the appointment of a receiver or conservator of an institution’s net assets.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that if undertaken, could have a direct material effect on the Bank’s financial statements.  Under capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices, the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

      Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier I capital (as defined in the regulations) for capital adequacy purposes to risk-weighted assets (as defined). 

The most recent notification as of December 31, 2015, from the FDIC and PADOB categorized the Bank as “adequately capitalized” under the regulatory framework for prompt and corrective action due to the Consent Orders described below.  The Bank’s growth and other operating factors such as the need for additional pro­visions to the allowance for loans losses may have an adverse effect on its capital ratios.

United Bancshares, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2015 and 2014

      The Company and the Bank’s actual capital amounts and ratios are as follows:

	December 31, 2015				December 31, 2014
(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	$3,081	8.50%	N/A		$3,684	8.60%	N/A
Bank	3,081	8.50	$3,623	10.00%	3,684	8.60	$4,283	10.00%
Tier I capital to risk weighted assets
Company	2,663	7.35	N/A		3,146	7.35	N/A
Bank	2,663	7.35	$2,899	8.00%	3,146	7.35	$2,570	6.00%
Common equity Tier I capital to risk weighted assets
Company	2,663	7.35	N/A		3,146	7.35	N/A	N/A
Bank	2,663	7.35	$2,355	6.50%	3,146	7.35	N/A	N/A
Tier I Leverage ratio (Tier I capital to total quarterly average assets)
Company	2,663	4.57	N/A		3,146	5.18	N/A
Bank	2,663	4.57	$2,915	5.00%	3,146	5.18	$3,038	5.00%
Tangible common equity to tangible assets
Company	2,663	4.52	N/A	N/A	3,146	5.20	N/A	N/A
Bank	2,663	4.52	N/A	N/A	3,146	5.20	N/A	N/A

On January 31, 2012, the Bank entered into stipulations consenting to the issuance of Consent Orders with the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“Department”).  The material terms of the Consent Orders are identical.  The Consent Orders require the Bank to:

·      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;

United Bancshares, Inc. and Subsidiary

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December 31, 2015 and 2014

·      retain a bank consultant acceptable to the FDIC and the Department to develop a written analysis and assessment of the Bank’s management needs and thereafter formulate a written management plan;

·      formulate and implement written profit and budget plans for each year during which the orders are in effect;

·      develop and implement a strategic plan for each year during which the orders are in effect, to be revised annually;

·      develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period;

·      formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its current regulatory examination;

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

·      revise the Bank’s loan policy to establish and monitor procedures for adherence to the loan policy and to eliminate credit administration and underwriting deficiencies identified at its current regulatory examination;

·      develop a comprehensive policy and methodology for determining the allowance for loan and lease losses;

·      develop an interest rate risk policy and procedures to identify, measure, monitor and control the nature and amount of interest rate risk the Bank takes;

·      revise its liquidity and funds management policy and update and review the policy annually;

·      refrain from accepting any brokered deposits;

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

·      establish an oversight committee of the board of directors of the Bank with the responsibility to ensure the Bank’s compliance with the orders, and

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

The Consent 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.

As of December 31, 2015, the Bank’s tier one leverage capital ratio was 4.57% and its total risk based capital ratio was 8.50%. These ratios are below the levels required by the Consent Orders.  Management is in the process of addressing all matters outlined in the Consent Orders.  The Bank has increased the participation of the Bank’s Board of Directors in

United Bancshares, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2015 and 2014

the Bank’s affairs and has established an oversight committee of the Board of Directors of the Bank with the responsibility to insure the Bank’s compliance with the Consent Orders.  Management has developed the written plans and policies required by the Consent Orders and will continue to endeavor to comply with the terms and conditions of the Orders.