EDGAR 10-K Filing

Company CIK: 944792
Filing Year: 2022
Filename: 944792_10-K_2022_0001096906-22-001652.json

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ITEM 1. BUSINESS
ITEM 1 - BUSINESS
United Bancshares, Inc.
United Bancshares, Inc. (“Registrant” or “UBS”) is a holding company for United Bank of Philadelphia (the “Bank”). UBS was incorporated under the laws of the Commonwealth of Pennsylvania on April 8, 1993. The Registrant became the bank holding company of the Bank, pursuant to the Bank Holding Company Act of 1956, as amended, on October 14, 1994.
The Bank commenced operations on March 23, 1992. UBS provides banking services through the Bank. The principal executive offices of UBS and the Bank are located at The Graham Building, 30 S 15th Street, Suite 1200, Philadelphia, Pennsylvania 19102. The Registrant’s telephone number is (215) 351-4600.
As of July 18, 2022, UBS and the Bank had a total of 17 employees.
United Bank of Philadelphia
United Bancshares, Inc. is an African American controlled and managed bank holding company for United Bank of Philadelphia (the “Bank”), a commercial bank chartered in 1992 by the Commonwealth of Pennsylvania, Department of Banking. The deposits held by the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides full service community banking in Philadelphia neighborhoods that are rich in diversity providing a market opportunity that includes men, women, families, small business owners, skilled laborers, professionals and many more who need banking services to help make their dreams come true.
The Bank conducts all its banking activities through its two offices located as follows: (i) Center City 30S 15th Street, Philadelphia, Pennsylvania, and (ii) Progress Plaza Branch 1501 North Broad Street, Philadelphia, Pennsylvania. Through its locations, the Bank offers a broad range of commercial and consumer banking services. At December 31, 2018, the Bank had total deposits aggregating approximately $48 million and had total net loans outstanding of approximately $36 million, including $10.1 million held for sale. Although the Bank’s primary service area for Community Reinvestment Act purposes is Philadelphia County, it also services, generally, the Delaware Valley, which consists of portions of Montgomery, Bucks, Chester, and Delaware Counties in Pennsylvania; New Castle County in Delaware; and Camden, Burlington, and Gloucester Counties in New Jersey.
The city of Philadelphia is comprised of 381 census tracts and, based census data, 250 or 65% of these are designated as low to moderate-income tracts while 105 or 27.3% are characterized both as low to moderate-income and minority tracts. The Bank’s primary service area consists of a population of 1,584,064, which includes a minority population of 874,403.
United Bank of Philadelphia, while state chartered as a commercial bank, is uniquely structured to provide retail services to its urban communities, while maintaining and establishing a solid portfolio of commercial relationships that include small businesses, churches and corporations. The Bank has leveraged its CDFI (community development financial institution) designation as established by the United States Department of Treasury to attract deposits from universities and corporations in the region seeking Community Reinvestment Act (the “CRA Act”) credit. The Bank may also be eligible to receive grants from the U.S. Treasury CDFI Bank Enterprise Award Fund for its qualified small business lending activity. Management may pursue CDFI funding in the future for which the Bank is eligible.
The Bank seeks to strengthen communities in the Philadelphia region with innovative products and services including remote deposit capture and other electronic banking services. The Bank primarily engages in commercial banking business with a particular focus on, and sensitivity to, groups that have been traditionally under-served, including Blacks, Hispanics and women. The Bank offers a wide range of deposit products (both retail and commercial), including checking accounts, interest-bearing NOW accounts, money market accounts, certificates of deposit, savings accounts and Individual Retirement Accounts.
A broad range of credit products is offered to the businesses in the Bank’s service area, including commercial and industrial and commercial real estate loans. Although the Bank’s internal Loan Policy limit is $500,000 per borrower, its maximum legal lending limit was approximately $284,000 per borrower based on 15% of its current capital level at December 31, 2018.
United Bank of Philadelphia has the flexibility to develop loan arrangements targeted at a customer’s objectives. Typically, these loans are term loans or revolving credit arrangements with interest rate, collateral and repayments terms, varying based upon the type of credit, and various factors used to evaluate risk. The Bank participates in the government-sponsored and other local agency credit enhancement programs including the Small Business Administration (“SBA”) and Philadelphia Industrial Development Corporation (“PIDC”) when deemed appropriate. These programs offer guarantees of up to 90% of the loan amount. These guarantees are intended to reduce the Bank’s exposure to loss in its commercial loan portfolio. Commercial loans are typically made on the basis of cash flow to support repayment with secondary reliance placed on the underlying collateral.
Other services the Bank offers include safe deposit boxes, travelers’ checks, money orders, direct deposit of payroll and Social Security checks, wire transfers, access to automated teller networks and remote deposit capture.
Segments
The Company has one reportable segment, “Community Banking.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the other. For example, commercial lending is dependent upon the ability of the Bank to fund it with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.
Access to the Bank’s Website and the United States Securities and Exchange Commission Website
Reports filed electronically by United Bancshares, Inc. with the Securities and Exchange Commission including proxy statements, reports on Form 10-K, reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendment of those reports, and other information about UBS and the Bank are accessible at no cost on the Bank’s website at www.ubphila.com under the “investor information” section. These files are also accessible on the Commission’s website at www.sec.gov.
Competition
There is significant competition among financial institutions in the Bank’s service area. Money center banks have positioned new branches in once abandoned neighborhoods seeking to grow market share in minority communities. The Bank competes with local, regional and national commercial banks, as well as savings banks, credit unions and savings and loan associations. Many of these banks and financial institutions have an amount of capital that allows them to do more advertising and promotion and to provide a greater range of services to customers including cash management, investment and trust services. The Bank has attracted, and believes it will continue to attract its customers from the deposit base of such existing banks and financial institutions largely due to the Bank’s “uniqueness” in the marketplace and its mission to service groups of people who have traditionally been under-served and by its devotion to personalized customer service. The Bank’s branding message, “So Much More Than Banking” highlights the Bank’s community development focus.
The Bank focuses its efforts on the needs of individuals and small and medium-sized businesses. In the event that there are customers whose loan demands exceed the Bank’s lending limit; the Bank will seek to arrange for such loans on a participation basis with other financial institutions and intermediaries. In addition, major corporations with operations in the Philadelphia region will continue to be targeted for business including deposits and other banking services.
Supervision and Regulation
UBS, as a Pennsylvania business corporation, is subject to the jurisdiction of the Securities and Exchange Commission (the “SEC”) and certain state securities commissions concerning matters relating to the offering and sale of its securities. Accordingly, if UBS wishes to issue additional shares of its Common Stock, for example, to raise capital or to grant stock options, UBS must comply with the registration requirements of the Securities Act of 1933, as amended, and any applicable states securities laws, or use an applicable exemption from such registration, if available.
Capital Adequacy
Federal and state banking laws impose on financial institutions such as UBS and the Bank certain minimum requirements to be considered “well capitalized”. The Company and the Bank are each generally required to maintain a minimum ratio of common equity Tier I capital, Tier I Capital, and total capital to risk rated assets of 6.5%, 8% and 10%, respectively, to be “well capitalized” and 4.5%, 6% and 8%, respectively, to be “adequately capitalized”. At least half of the total capital must be composed of “Tier I Capital” which is defined as common equity, retained earnings and qualified perpetual preferred stock, less certain intangibles. The remainder may consist of “Tier II Capital” which is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of loan loss allowance. Common equity Tier I Capital is generally defined as common equity and retained earnings. Also, federal banking regulatory agencies have established minimum leverage capital requirements for banking organizations. Under these requirements, banking organizations must maintain a minimum of Tier I Capital to adjusted average quarterly assets equal to 3% to 5%, subject to bank regulatory evaluation of an organization’s overall safety and soundness. Under the federal banking regulations, a financial institution would be deemed “adequately capitalized” or better if it exceeds the minimum federal regulatory capital requirements described above. A financial institution would be deemed “undercapitalized” if it fails to meet the minimum capital requirements and significantly undercapitalized if it has a total risk-based capital ratio that is less than 6%, Tier I risk-based capital ratio is less than 3%, a leverage ratio that is less than 3% and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to less than 2%. If an institution is deemed to be critically undercapitalized for four quarters, with certain exceptions, that institution will be placed in receivership. As of December 31, 2018, UBS and the Bank were undercapitalized as discussed in Note 14 of the Consolidated Financial Statements. However, UBS and the Bank are “well capitalized” for regulatory capital purposes based upon the most recent notification under regulatory framework for prompt corrective action.
On January 31, 2012, the Bank entered into a Consent Order (“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%.
In an effort to restore the Bank to profitability and increased capital levels, its regulators, FDIC and Department of Banking amended and restated the prior Order on April 25, 2018. This amended Order serves as a prescriptive Restoration Plan providing benchmarks for capital, earnings and asset quality. The Board of Directors is optimistic about the Bank’s ability to achieve the requirements as stated. This Order represents 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 promptly comply with the Order. Additional information can be found in Note 14 to the Consolidated Financial Statements.
Basel III
On June 7, 2012, the Federal Reserve approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to UBS and the Bank. The FDIC and the OCC subsequently approved these proposed rules on June 12, 2012. The proposed rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.
In July 2014, the Federal Reserve, the OCC and the FDIC approved the final Basel III risk-based capital rule. This rule aims to improve the quality and quantity of capital for all banking organizations. The agencies, in response to comments on their June 2012 proposed capital rule, sought to minimize the potential burden on community organizations where consistent with applicable law and the establishment of a robust and comprehensive capital framework. Community banking organizations became subject to the final Basel III rule on January 1, 2015. Thereafter begins a phase-in period through January 1, 2019.
For community banking organizations like UBS and the Bank, the rule in final form provides some relief from the initial proposal in three important areas:
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Banks under $15 billion in assets can continue to count trust-preferred securities-known as TRuPS-as Tier 1 capital.
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Banks can continue to risk-weight residential mortgages as they had under the original Basel I regime. The final rule abandons a proposal to institute a complicated formula of risk weights for residential mortgages.
•
All but the largest banks (above $250 billion in assets) can keep available-for-sale securities on the balance sheet without having to adjust regulatory capital levels based on the current market value of those securities. Banks have a one-time opportunity to “opt-out” on their first regulatory call report after Jan. 1, 2015 from what’s called the accumulated other comprehensive income (AOCI) filter. If they miss doing so, they can’t opt-out later. The Bank “opted-out” of the inclusion of AOCI in its capital calculations in its March 31, 2015 Call Report.
The final rule includes new risk-based capital and leverage ratios and refines the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to UBS and the Bank under the final rule would be:
(i)
a new common equity Tier 1 capital ratio of 4.5%;
(ii)
a Tier 1 capital ratio of 6% (increased from 4%);
(iii)
a total capital ratio of 8% (unchanged from current rules); and
(iv)
a Tier 1 leverage ratio of 4% for all institutions.
The rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios beginning in 2019:
(i)
a common equity Tier 1 capital ratio of 7.0%;
(ii)
a Tier 1 capital ratio of 8.5%; and
(iii)
a total capital ratio of 10.5%.
The new capital conservation buffer requirement is phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.
Basel III provides discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to consider the macro-financial environment and periods of excessive credit growth. However, the proposed rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes UBS and the Bank.
The federal bank regulatory agencies also approved revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions took effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “well capitalized:”
(i)
a new common equity Tier 1 capital ratio of 6.5%;
(ii)
a Tier 1 capital ratio of 8% (increased from 6%);
(iii)
a total capital ratio of 10% (unchanged from current rules); and
(iv)
a Tier 1 leverage ratio of 5% (increased from 4%).
As of December 31, 2018, UBS and the Bank were “under-capitalized”; however, capital ratios were subsequently strengthened with new external capital as well as retained earnings. Refer to Note 14 of the Consolidated Financial Statements.
The Bank Holding Company Act
UBS, as a bank holding company, is subject to the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and supervision by the Federal Reserve Board. The BCH Act limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. UBS is subject to the supervision of and inspection by the Federal Reserve Board and is required to file with the Board an annual report and such additional information as the Board may require pursuant to the BHC Act and its implementing regulations. The Federal Reserve Board also conducts inspections of UBS.
A bank holding company is prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities, unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks, as to be a proper incident thereto. In making this determination, the Board considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects.
The BHC Act requires UBS to secure the prior approval of the Federal Reserve Board before it owns or controls, directly or indirectly, more than 5% of the voting shares of any corporation, including another holding company or bank.
The BHC Act and the Federal Reserve Board’s regulations prohibit a bank holding company and its subsidiaries from engaging in certain tying arrangements in connection with any extension of credit or services. The “anti-tying” provisions prohibit a bank from extending credit, leasing, selling property or furnishing any service to a customer on the condition that the customer obtain additional credit or service from the bank, its bank holding company or any other subsidiary of its bank holding company, or on the condition that the customer not obtain other credit or services from a competitor of the bank, its bank holding company or any subsidiary of its bank holding company.
The Bank, as a subsidiary of UBS, is subject to certain restrictions imposed by the Federal Reserve Act, as amended, on any extensions of credit to UBS or its subsidiaries, on investments in the stock or other securities UBS or its subsidiaries, and on taking such stock or securities as collateral for loans.
The Federal Reserve Act and Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, that Act and those regulations may affect the terms upon which any person who becomes a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship.
Under Federal Reserve Board Policy, UBS is expected to serve as a source of financial strength to the Bank and to commit resources to support the Bank. Consistent with its “source of strength” policy, the Federal Reserve Board has stated that as a matter of prudent banking, the bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends and the perspective rate of earnings retention appears to be consistent with UBS’ capital needs, asset quality and overall financial condition.
Federal Law also grants to the federal banking agencies the power to issue cease and desist orders when a bank or bank holding company, or an officer or director thereof, is engaged in or is about to engage in unsafe and unsound practices.
Regulatory Restrictions on Dividends
The Consent Orders with the FDIC and the Pennsylvania Department of Banking prohibit the payment of dividends without the approval of both regulatory agencies.
Dividend payments by the Bank to UBS are subject to the Pennsylvania Banking Code and the FDIC Act. Under the Banking Code, no dividends may be paid except from “accumulated net earnings” (generally undivided profits). Under the FDIC, an insured bank may not pay dividends if the bank is in arrears and the payment of any insurance assessment due to the FDIC. See dividend restrictions under Item 5 below.
The Financial Services Act
The Financial Services Act (the “FSA”), sometimes referred to as the Gramm-Leach-Bliley Act, repealed the provisions of the Glass-Steagall Act, which prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.
The FSA authorizes the establishment of “financial holding companies” (“FHC”) to engage in new financial activities offering and banking, insurance, securities and other financial products to consumers. Bank holding companies may elect to become a FHC, if all of its subsidiary depository institutions are well capitalized and well managed. If those requirements are met, a bank holding company may file a certification to that effect with the Federal Reserve Board and declare that it elects to become a FHC. After the certification and declaration are filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such financial activity.
Under the FSA, the Bank, subject to various requirements, is permitted to engage through “financial subsidiaries” in certain financial activities permissible for affiliates of an FHC. However, to be able to engage in such activities the Bank must be well capitalized and well managed and receive at least a “satisfactory” rating in its most recent CRA examination. See “The Community Reinvestment Act” below.
Dodd Frank Act
On July 21, 2010, the Dodd Frank Act was signed into law. The Dodd Frank Act will likely result in dramatic changes across the financial regulatory system, some of which became effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd Frank Act will require many new rules to be issued by various federal regulatory agencies over the next several years. There will be a significant amount of uncertainty regarding the overall impact of this new law on the financial services industry until final rulemaking is complete. The ultimate impact of this law could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd Frank Act also includes provisions that, among other things, either have been adopted or will be adopted:
•
Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, responsible for implementing, examining, and enforcing compliance with federal consumer financial laws, but depository institutions such as the bank with less than $10 billion in assets will continue to be examined and supervised by its current regulators.
•
Create the Financial Stability Oversight Council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management, and other requirements as companies grow in size and complexity.
•
Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans and new disclosures. In addition, certain compensation for mortgage brokers based on certain loan terms will be restricted.
•
Require financial institutions to make a reasonable and good faith determination that borrowers have the ability to repay loans for which they apply. If a financial institution fails to make such a determination, a borrower can assert this failure as a defense to foreclosure.
•
Require financial institutions to retain a specified percentage (5% or more) of certain non-traditional mortgage loans and other assets in the event that they seek to securitize such assets.
•
Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (“DIF”), and increase the floor on the size of the DIF, which generally will result in a decrease in the level of assessments for institutions with assets less than $10 billion.
•
Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance for noninterest-bearing demand transaction accounts at all insured depository institutions.
•
Implement corporate governance revisions, including with regard to executive compensation, say on pay votes, proxy access by shareholders, and clawback policies which apply to all public companies, not just financial institutions.
•
Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions and other accounts.
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Amend the Electronic Funds Transfer Act (EFTA) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.
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Apply the same leverage and risk-based capital requirements that apply to insured depository institutions and holding companies.
As noted above, the Dodd Frank Act requires that the federal regulatory agencies draft many new regulations which will implement the foregoing provisions as well as other provisions contained in the Dodd Frank Act, the ultimate impact of which will not be known for some time.
The Sarbanes-Oxley Act of 2002 (The” SOX Act”)
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In accordance with the requirements of Section 404(a) of the Sarbanes-Oxley Act, management’s report on internal controls is included herein at Item 9. The Dodd-Frank Act permanently exempts non-accelerated filers from the auditor attestation requirement of the Act.
UBS, in compliance with the Sarbanes-Oxley Act of 2002, has made the determination that the Audit Committee of UBS has a “financial expert” on the committee. This “financial expert” is William B. Moore an independent director of the Bank, who is not associated with the daily management of UBS. Mr. Moore understands financial statements and generally accepted accounting principles.
The Bank has a Code of Ethics for the Chief Executive Officer and Chief Financial Officer of the Bank in compliance with the Sarbanes-Oxley Act.
The Bank is subject to supervision, regulation and examination by the Pennsylvania Department of Banking and the FDIC. In addition, the Bank is subject to a variety of local, state and federal laws that affect its operation. Those laws and regulations which have material impact on the operations and expenses of the Bank and thus UBS are summarized below.
Branch Banking
The Pennsylvania Banking Code of 1965, the (“Banking Code”), has been amended to harmonize Pennsylvania law with federal law to enable Pennsylvania banking institutions, such as the Bank, to participate fully in interstate banking and to remove obstacles to out of state banks engaging in banking in Pennsylvania.
FDIC Membership Regulations
The FDIC (i) is empowered to issue consent or civil money penalty orders against the Bank or its executive officers, directors and/or principal shareholders based on violations of law or unsafe and unsound banking practices; (ii) is authorized to remove executive officers who have participated in such violations or unsound practices; (iii) has restricted lending by the Bank to its executive officers, directors, principal shareholders or related interests thereof; (iv) has restricted management personnel of the Bank from serving as directors or in other management positions with certain depository institutions whose assets exceed a specified amount or which have an office within a specified geographic area. Additionally, the Bank Control Act provides that no person may acquire control of the Bank unless the FDIC has been given 60-days prior written notice and within that time has not disapproved of the acquisition or extended the period for disapproval.
Federal Law also grants to the federal banking agencies the power to issue consent orders when a bank or bank holding company, or an officer or director thereof, is engaged in or is about to engage in unsafe and unsound practices.
Regulatory Order
On April 25, 2018, the Bank entered into stipulations consenting to the issuance of amended and restated Consent Orders (the “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:
Requirement
Status as of December 31, 2021
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;
Board participation has been improved with attendance at board and committee meetings.
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.
New board members are being actively sought to join the board.
Complete audited financial statements for 2016, 2017, and 2018.
Management has completed 2017 and is actively working with its auditors to complete all audited financial statements for each year through 2021.
Formulate and implement a Restoration/Strategic Plan to increase profitability reduce expenses and improve operating performance and related ratios.
A three-year Restoration/Strategic Plan was prepared and submitted to regulators as required.
Develop and implement a Strategic Plan for each year during which the orders are in effect, to be revised annually;
A comprehensive Restoration/Strategic Plan was prepared and submitted to regulators as required.
Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, by September 2019;
A capital plan with quarterly benchmarks was prepared and submitted to regulators as required. At December 31, 2021 the required ratios had been met.
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;
A classified asset reduction plan with benchmarks measured against capital was prepared and submitted as required. Benchmarks were met as of December 31, 2021.
Eliminate all assets classified as “Loss” at its current regulatory examination;
All assets classified as “Loss” have been eliminated.
Refrain from accepting any brokered deposits;
The Bank did not accept brokered deposits.
Refrain from paying cash dividends without prior approval of the FDIC and the Department;
The Bank did not pay cash dividends.
Prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the orders.
Quarterly reports have been prepared and submitted as required.
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 promptly comply with the Order.
At December 31, 2018 and 2017, the Bank’s tier one leverage capital ratio was 3.00% and 5.51%, respectively, and its total risk-based capital ratio was 6.34% and 10.11%, respectively. The tier one leverage ratio and the risk-based capital ratios decreased primarily because of the net loss recognized for the year ended December 31, 2018. Management developed a Capital Plan that focuses on curtailing losses to stop the erosion of capital and increasing capital from potential external equity investments. As discussed in Note 14 of the Consolidated Financial Statements, in 2021, the Bank’s capital ratios improved to meet the required provisions as a result of retained earnings.
Management continues its efforts to increase capital by focusing on the following:
1.
Core Profitability from Bank operations-Core profitability is essential to stop the erosion of capital.
2.
External equity investments--In March 2017, September 2017, and May 2021 the Company received external investments of $675,000, $250,000, and $600,000, respectively, from other financial institutions.
3.
Performance grants--In April 2019, the Bank received a $2.5 million economic stimulus grant from the City of Philadelphia.
4.
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.
5.
In July 2021, the Bank received a grant totaling approximately $1.3 million from the U.S. Treasury Department’s Rapid Response Program that was designed to support CDFI Institutions from the economic impact of the COVID-19 pandemic.
As a result of the above actions, management believes that the Bank has and will continue to comply with the terms and conditions of the Orders and will continue to operate as an independent financial institution.
Federal Deposit Insurance Assessments
The Federal Deposit Insurance Corporation Act (the “FDIC Act”) includes several provisions that have a direct material impact on the Bank. The most significant of these provisions are discussed below.
The Bank is insured by the FDIC, which insures the Bank’s deposits up to applicable limits per insured depositor. For this protection, each insured bank pays a quarterly statutory insurance assessment and is subject to certain rules and regulations of the FDIC. The amount of FDIC assessments paid by individual insured depository institutions, such as the Bank, is based on their relative risk as measured by regulatory capital ratios and certain other factors. Under this system, in establishing the insurance premium assessment for each bank, the FDIC will take into consideration the probability that the deposit insurance fund will incur a loss with respect to an institution, and will charge an institution with perceived higher inherent risks a higher insurance premium. The FDIC will also consider the different categories and concentrations of assets and liabilities of the institution, the revenue needs of the deposit insurance fund, and any other factors the FDIC deems relevant. Increases in the assessment rate and additional special assessments with respect to insured deposits could have an adverse impact on the results of operations and capital levels of the Bank and/or UBS.
Under the FDIC’s risk-based assessment system, insured institutions are required to pay deposit insurance premiums based on the risk that each institution poses. An institution’s risk is measured by its regulatory capital levels, supervisory evaluations, and certain other factors. An institution’s assessment rate depends upon the risk category to which it is assigned. Pursuant to the Dodd Frank Act, the FDIC will calculate an institution’s assessment level based on its total average consolidated assets during the assessment period less average tangible equity (i.e. Tier 1 capital) as opposed to an institution’s deposit level which was the previous basis for calculating insurance assessments. Pursuant to the Dodd Frank Act, institutions will be placed into one of four risk categories for purposes of determining the institution’s actual assessment rate. The FDIC will determine the risk category based on the institution’s capital position (well capitalized, adequately capitalized, or undercapitalized) and supervisory condition (based on exam reports and related information provided by the institution’s primary federal regulator).
In connection with the Dodd Frank Act’s requirement that insurance assessments be based on assets, the FDIC issued the final rule that provides that assessments be based on an institution’s average consolidated assets (less average tangible equity) as opposed to its deposit level. The new assessment schedule, effective as of April 1, 2011, results in the collection of assessment revenue that is approximately revenue neutral compared to the prior method of calculating assessments. Pursuant to this new rule, the assessment base is larger than the prior assessment base, but the new rates are lower than prior rates, ranging from approximately 2.5 basis points to 45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC’s reserve ratio equals 1.15%. Once the FDIC’s reserve ratio equals or exceeds 1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points. There was no significant impact on the Company’s assessment as a result of this change in assessment base.
The FDIC insurance premiums are “risk-based.” Accordingly, higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. As a result, a decrease in the bank’s capital ratios, or a negative evaluation by the FDIC, the Bank’s primary federal banking regulator, may increase the Bank’s net funding cost and reduce its net income.
The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, rule, regulation, order, or condition imposed by the FDIC. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, will continue to be insured for a period of six months to two years, as determined by the FDIC. There are no pending proceedings to terminate the FDIC deposit insurance of the Bank, and the management of the Bank does not know of any practice, condition, or violation that might lead to termination of deposit insurance.
The Community Reinvestment Act
The Bank is required, by the Community Reinvestment Act (“CRA”) and its implementing regulations, to meet the credit needs of the community, including the low and moderate-income neighborhoods, which it serves. The Bank’s CRA record is considered by the regulatory authorities in their evaluation of any application made by the Bank for, among other things, approval of a branch or other deposit facility, branch office relocation, a merger or an acquisition. The CRA also requires the federal banking agencies to make public disclosure of their evaluation of a bank’s record of meeting the credit needs of its entire community, including low and moderate-income neighborhoods. After its most recent CRA examination the Bank was given an “outstanding” CRA rating.
The Bank Secrecy Act
Under the Bank Secrecy Act (“BSA”), the Bank and other financial institutions are required to report to the Internal Revenue Service currency transactions, of more than $10,000 or multiple transactions of which the Bank has knowledge exceed $10,000 in the aggregate. The BSA also requires the Bank to file suspicious activity reports for transactions that involve more than $5,000 and which the Bank knows, suspects or has reason to suspect, involves illegal fund is designed to evade the requirements of the BSA or has no lawful purpose.
Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information required by the BSA or for filing a false or fraudulent report.
Privacy of Consumer Financial Information
The FSA also contains provisions designed to protect the privacy of each consumer’s financial information held in a financial institution. The regulations (the “Regulations”) issued pursuant to the FSA are designed to prevent financial institutions, such as the Bank, from disclosing a consumer’s nonpublic personal information to third parties. However, financial institutions can share a consumer customer’s personal information or information about business with affiliated companies.
The FSA Regulations permit financial institutions to disclose nonpublic personal information to nonaffiliated third parties for marketing purposes but financial institutions must provide a description of their privacy policies to the consumers and give consumers an opportunity to opt-out of such disclosure and prevent disclosure by the financial institution of the consumer’s nonpublic personal information to nonaffiliated third parties. These privacy Regulations will affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
The Patriot Act
The Patriot Act of 2001 which was enacted in the wake of the September 11, 2001 attacks, include provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism. The Patriot Act, and the regulations, which implement it, contains many obligations, which must be satisfied by financial institutions, such as the Bank, which include appropriate policies and procedures and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers all of which involve additional expenses for the Bank. Failure to comply with the Patriot Act could have serious legal and reputational consequences for a financial institution.

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ITEM 1A. RISK FACTORS
ITEM 1A - RISK FACTORS
Below is a list of the significant risks that concern UBS, the Bank and the banking industry. The list should not be considered an all-inclusive list and has not been prepared in any certain order.
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 12.5%. As of December 31, 2018, the Bank’s tier one leverage capital ratio was 3.00% and its total risk-based capital ratio was 6.34%. See 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.
Changes in the economy, especially in the Philadelphia region, could have an adverse effect on the Company
The business and earnings of the Bank and UBS are directly affected by general conditions in the U.S. and in particular, economic conditions in the Philadelphia region. These conditions include legislative and regulatory changes, inflation, and changes in government and monetary and fiscal policies, increases in unemployment rates, and declines in real estate values, all of which are beyond the Bank’s control. Weakness in the economy could result in a decrease in products and service demand, decrease in deposits and deterioration of customer credit quality, an increase in loan delinquencies, non-accrual loans and increases in problem assets. Real estate pledged as collateral for loans made by the Bank may decline in value, reducing the value of assets and collateral associated with the Bank’s existing loans. Because of the Bank’s concentration in the Philadelphia region, it is less able to respond or diversify credit risk among multiple markets. These factors could result in an increase in the provision for loan losses, thus reducing net income.
Future loan losses may exceed the Bank’s allowance for loan losses
The Bank and UBS are subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to repay loans in accordance with their terms. The downturn in the economy and the real estate market in the Bank’s market area could have a negative effect on collateral values and borrowers’ ability to repay. This downturn in economic conditions could result in losses to UBS in excess of loan loss allowances. To the extent loans are not paid timely by borrowers, the loans are placed on non-accrual status, thereby reducing interest income. To the extent loan charge-offs exceed the Bank’s projections, increased amounts allocated to the provision for loan losses would reduce income.
Exposure to Credit Risk on Commercial Lending can Adversely Affect Earnings and Financial Condition
The Bank’s loan portfolio contains a significant number of commercial real estate and commercial and industrial loans. These loans may be viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of a default during an economic down-turn. A deterioration of these loans may cause a significant increase in non-performing loans. An increase in non-performing loans could cause an increase in loan charge offs and a corresponding increase in the provision for loan losses which could adversely impact the Bank’s earning and financial condition.
Our operations are subject to interest rate risk and variations in interest rates may negatively affect financial performance
In addition to other factors, our earnings and cash flows are dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and investment securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Changes in the general level of interest rates may have an adverse effect on our business, financial condition, and results of operations. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, influence the amount of interest income that we receive on loans and investment securities and the amount of interest that we pay on deposits and borrowed funds. Changes in monetary policy and interest rates also can adversely affect:
•
our ability to originate loans and obtain deposits;
•
the fair value of our financial assets and liabilities; and
•
the average duration of our investment securities portfolio.
If the interest rates paid on deposits and other borrowed funds increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowed funds. Additionally, the fair value of the Bank’s loans held at fair value may be negatively impacted by changes in interest rates which could negatively impact earnings.
The fair value of loans held for sale and loans held at fair value may not be realizable
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 and the un-guaranteed portion is retain after that sale. The full amount of these loans is carried at fair value. For the guaranteed portion, valuation is determined using actual market bids for the specific loans held or for loan sales for similar assets in the marketplace that have occurred near the valuation date. Fair value of the unguaranteed portion is estimated based on the present value of future cash flows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries which is based primarily on the risk spread to LIBOR spot curve. Accordingly the fair value determinations of these loans could be negatively impacted by changes in interest rates as well as volatility in prepayments and occurrences of default.
The Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely impact our business
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) which provides for a broad range of financial reform and will result in a number of new regulations which could significantly impact regulatory compliance costs and the operations of community banks and bank holding companies. The Dodd-Frank Act, among other things, broadens the base for FDIC insurance assessments which may increase our FDIC insurance premiums; repeals the prohibition on a bank’s payment of interest on demand deposit accounts of commercial clients beginning one year after the date of enactment; and contains provisions affecting corporate governance and executive compensation for publicly traded companies. The Dodd-Frank Act also creates a new Bureau of Consumer Financial Protection with broad authority to develop and implement rules regarding most consumer financial products. Although many of the details of the Dodd-Frank Act and the full impact it will have on our business will not be known for many months or years in part because many of the provisions require the adoption of implementing rules and regulations, we expect compliance with the new law and its rules and regulations to result in additional costs, including increased compliance costs. These changes may also require us to invest significant management attention and resources to make any necessary changes to our operations in order to comply. These changes may adversely affect our business, financial condition and results of operations.
Government regulation can result in limitations on operations
The Bank operates in a highly regulated environment and is subject to supervision and regulation by a number of governmental regulatory agencies. Regulations adopted by these agencies are generally intended to provide protection for depositors and customers rather than for the benefit of the shareholders. These regulations establish permissible activities for the Bank to engage in, require maintenance of adequate capital levels, and regulate other aspects of operations. The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effect of these changes on the Bank’s business and profitability. A return of recessionary conditions may create the potential for increased regulation, new federal or state laws and regulations regarding lending and funding practices and liquidity standards that could negatively impact the Bank’s operations by restricting the Bank’s business operations, increase the cost of compliance and adversely affect profitability. Losses from operations may result in deterioration of the Bank’s capital levels below required levels and could result in severe regulatory action.
The financial services industry is very competitive
The Bank faces competition in attracting and retaining deposits, making loans, and providing other financial services throughout the Bank’s market area. The Bank’s competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources, including access to capital markets, than the Bank and are able to expend greater funds for advertising and marketing. If the Bank is unable to compete effectively, the Bank will lose market share and income from deposits, loans, and other products may be reduced.
Higher FDIC assessments could negatively impact profitability
The FDIC insurance premiums are “risk-based.” Accordingly, higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. As a result, a decrease in the Bank’s capital ratios, or a negative evaluation by the FDIC, the Bank’s primary federal banking regulator, may increase the Bank’s net funding cost and reduce its earnings.
Inadequate liquidity
The Bank may not be able to meet the cash flow requirements of its 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. While the Bank actively manages its liquidity position and is required to maintain minimum levels of liquid assets, rapid loan growth or unexpected deposit attrition may negatively impact the Bank’s ability to meet its liquidity requirements. The inability to increase deposits to fund asset growth represents a potential liquidity risk. The Bank may need to reduce earning asset growth through the reduction of current production, sale of assets and/or the participating out of future and current loans. This might reduce future earnings of the Bank.
Ability to attract and retain management and key personnel may affect future growth and earnings
The success of UBS and the Bank will be influenced by its ability to attract and retain management experienced in banking and financial services and familiar with the communities in the Bank’s market areas. The Bank’s ability to retain executive officers, management team, and support staff is important to the successful implementation of the Bank’s strategic plan. It is critical, as the Bank grows, to be able to attract and retain qualified staff with the appropriate level of experience and knowledge in community banking. The unexpected loss of services of key personnel, or the inability to recruit and retain qualified personnel in the future could have an adverse effect on the Bank’s business, financial condition, and results of operations.
The ability to maintain adequate levels of capital to meet regulatory minimums and support growth
The Bank and UBS may not be able to maintain the requisite minimum regulatory capital levels to support asset growth. While management may seek additional capital through available government programs, unforeseen economic events may negatively impact the Bank’s and UBS’ profitability and result in erosion of capital. This might restrict growth and reduce future earnings of the Company.
The soundness of other financial services institutions may adversely affect UBS and the Bank.
Routine funding transactions may be adversely affected by the actions and soundness of other financial institutions. Financial service institutions are interrelated as a result of trading, clearing, lending, borrowing or other relationships. As a result, a rumor, default or failures within the financial services industry could lead to market wide liquidity problems which, in turn, could materially impact the financial condition of UBS and the Bank.
Our information systems may experience an interruption or breach in security that could impact our operational capabilities.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in our client relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrences of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of client business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
Additional risk factors also include the following all of which may reduce revenues and/or increase expenses and/or pull the Bank’s management attention away from core banking operations which may ultimately reduce the Bank’s earnings
•
New developments in the banking industry
•
Variations in quarterly or annual operating results
•
Revision of or the issuance of additional regulatory actions affecting UBS or the Bank
•
Litigation involving UBS or the Bank
•
Changes in accounting policies or procedures
Investments in UBS common shares involve risk. There is no trading market for UBS’ common shares.
ITEM B - UNRESOLVED STAFF COMMENTS
There were no unresolved staff comments.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
ITEM 2 - PROPERTIES
All of the Bank’s properties are in good operating condition and are adequate for the Bank’s present needs.
Corporate Headquarters
The Bank’s corporate office is located in The Graham Building, 30 S. 15th Street, Suite 1200, Center City Philadelphia. The Graham building is located in the heart of the Philadelphia business district, directly across from City Hall. The Bank occupies approximately 10,000 square feet on the 12th Floor, including executive offices, operations, finance, human resource, and security and loss prevention functions. The average monthly lease rate over the term of the lease is $16,300.
Co-terminous with this lease, the Bank also leases retail space on the ground level of the Graham Building in which it operates a retail branch and an ATM. The Bank’s average aggregate gross monthly rental is approximately $7,300.
The retail branch and corporate office in the Graham building is located in Philadelphia’s central business district close to City government. There is significant development in and around the location of this building including the recently completed Dilworth Park at City Hall. Management believes that this presence in Center City Philadelphia is consistent with the Bank’s strategic focus on business banking. Beginning in April 2020, this branch was temporarily closed due to shut-downs resulting from the pandemic. A reopening date has not been determined.
Progress Plaza Branch
The Bank leases a branch facility located at 1501 North Broad Street, Philadelphia, Pennsylvania. The Progress Plaza branch is a very active branch with the largest number of customers seeking service on a daily basis. This area of North Philadelphia is an important area for the Bank and its mission. The facility is comprised of teller and customer service areas, lobby and vault. The average aggregate monthly rental for this facility is $6,180 per month. This branch remained open during the pandemic to service the Bank’s retail customers.
Mt. Airy Branch
The Bank leases a branch at 1620 Wadsworth Avenue, in the Mt. Airy section of Philadelphia. This facility is located in a densely populated residential neighborhood and in close proximity to small businesses/retail stores. In January 2010, this lease was renewed for ten (10) years. This facility, comprising a retail banking lobby, teller area, offices, and vault and storage space is currently leased at a monthly rental of approximately $6,700 plus real estate taxes and common area maintenance expenses. Effective October 19, 2018, the Bank closed this branch as a result of a decline in foot traffic and deposit levels over the past several years. Although closed, the Bank remained responsible for the monthly lease expense through expiration in December 2019.
ATM Network
To enhance its accessibility and generate fee income, United Bank of Philadelphia currently operates 13 automated teller machines (ATMs)-2 at branch locations and 12 in remote locations. ATM fees decreased during the year ended December 31, 2018 compared to the same period in 2017. The decrease in ATM fees is due to reduced usage as consumers continue to move to electronic payment methods utilizing debit and credit cards versus cash.
Management will continue to review the profitability of each machine in the network and relocate machines, when appropriate, to maximize profitability and to minimize service costs. Where appropriate, non-customer surcharge fees will be increased to enhance income. In addition, sites for placement of additional machines will be sought where there is high volume “captive audience” potential.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3 - LEGAL PROCEEDINGS
From time to time, 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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
UBS’ Common Stock is not traded on any national exchange or otherwise traded in any recognizable market. There is no established public trading market for UBS’ common stock. Prior to December 31, 1993, the Bank conducted a limited offering (the “Offering”) pursuant to a registration exemption provided in Section 3(a) (2) of the Securities Exchange Act of 1933. The price-per-share during the Offering was $12.00. Prior to the Offering, the Bank conducted an initial offering of the Common Stock (the “Initial Offering”) at $10.00 per share pursuant to the same registration exemption.
There were no common stock transactions during 2018.
As of July 18, 2022 there were 3,128 shareholders of record of UBS’ voting Common Stock.
Preferred Stock
During 2017, the Company sold 1,850 shares of Series B Preferred Stock at $500 per share, with a par value of $0.01 per share. There were no preferred stock transactions during 2018.
Subsequent Transactions
On May 21, 2021, the “Company”) issued 16,129 shares of the Company’s voting common stock (the “Common Stock”) and 1,100 shares of a new series of its preferred stock designated as Series C Perpetual Non-Cumulative Non-Convertible Preferred Stock with a stated value of $500 per share (the “Series C Preferred Stock”) to Citicorp Banking Corporation for an aggregate purchase price of $600,000. The issuance was completed in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933. No underwriters were involved in the transaction.
Dividend Restrictions
The Consent Orders with the FDIC and the Pennsylvania Department of Banking prohibit the payment of dividends without the approval of both regulatory agencies. UBS 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 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 the Bank is less than 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, if a bank has sustained losses equal to or exceeding its undivided profits then on hand, no dividend shall be paid, and no dividends can ever be paid in an amount greater than such bank’s net profits less losses and bad debts. Cash dividends must be approved by the Federal Reserve Board if the total of all cash dividends declared by a bank in any calendar year, including the proposed cash dividend, exceeds the total of the Bank’s net profits for that year plus its retained net profits from the preceding two years less any required transfers to surplus or to a fund for the retirement of preferred stock. Under the Federal Reserve Act, the Federal Reserve Board has the power to prohibit the payment of cash dividends by a bank if it determines that such a payment would be an unsafe or unsound banking practice. As a result of these laws and regulations, the Bank, and therefore UBS, whose only source of income is dividends from the Bank, will be unable to pay any dividends while an accumulated deficit exists. UBS does not anticipate that dividends will be paid for the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
There were no equity compensation instruments outstanding at December 31, 2018.
The information below has been derived from UBS’ consolidated financial statements.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6 - SELECTED FINANCIAL DATA
Selected Financial Data
(Dollars in thousands, except per share data)
Net interest income
$ 2,601
$ 2,469
$ 2,521
$ 2,518
$ 2,857
$ 2,815
Provision (credit) for loan losses
(82 )
(69 )
(68 )
Noninterest income
1,491
1,923
1,397
1,377
1,407
Noninterest expense
4,278
4,362
4,489
4,478
4,416
4,816
Net income (loss)
(1,486 )
(319 )
(495 )
(343 )
(669 )
Net income (loss) per share - basic
(1.80 )
(0.39 )
0.03
(0.57 )
(0.32 )
(0.63 )
Net income (loss) per share - diluted
(1.80 )
(0.39 )
0.03
(0.57 )
(0.32 )
(0.63 )
Balance sheet totals:
Total assets
$ 50,195
$ 59,009
$ 53,612
$ 58,984
$ 60,464
$ 60,751
Net loans
20,265
25,546
26,535
33,101
40,127
41,424
Investment securities
4,581
5,145
5,578
7,572
8,540
9,580
Deposits
48,272
55,455
50,642
55,962
56,962
57,110
Shareholders’ equity
1,760
3,281
2,660
2,680
3,181
3,210
Ratios:
Tier 1 Leverage ratio
3.08 %
5.58 %
4.82 %
4.57 %
5.18 %
5.67 %
Equity to assets ratio
3.51 %
5.56 %
4.96 %
4.54 %
5.13 %
6.50 %
Return on average assets
(2.63 )%
(0.56 )%
0.05 %
(0.83 )%
(0.57 )%
(1.06 )%
Return on average equity
(51.05 )%
(9.79 )%
0.23 %
(15.20 )%
(11.05 )%
(16.26 )%

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Because UBS is a bank holding company for the Bank, the financial statements in this report are prepared on a consolidated basis to include the accounts of UBS and the Bank. The purpose of this discussion is to focus on information about the Bank’s financial condition and results of operations, which is not otherwise apparent from the consolidated financial statements included in this annual report. This discussion and analysis should be read in conjunction with the financial statements presented elsewhere in this report.
Critical Accounting Policies
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, 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, affect management’s determination of the allowance for loan losses in the near term.
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.
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 loans 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 balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures. (Refer to Note 1 and Note 4 of the Notes to the Consolidated Financial Statements.)
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. (Refer to Note 1 and Note 11 of the Notes to the Consolidated Financial Statements.)
The Bank originates SBA loans for which the un-guaranteed portion is retained after the guaranteed portion is sold in the secondary market. Management has elected to carry these loans at fair value in accordance with the irrevocable option permitted under Accounting Standards Codification (“ASC”) 825-10-25 Financial Instruments. Fair value of these loans is estimated based on the present value of future cash flows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries. (Refer to Note 1 and Note 11 of the Notes to the Consolidated Financial Statements.)
Executive Brief
United Bank of Philadelphia is the only African American-owned and controlled community development financial institution headquartered in Philadelphia. Management continues to seek to maximize the Bank’s “community bank” competitive advantage by leveraging its strategic partnerships and relationships to increase market penetration and to help ensure that the communities it serves have full access to financial products and services.
The Company reported a net loss of approximately $1,486,000 ($1.80 per common share) for the year ended December 31, 2018 compared to a net loss of approximately $319,000 ($0.39 per common share) for the year ended December 31, 2017. In 2018, the increase in the net loss is primarily related to a decrease in the fair value of SBA loans, a decrease in gain on sale of loans and an increase in the provision for loan losses because of asset quality deterioration. Management remains committed to further improving the Company’s operating performance by continuing to implement its profit enhancement strategies that are centered on small business lending products and services and improvement in asset quality. The following actions are crucial to enhancing the Company’s future 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 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 July 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. There was deterioration in asset quality during 2018 that resulted in charge-offs and significant fair value write-downs related to defaulted SBA loans. Management will seek to make further progress by adhering to its underwriting standards as well as good customer relationship management practices. In addition, proactive monitoring of the loan portfolio is essential to the identification of emerging problem credits and is performed during Asset Quality Committee meetings. 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 reduce noninterest expense to achieve core earnings. The primary strategy will continue to focus on increasing SBA loan originations and selling the guaranteed portion in the secondary market for a gain. Although noninterest income utilizing this strategy declined from approximately $387,000 during 2017 to $366,000 during 2018, management will continue to target SBA loans that can be fully funded at closing to avoid lengthy construction delays that extend the secondary market eligibility and recognition of income.
Total noninterest expense decreased slightly during 2018 compared to 2017. While expense reductions were achieved in personnel, occupancy, and office operations, expenses related to professional services and data processing increased. Management will seek additional expense reductions, where possible, including in professional services and data processing and other bank operating costs.
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 at 4.78%. The low cost of funds was the primary contributing factor. Management will continue to balance asset growth with capital adequacy requirements.
Results of Operations
In 2018, the Company recorded a net loss of approximately $1,486,000 ($1.80 per share) compared to a net loss of approximately $319,000 ($0.39 per share) in 2017. A detailed explanation for each component of earnings is included in the sections below.
Table 1-Average Balances, Rates, and Interest Income and Expense Summary
Average
Yield/
Average
Yield/
Average
Yield/
(Dollars in thousands)
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Assets:
Interest-earning assets:
Loans
$ 40,056
$ 2,380
5.94 %
$ 39,418
$ 2,314
5.87 %
$ 39,538
$ 2,403
6.08 %
Investment securities
5,025
2.29
5,451
2.24
6,828
2.23
Interest-bearing deposits with other banks
1,715
2.90
0.32
0.32
Federal funds sold
7,579
1.77
9,407
1.11
6,494
0.48
Total interest-earning assets
54,375
2,679
4.93
54,587
2,541
4.65
53,171
2,587
4.87
Noninterest-earning assets:
Cash and due from banks
1,790
1,914
1,291
Premises and equipment, net
Other assets
1,235
Less allowance for loan losses
(199 )
(252 )
(377 )
Total
$ 56,569
$ 57,475
$ 55,771
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Demand deposits
$ 14,565
$ 26
0.18 %
$ 14,539
$ 26
0.18 %
$ 13,297
$ 24
0.18 %
Savings deposits
11,223
0.05
11,790
0.05
11,590
0.05
Time deposits
8,863
0.52
9,208
0.43
11,724
0.31
Total interest-bearing liabilities
34,651
0.23
35,537
0.20
36,611
0.18
Noninterest-bearing liabilities:
Demand deposits
18,845
18,421
16,105
Other
Shareholders’ equity
2,910
3,262
2,830
Total
$ 56,569
$ 57,475
$ 55,771
Net interest income
$ 2,601
$ 2,469
$ 2,521
Spread
4.70 %
4.45 %
4.69 %
Net yield on interest-earning assets
4.78 %
4.52 %
4.74 %
For purposes of computing the average balance, loans are not reduced for nonperforming loans. Loan fee income is included in interest income on loans but is not considered material.
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.
Net interest income totaled approximately $2,601,000 in 2018 and approximately $2,469,000 in 2017, an increase of approximately $132,000, or 5.4%.
Table 2-Rate-Volume Analysis of Changes in Net Interest Income
2018 compared to 2017
2017 compared to 2016
Increase (decrease) due to
Increase (decrease) due to
(Dollars in thousands)
Volume
Rate
Net
Volume
Rate
Net
Interest earned on:
Loans
$ 38
$ 28
$ 66
$ (7 )
$ (83 )
$ (90 )
Investment securities
(9 )
(7 )
(31 )
(30 )
Interest-bearing deposits with other banks
-
-
-
Federal funds sold
(23 )
Total Interest-earning assets
(29 )
(18 )
(47 )
Interest paid on:
Demand deposits
-
-
-
-
Savings deposits
-
-
-
-
-
-
Time deposits
(2 )
(7 )
Total interest-bearing liabilities
(2 )
(5 )
Net interest income
$ 26
$ 106
$ 132
$ (24 )
$ (28 )
$ (52 )
Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to volume variances due to the interest sensitivity of consolidated assets and liabilities.
During 2018, there was an increase in net interest income of approximately $132,000. This was comprised of an increase due to volume of approximately $26,000 and an increase of approximately $106,000 due to changes in rates. During 2017, there was a decrease in net interest income of approximately $52,000. This was comprised of a decrease due to volume of approximately $24,000 and a decrease of approximately $28,000 due to changes in rates.
Average interest earning assets were relatively unchanged for 2018 compared to 2017; however, the net interest margin of the Bank increased from 4.52% for 2017 to 4.78% for 2018. This increase is primarily related to an increase in the yields on all interest earning assets in 2018 when compared to 2017 due to the rising interest rate environment. In addition, the Bank shifted approximately $3 million from Federal Funds Sold to a higher yielding promontory account with another financial institution. The cost of interest-bearing liabilities was relatively unchanged at 23 basis points compared to 20 basis points as the Bank’s deposits are generally not rate-sensitive.
Provision for Loan Losses
The provision for loan losses is based on management’s estimate of the amount needed to maintain an adequate allowance for loan losses. This estimate is based on the review of the loan portfolio, the level of net loan losses, past loan loss experience, the general economic outlook and other factors management feels are appropriate.
The provision for loan losses in 2018 was $317,000 compared to a credit or negative provision for loan losses of $82,000 in 2017. The Bank’s provision is based on a review and analysis of the loan portfolio, and is therefore subject to fluctuation based on qualitative factors like delinquency trends, charge-offs, economic conditions, concentrations, etc. Management monitors its credit quality closely by working with borrowers in an effort to identify and control credit risk. Systematic provisions are made to the allowance for loan losses to cover incurred loan losses in the portfolio. During 2018, there was an increase in impaired loans for which specific reserves were required. The credit or negative provisions in 2017 was primarily related to lower loan originations, loan payoff activity as well as a reduction in net charge-offs and related historical loss factors. In addition, loans held for sale and held at fair value are excluded from the allowance calculation as credit risk is a component of the fair value calculation and related discount on the unguaranteed portion that is retained in the Bank’s loan portfolio. 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.
Noninterest Income
Noninterest income decreased approximately $983,000, or 65.94%, compared to 2017. Of this total, approximately $975,000 is attributable to a decrease in the income recognized on the fair value of financial instruments for the year ended December 31, 2018 compared to the same period in 2017. This decline was primarily related to decreased SBA loan origination volume and fair value write-downs because of an increased level of SBA loan defaults. The amount of 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.
In conjunction with its SBA loan origination strategy, the Bank recognized income of approximately $366,000 and $387,000, respectively, in 2018 and 2017, on the sale of the guaranteed portion of SBA loans and on SBA loans that were held-for-sale and accounted for at fair value under ASC 825, Financial Instruments. Management plans to develop growth strategies to increase its SBA loan volume and related income to enhance and stabilize earnings. In 2018, the gains realized on the sale of these loans were offset by fair value write-downs totaling approximately $637,000 related to defaulted SBA loans. In 2017, there were approximately $338,000 in fair value write-ups related to unsold SBA loans.
During 2018, surcharge income on the Bank’s ATM network decreased approximately $18,000, or 15.38%, compared to 2017. ATM usage has declined as consumers continue to move to electronic payment methods utilizing debit and credit cards versus cash. Management continues to seek to place machines in high volume locations where cash is required. The customer service fee component of noninterest income increased approximately $12,000, or 3.05%, compared to 2017 primarily as a result of an increase in overdraft fees.
Since 2002, the Bank has served as arranger/agent for loan syndications for two major corporations throughout the country. In this capacity, the Bank arranges back-up lines/letters of credit with other minority banks for which it receives agent/administrative fees. In 2018 and 2017, these fees totaled approximately $150,000 and $154,000, respectively. Fees on these facilities are received annually for the arranging and administration of the credit facilities.
Other income increased approximately $35,000, or 36.40%, in 2018 compared to 2017. The increase is primarily related to the recovery of prior period loan collection expenses on defaulted loans.
Noninterest Expense
Noninterest expense decreased approximately $84,000, or 1.92%, in 2018 compared to 2017. The decline was primarily concentrated in personnel, office operations, loan collection cost, other real estate owned expenses and occupancy expenses.
Salaries and benefits decreased approximately $43,000, or 2.73%, in 2018 compared to 2017 as a result of natural attrition including retirement and other turnover without replacement.
Occupancy and equipment expense decreased approximately $23,000, or 2.29%, in 2018 compared to 2017 as a result of the closure of the Bank’s Mount Airy branch in October 2018. While the Bank’s lease did not expire until December 2019, there were cost savings related to utilities, repairs and maintenance and other costs related to building occupancy.
Office operations and supplies expense decreased approximately $70,000, or 21.48%, in 2018 compared to 2017 primarily because of a reduction in stationary and supplies due to a concerted effort to reduce printing and copying by saving and sharing documents digitally. Also, during 2017, the Bank upgraded the branch teller platform which resulted in the need for fewer forms.
Marketing and public relations expense increased approximately $6,000, or 26.99%, in 2018 compared to 2017 due to marketing efforts made to increase the visibility of the Bank and its SBA loan products.
Professional services expense increased approximately $25,000, or 13.41%, in 2018 compared to 2017 because of the engagement of new external auditors in February 2018.
Data processing expenses are a result of management’s decision to outsource a majority of its data processing operations to third party processors. Such expenses are reflective of the high level of accounts being serviced for which the Bank is charged a per account charge by processors. The Bank experiences a higher level of data processing expenses relative to its peer group because of the nature of its deposit base--low average balance and high transaction volume. In addition, the Bank uses outside loan servicing companies to service its mortgage, credit card, and student loan portfolios. To better serve its customers, the Bank also has an ATM network larger than its peer group for which it pays processing fees. Data processing expenses increased approximately $14,000, or 3.48%, in 2018 compared to 2017 because of annual contractual price escalations related to the Bank’s core processor.
Loan and collection expenses increased approximately $2,000, or 1.03%, in 2018 compared to 2017 as a result of expenses related to non-performing loans.
Other real estate expense decreased approximately $32,000, or 40.13%, in 2018 compared to 2017 primarily as the result of lower balances carried in the other real estate portfolio, which declined by approximately $235,000 from approximately $626,000 at December 31, 2017 to approximately $392,000 at December 31, 2018 after the successful liquidation of several properties.
Federal deposit insurance premiums increased approximately $1,000, or 1.08%, in 2018 compared to 2017. Assessments are based on many factors including the Bank’s deposit size and composition and its current regulatory ratings.
All other expenses are reflective of the general cost to do business and compete in the current regulatory environment and maintain adequate insurance coverage.
FINANCIAL CONDITION
Sources and Uses of Funds
The Bank’s financial condition can be evaluated in terms of trends in its sources and uses of funds. The comparison of average balances in Table 3 below indicates how the Bank has managed these elements. Average funding uses were relatively unchanged at approximately $54,375,000 in 2018 compared to approximately $54,587,000 in 2017.
Table 3-Sources and Use of Funds Trends
Increase
Increase
Average
(decrease)
Average
(decrease)
(Dollars in thousands)
Balance
amount
Percent
Balance
amount
Percent
Funding uses:
Loans
$ 40,056
$ 638
1.62 %
$ 39,418
$ (120 )
(0.30 )%
Investment securities
5,025
(426 )
(7.82 )
5,451
(1,377 )
(20.17 )
Interest-bearing balances with other banks
1,715
1,404
451.45
-
-
Federal funds sold
7,579
(1,828 )
(19.43 )
9,407
2,913
44.86
Total uses
$ 54,375
$ (212 )
(0.39 )
$ 54,587
$ 1,416
2.66
Funding sources:
Demand deposits:
Noninterest-bearing
$ 18,845
$ 424
2.30 %
$ 18,421
$ 2,316
14.38 %
Interest-bearing
14,565
0.18
14,539
1,242
9.34
Savings deposits
11,223
(567 )
(4.81 )
11,790
1.73
Time deposits
8,863
(345 )
(3.75 )
9,208
(2,516 )
(21.46 )
Total sources
$ 53,496
$ (462 )
(0.86 )
$ 53,958
$ 1,242
2.36
Investment Securities and Other Short-Term Investments
The Bank’s investment portfolio is classified as available-for-sale. Investments classified as available-for-sale are those investments the Bank intends to hold for an indefinite amount of time, but not necessarily to maturity, and are carried at fair value, with the unrealized holding gains and losses reported as a component of shareholders’ equity on the balance sheet.
Average investment securities decreased approximately $426,000, or 7.82% in 2018 compared to 2017. The decrease is primarily related to monthly paydowns in the mortgage-backed security portfolio.
The yield on the investment portfolio improved to 2.40% for the year ended December 31, 2018 compared to 2.24% for the year ended December 31, 2017. As reflected in Table 4 below, the duration of the portfolio shortened to 5.00 years at December 31, 2018 compared to 5.39 years at December 31, 2017.
At December 31, 2018, 50% of the investment portfolio consisted of callable agency securities for which there was no call activity during the year because of the continued low interest rate environment. Approximately 50% of the portfolio consists of GSE mortgage-backed pass-through securities. The payments of principal and interest on these pools of GSE loans 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.
Table 4-Analysis of Investment Securities
Within one year
After one but
within five years
After five but
within ten years
After ten years
(Dollars in thousands)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Total
Other government securities
$ -
-%
$ 500
1.69 %
$ 1,849
2.03 %
$ -
-%
$ 2,349
Mortgage-backed securities
2,349
Total securities
$ 4,698
Average maturity
5.0 years
The above table sets forth the maturities of investment securities at December 31, 2018 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security).
Loans
Average loans, including loans held-for-sale, increased approximately $638,000, or 1.62%, in 2018 compared to 2017. New loan originations were partially offset by paydowns and sales because of the Bank’s SBA originate/sell strategy that allows funding to revolve. There continue to be a significant number of small businesses in the region that 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, community development organizations, 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 residential mortgages and home equity repayment activity. 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.
As reflected in Table 5 below, the Bank’s loan portfolio is concentrated in commercial loans that comprise approximately $18.6 million, or 90.5%, of total loans at December 31, 2018. Approximately $16.2 million of these loans are secured by owner occupied commercial real estate that may serve to minimize the risk of loss. The Bank continues to have a strong niche in lending to religious organizations, including construction loans, for which total loans at December 31, 2018 were approximately $7.3 million, or 42.4%, of the commercial real estate portfolio. Management closely monitors this concentration to proactively identify and manage credit risk in light of the somewhat high level of unemployment that may impact the tithes and offerings that provide cash flow for repayment. Further balance in concentrations will be sought through increased small business loan originations.
As reflected in Table 6 below, approximately $4.3 million of the Bank’s loan portfolio has scheduled maturities or repricing in five years or more. This position is largely a result of the increase in the SBA commercial real estate portfolio for which the loans typically have twenty-five-year terms but are variable rate. While scheduled maturities exceed five years, the actual duration of the portfolio may be much shorter because of changes in market conditions and refinancing activity.
Table 5-Loans Outstanding, Net of Unearned Income
December 31,
(Dollars in thousands)
Commercial and industrial
$ 1,487
$ 1,798
$ 2,149
$ 3,062
$ 4,635
Commercial real estate
17,096
21,389
21,488
26,414
31,556
Residential mortgage loans
1,226
1,071
1,414
1,924
2,228
Consumer loans
1,467
1,784
2,119
2,442
Total loans
$ 20,543
$ 25,725
$ 26,835
$ 33,519
$ 40,861
Table 6-Loan Maturities and Repricing
(Dollars in thousands)
Within
one year
After one but
within five years
After
five years
Total
Commercial and industrial
$ 947
$ 86
$ 512
$ 1,545
Commercial real estate
10,021
4,157
2,860
17,038
Consumer real estate
1,226
Consumer loans
-
-
Total loans
$ 11,843
$ 4,386
$ 4,314
$ 20,543
Loans maturing after one year with:
Fixed interest rates
$ 2,865
Variable interest rates
$ 5,835
Nonperforming Loans
Table 7 reflects the Bank’s nonperforming and restructured loans for the last five years. The Bank generally determines a loan to be “nonperforming” when interest or principal is past due 90 days or more. The loan is also placed on nonaccrual status at that time. If it otherwise appears doubtful that the loan will be repaid, management may consider the loan to be nonperforming before the lapse of 90 days. The Bank’s policy is to charge off unsecured loans after 90 days past due. Interest on nonperforming loans ceases to accrue except for loans that are well collateralized and in the process of collection. When a loan is placed on nonaccrual, previously accrued and unpaid interest is generally reversed out of income.
Table 7-Nonperforming Loans
(Dollars in thousands)
Nonaccrual loans
$ 1,661
$ 1,616
$ 2,087
$ 3,003
$ 2,481
Impaired loans
1,437
1,277
2,083
2,515
2,005
Loans past due 90 days and still accruing
Interest income on nonaccrual loans included in net income for the year
Interest income that would have been recorded under original terms
Interest income recognized on impaired loans
At December 31, 2018, nonaccrual loans totaled approximately $1661,000 compared to approximately $1,616,000 at December 31, 2017. The increase in nonaccrual loans is attributable primarily to an increase in commercial nonaccrual loans of approximately $69,000. Management continues to work to reduce the level of classified and impaired loans. Forbearance, foreclosure and/or other appropriate collection methods will be used as necessary. A significant portion of the Bank’s nonaccrual loans have real estate collateral that may help to mitigate potential losses. Management continues to actively work with these borrowers to develop suitable repayment plans.
Loans past due 90 days and still accruing at December 31, 2018 totaled approximately $252,000 down from $387,000 at December 31, 2017 and relate primarily to several commercial loans and a home equity loan for which no loss of principal or interest is anticipated because there is strong collateral and guarantees supporting repayment.
The level of classified loans (including impaired loans) decreased to approximately $1,515,000 at December 31, 2018 from approximately $1,704,000 at December 31, 2017. The decrease is primarily attributable to collection of classified loans as well as charge-off and payment activity during 2018. In general, classified loans possess potential weaknesses/deficiencies deserving management’s closer attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects at some future date. Some of these borrowers may be experiencing adverse operating trends, which potentially could impair debt, services capacity but secondary sources of repayment are accessible and considered adequate to cover the Bank’s exposure. Accordingly, a specific reserve has been allocated to cover potential exposure. Management is working proactively with these borrowers to prevent any further deterioration in credit quality.
Impaired loans totaled approximately $1,437,000 at December 31, 2018 compared to $1,277,000 at December 31, 2017. 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. There was no valuation allowance at December 31, 2017 because of charge-off activity. The valuation allowance associated with impaired loans was approximately $139,000 at December 31, 2018. The allowance was determined based on careful review and analysis including collateral liquidation values and/or guarantees and is deemed adequate to cover shortfalls in loan repayment. Management is working aggressively to resolve the potential credit risk associated with its impaired loans by detailing specific payment requirements including the sale of underlying collateral or obtaining take-out financing.
The commercial loan portfolio of the Bank has a concentration in loans made to religious organizations. From inception, the Bank has received support in the form of investments and deposits and has developed strong relationships with the Philadelphia region’s religious community. Loans made to these organizations are primarily for expansion and repair of church facilities. At December 31, 2018 and 2017, loans to religious organizations represented approximately $179,000 and $187,000, respectively, of total impaired loans. Management works 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.
The Bank grants commercial loans to customers primarily located in Philadelphia County, Pennsylvania and surrounding counties in the Delaware Valley. Although the Bank has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.
There was approximately $2,000 of interest income recognized on impaired loans during the year ended December 31, 2018. Interest income recognized on impaired loans during the year ended December 31, 2017 was approximately $40,000. The Bank recognizes income on impaired loans under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will not recognize income on such loans.
The Bank may modify or restructure the terms of certain loans to provide relief to borrowers. 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 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 loans modified during 2018 and 2017 met the criteria of a troubled debt restructuring. The Company had no loans classified as TDRs troubled debt restructurings at December 31, 2018 and 2017.
Allowance for Loan Losses
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 annualized rolling, eight-quarter historical charge-off rate to all pools of non-impaired loans.
•
Qualitative Factors Component - The loan portfolio is broken down into multiple homogenous sub classifications, 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. In 2018 and 2017, there were no changes in qualitative factors. Because the Bank is generally not originating commercial and industrial loans, the growth/volume trend factor remains low. In general, because of the improving economy as evidenced through sustained reductions in the unemployment rates, the economic conditions factor remains low for all categories of loans. 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. Management believes that the allowance for loan losses is adequate at December 31, 2018. While available information is used to recognize losses on loans, future additions may be necessary based on changes in economic conditions. 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. (Refer to Note 4 of the Consolidated Financial Statements for further details on the allowance for loan losses.)
Table 8 below presents the allocation of loan losses by major category for the past five years. The specific allocations in any particular category may prove to be excessive or inadequate and consequently may be reallocated in the future to reflect the current conditions. The allowance for loan losses as a percentage of total loans was 1.35% at December 31, 2018 and 0.70% at December 31, 2017. The increase in the allowance is primarily related to additional reserves for impaired commercial and industrial loans for which there was a shift from the collateral method of calculating impairment to the discounted cashflow method of calculating impairment because of forbearance agreements in place for less than the contractual amount of the payment. In addition, majority of new loan originations are SBA loans for which the Bank utilizes fair value accounting and are therefore excluded from the allowance calculation.
Table 8-Allocation of Allowance for Loan Losses
Amount
Percent
of loans
in each
category
to
Total loans
Amount
Percent
of loans
in each
category to
Total loans
Amount
Percent
of loans
in each
category to
Total loans
Amount
Percent
of loans
in each
category to
Total loans
Amount
Percent
of loans
in each
category to
Total loans
(Dollars in thousands)
Commercial and industrial
$ 102
7.24 %
$ 7
6.99 %
$ 68
37.00 %
$ 151
9.13 %
$ 403
11.30 %
Commercial real estate
83.22
83.15
56.67
78.80
77.26
Consumer real estate
5.97
6.72
3.00
5.74
8.07
Consumer and other loans
-
3.57
3.44
3.33
6.33
3.37
Unallocated
-
-
-
-
-
-
-
-
$ 278
100 %
$ 180
100 %
$ 300
100 %
$ 418
100.00 %
$ 735
100.00 %
Table 9-Analysis of Allowance for Loan Losses
Year ended December 31,
(Dollars in thousands)
Balance at January 1
$ 180
$ 300
$ 418
$ 735
$ 839
Charge-offs:
Commercial and industrial
(208 )
-
-
(259 )
(253 )
Commercial real estate
(18 )
(52 )
(41 )
(3 )
-
Consumer real estate
-
(18 )
(22 )
-
(19 )
Consumer and other loans
(8 )
(5 )
(5 )
(17 )
(30 )
(234 )
(75 )
(68 )
(279 )
(302 )
Recoveries:
Commercial loans
Commercial real estate
-
-
-
-
Consumer real estate
-
Consumer and other loans
Net charge-offs
(219 )
(38 )
(49 )
(249 )
(266 )
Provisions (credits) charged to operations
(82 )
(69 )
(68 )
Balance at December 31
$ 278
$ 180
$ 300
$ 418
$ 735
Ratio of net charge-offs to average loans outstanding
0.55 %
0.10 %
0.12 %
0.59 %
0.61 %
Deposits
In 2018, average deposits decreased approximately $345,000 or 3.75%, concentrated in the categories of savings deposits and time deposits.
In 2018, certificates of deposit decreased approximately $1,473,000 or 15.77%, as certificates were not renewed. In general, the Bank is not seeking certificates of deposit from its corporate customers as they generally carry a higher cost and are more labor intensive because of rollover negotiations and setup. Money market accounts are preferred because of their core nature as well as their flexibility and lower interest cost.
There was a decrease in average savings deposits of $567,000, or 4.81% in 2018. This decline is related to general attrition as customers seek higher interest rates.
There was an increase in average noninterest bearing demand deposits totaling approximately $424,000, or 2.30%, and an increase in average interest-bearing demand deposits of approximately $26,000, or 0.18%, during 2018 compared to 2017. As small business loans are originated, primary operating accounts are required to be maintained at the Bank which has resulted in increased noninterest bearing checking deposits that are deemed core.
Table 10-Average Deposits by Class
(Dollars in thousands)
Amount
Rate
Amount
Rate
Amount
Rate
Noninterest-bearing demand deposits
$ 18,845
- %
$ 18,421
- %
$ 16,105
- %
Interest-bearing demand deposits
14,565
0.18
14,539
0.18
13,297
0.18
Savings deposits
11,223
0.05
11,790
0.05
11,590
0.05
Time deposits
8,863
0.52
9,208
0.43
11,724
0.31
Other Borrowed Funds
The Bank did not borrow funds during 2018. Generally, the level of other borrowed funds is dependent on many items such as loan growth, deposit growth, customer collateral/security requirements and interest rates paid for these funds. The Bank’s liquidity has been enhanced by loan paydowns/payoffs and SBA loan sales-thereby, reducing the need to borrow. The Bank’s contingent funding source is 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.
Off Balance Sheet Arrangements
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. Both arrangements have credit risk essentially the same as that involved in extending loans and are subject to the Bank’s normal credit policies. Collateral may be obtained based on management’s assessment of the customer. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments is represented by the contractual amount of those instruments.
A summary of the Bank’s financial instrument commitments in thousands is as follows:
Commitments to extend credit
$ 1,903
$ 4,670
Outstanding standby letters of credit
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and unused credit card lines. Since 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.
The decrease in commitments at December 31, 2018 compared to 2017 is primarily related to the funding of committed loans coupled with a reduction in loan origination activity. Management believes the Bank has adequate liquidity to support the funding of unused commitments. In addition, because the Bank utilizes an originate/sell SBA loan strategy, funds will revolve on an ongoing basis to support the Bank’s liquidity levels and loan funding requirements.
Liquidity and Interest Rate Sensitivity Management
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 enhance consistent growth of net interest income through periods of changing interest rates.
The Bank must maintain minimum levels of liquid assets. This requirement is evaluated in relation to the composition and stability of deposits; the degree and trend of reliance on short-term, volatile sources of funds, including any undue reliance on particular segments of the money market or brokered deposits; any difficulty in obtaining funds; and the liquidity provided by securities and other assets. In addition, consideration is given to the nature, volume and anticipated use of commitments; the adequacy of liquidity and funding policies and practices, including the provision for alternate sources of funds; and the nature and trend of off-balance-sheet activities. As of December 31, 2018, management believes the Bank’s liquidity is satisfactory.
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. Other types of assets such as federal funds sold, as well as maturing loans, are also sources of liquidity. Approximately $8.7 million in loans are scheduled to mature within one year.
By policy, the Bank’s minimum level of liquidity is 10.00% of total assets. At December 31, 2018, the Bank had total short-term liquidity, including cash, federal funds sold, and unpledged available-for-sale investment securities of approximately $9.4 million, or 19.42% of total assets, compared to $12.5 million, or 21.22% of total assets, at December 31, 2017. The decrease is primarily a result of lower levels of a reduction in deposit balances compared to 2017.
The Bank’s entire securities portfolio is classified as available-for-sale of which approximately 78% 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. To ensure the ongoing adequacy of liquidity, the following strategies will be utilized in order of priority:
•
Seek additional non-public deposits from new and existing private sector customers
•
Sell participations of existing commercial credits to other financial institutions
While management continues to seek additional non-public core deposits to support ongoing loan demand, liquidity levels have been adequate. As a result, it was not necessary to sell loan participations to other institutions.
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.
The Bank’s overall liquidity has generally been stabilized by a high level of core deposits which management has determined are less sensitive to interest rate movements. The Bank has avoided reliance on large-denomination time deposits as well as brokered deposits. Table 11 provides a breakdown of the maturity of time deposits of $100,000 or more. These deposits include $2.9 million in deposits of governmental and quasi-governmental organizations that have short-term maturities. Liquidity ratios are above the Bank’s policy minimum of 6%. Management will closely monitor and manage liquidity to minimize risk and ensure that adequate funds are available to meet daily customer requirements and loan demand.
Table 11-Maturity of Time Deposits of $100,000 or More
(Dollars in thousands)
December 31, 2018 Contractual Terms
3 months or less
$ 606
Over 3 through 6 months
-
Over 6 months through 1 year
4,504
Over 1 through five years
Over five years
-
Total
$ 5,359
The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2018:
Table 12-Contractual Obligations and Other Commitments
(Dollars in thousands)
Total
Less than one year
One to three years
Four to five years
After five years
Certificates of Deposit
$ 7,867
$ 6,996
$ 628
$ 243
$ -
Operating Lease Obligations
2,171
1,340
-
Total
$ 10,038
$ 7,511
$ 1,968
$ 559
$ -
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 that 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 key to measuring the interest sensitivity gap or excess interest-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. Table 13 sets forth the earliest repricing distribution of the Bank’s interest-earning assets and interest-bearing liabilities at December 31, 2018, the Bank’s interest rate sensitivity gap ratio (i.e., excess of interest rate-sensitive assets over interest rate-sensitive liabilities, divided by total earnings assets) and the Bank’s cumulative interest rate sensitivity gap ratio. For purposes of the table, except for savings deposits, an asset or liability is considered rate-sensitive within a specified period when it matures or could be repriced within such period in accordance with its contractual terms. At December 31, 2018, an asset-sensitive position is maintained on a cumulative basis through one year of 5.73% which represents a decrease from the December 31, 2017 positive gap position 13.63%. This decrease is primarily related to the lower level in Federal Funds Sold. This level is within the Bank’s policy guidelines of +/-15% on a cumulative one-year basis and it makes the Bank’s net interest income more favorable in a rising interest rate environment. The most recent economic forecast suggests no further decline in rates but rather increases. Therefore, management does not believe the interest rate risk associated with the Bank’s current position to be significant. 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.
Table 13-Interest Sensitivity Analysis
Interest rate sensitivity gaps as of December 31, 2018
(Dollars in thousands)
Floating
One to 3 Months
Over 3
Through
12months
Over 1 year through
3 years
Over 3 through 5 years
Over
5 years
Cumulative
Interest-sensitive assets:
Interest-bearing deposits with banks
$ -
$ -
$ 3,361
$ -
$ -
$ -
$ 3,361
Investment securities
-
2,583
1,368
4,581
Federal funds sold
3,074
-
-
-
-
-
3,074
Loans
22,613
1,816
2,481
2,710
1,200
1,992
32,812
Total interest-sensitive assets
25,687
1,976
6,034
2,988
3,783
3,360
43,828
Interest-sensitive liabilities:
Interest-bearing checking accounts
3,739
-
-
-
-
-
3,739
Savings and money market accounts
20,450
-
-
-
-
-
20,450
Certificates $100,000 or more
-
1,111
-
2,508
Certificates of less than $100,000
-
4,503
-
-
5,358
Total interest-sensitive liabilities
24,189
1,381
5,614
-
32,055
Interest sensitivity gap
$ 1,498
$ 595
$ 420
$ 2,360
$ 3,539
$ 3,360
$ 11,772
Cumulative gap
$ 1,498
$ 2,093
$ 2,513
$ 4,873
$ 8,412
$ 11,772
Cumulative gap/total earning assets
3.42%
4.78%
5.73%
Cumulative Interest-sensitive assets to interest-sensitive Liabilities
1.06
1.08
1.08
Core deposits such as checking and savings deposits have been placed in repricing intervals based on historical trends and management’s estimates. Nonaccrual loans are not included in the interest-sensitive asset totals.
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. Consequently, even though the Bank currently has a positive gap position because of unequal sensitivity of these assets and liabilities, management believes this position will not materially impact earnings in a changing rate environment. For example, changes in the prime rate on variable commercial loans may not result in an equal change in the rate of money market deposits or short-term certificates of deposit.
A simulation model is therefore 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 over a two-year period. The calculated estimates of net interest income or “earnings” at risk at December 31, 2018 are as follows:
Year 1
Net interest
Percent of
Changes in rate
Income($)
Risk(%)
(Dollars in thousands)
+400 basis points
$ 2,766
4.84 %
+300 basis points
2,731
3.53
+200 basis points
2,698
2.29
+100 basis points
2,667
1.12
Flat rate
2,638
-
-100 basis points
2,387
(9.51 )
-200 basis points
2,075
(21.32 )
-300 basis points
1,798
(31.84 )
-400 basis points
1,546
(41.40 )
Year 2
Net interest
Percent of
Changes in rate
Income($)
Risk(%)
(Dollars in thousands)
+400 basis points
$ 5,626
6.63 %
+300 basis points
5,531
4.84
+200 basis points
5,442
3.13
+100 basis points
5,357
1.52
Flat rate
5,276
-
-100 basis points
4,743
(10.10 )
-200 basis points
4,068
(22.90 )
-300 basis points
3,465
(34.32 )
-400 basis points
2,933
(44.41 )
A simulation model is also used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the economic value of the Bank. This model produces an interest rate exposure report that measures the long-term rate risks in the balance sheet by valuing the Bank’s assets and liabilities at market. It simulates what amount would be left over if the Bank liquidated its assets and liabilities. This is otherwise known as “economic value” of the capital of the Bank. The calculated estimates of economic value at risk at December 31, 2018 are as follows:
MV of equity
Changes in rate
MV equity($)
Risk change(%)
(Dollars in thousands)
+400 basis points
$ 2,468
(11.07 )%
+300 basis points
2,439
(12.11 )
+200 basis points
2,533
(8.74 )
+100 basis points
2,638
(4.95 )
Flat rate
2,775
-
-100 basis points
2,775
0.01
-200 basis points
2,783
0.28
-300 basis points
3,176
14.46
-400 basis points
3,346
20.58
The market value of equity may be impacted by the composition of the Bank’s assets and liabilities. A shift in the level of variable versus fixed rate assets creates swings in the market value of equity. The Bank’s market value of equity declines in a rising rate environment because of the high level of fixed rate loans and investments it has in its portfolio that do not follow market rate changes or re-price immediately. At December 31, 2018, the change in the market value of equity in a +200-basis point interest rate change is -8.74%, which is within the Bank’s policy limit of -25.00% and -11.07% in a +400-basis point interest rate change, within the policy limit of -50.00%. These levels represent improvements from 2017. Management is strategically working to bring this measure more into compliance with policy limits by originating more variable rate loans or structure short maturity balloon mortgages.
The assumptions used in evaluating the vulnerability of the Bank’s earnings and equity to changes in interest rates are based on management’s consideration of past experience, current position and anticipated future economic conditions. The interest sensitivity of the Bank’s assets and liabilities, as well as the estimated effect of changes in interest rates on the earnings and equity, could vary substantially if different assumptions are used or actual experience differs from the assumptions on which the calculations were based. In today’s uncertain economic times, the result of the Bank’s simulation models is even more uncertain.
Capital Resources
Total shareholders’ equity decreased approximately $1,521,000, or 46.36%, in 2018 compared to 2017. The decrease is attributable a net loss for the year ended December 31, 2018 of approximately $1,486,000 as well as unrealized losses, net of tax, of approximately $35,000 on the securities classified as available-for-sale.
The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood. A concentrated effort continues to 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.
Federal and state banking laws impose on financial institutions such as UBS and the Bank certain minimum requirements for capital adequacies which is discussed under “Supervision and Regulation on page 7.
As indicated in Table 14, the UBS and the Bank are “undercapitalized” as of December 31, 2018 and below the requirements of the Consent Orders. Management has developed a Capital Plan that includes profitability and external investment to improve its capital ratios. UBS and the Bank do not anticipate paying dividends in the near future.
Table 14-Capital Ratios
December 31, 2018
December 31, 2017
(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
$ 1,817
6.48 %
N/A
$ 3,338
10.22 %
N/A
Bank
1,777
6.34
2,803
10.00 %
3,300
10.11
3,265
10.00 %
Tier I capital to risk weighted assets
Company
1,539
5.49
N/A
3,158
9.67
N/A
Bank
1,499
5.35
2,242
8.00 %
3,120
9.56
2,612
8.00 %
Common equity Tier I capital to risk weighted assets
Company
1,539
5.49
N/A
3,158
9.67
N/A
Bank
1,499
5.35
1,822
6.50 %
3,120
9.56
2,122
6.50 %
Tier I Leverage ratio (Tier I capital to total quarterly average assets)
Company
1,539
3.08
N/A
3,158
5.58
N/A
Bank
1,499
3.00
2,502
5.00 %
3,120
5.51
2,829
5.00 %

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risks are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the following sections: Liquidity and Interest Rate Sensitivity Management, Net Interest Income, Provision for Loan Losses, Allowance for Loan Losses, Liquidity and Interest Rate Sensitivity Management, Non-Interest Income, Non-Interest Expense, Non-Performing Loans, and Off-Balance Sheet Arrangements.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements on pages 55 to 100 hereof.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure during the year ended December 31, 2018.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A - 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 December 31, 2018 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 December 31, 2018 in connection with the timeliness of financial reporting related and the identification and support for asset quality matters that could have a material effect on the consolidated financial statements.
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 that was in existence as of December 31, 2018. 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.

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ITEM 9B. OTHER INFORMATION
ITEM 9B - OTHER INFORMATION
Grant--On April 30, 2019, the Company received a $2,500,000 unrestricted grant from Philadelphia Industrial Development Corporation (PIDC) for the purpose of expansion of the lending platform and strengthening the financial condition of the Bank. The Bank and PIDC plans to expand its long-standing partnership to finance small businesses in the Philadelphia region. This grant was recorded as noninterest income and served to improve all of the Bank’s capital ratios.
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 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.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth certain biographical information. Other than as indicated below, each of the persons named below has been employed in their present principal occupation for the past five years.
(a) Directors of the Registrant and Bank
Year first
Term
Name
Age
Principal occupation and
other directorships
became
director
Will
expire
Bernard E. Anderson
Economist
Whitney M. Young, Jr. Professor Emeritus
Wharton School, University of Pennsylvania
2018(1)
Philadelphia, PA
David R. Bright
Retired, Executive Vice President
Meridian Bancorp
Philadelphia, PA
L. Armstead Edwards
Chairman of the Board,
United Bancshares, Inc.
Owner and President,
Edwards Entertainment., Inc.
Philadelphia, Pennsylvania
Marionette Y. Wilson(Frazier)
Retired as co-Founder, John Frazier, Inc.
Philadelphia, Pennsylvania
William B. Moore
Vice Chairman of the Board,
United Bancshares, Inc.
Pastor, Tenth Memorial
Baptist Church
Philadelphia, Pennsylvania
Evelyn F. Smalls
President and CEO of Registrant
and United Bank of Philadelphia
Ernest L. Wright
Founder, President and
CEO of Ernest L. Wright
Construction Company
Philadelphia, Pennsylvania
(1) Term will be in effect until voted upon for re-election at the next Shareholders’ Meeting
(b) Executive Officers of Registrant and Bank
Name
Age
Office
Evelyn F. Smalls
President and Chief Executive Officer
Brenda M. Hudson-Nelson
Executive Vice President/Chief Financial Officer
BOARD OF DIRECTORS QUALIFICATIONS
United Bank of Philadelphia has a very engaged and committed Board of Directors. The board takes its governance responsibilities very seriously and challenges management to meet its targeted goals and objectives. Currently, the board has seven (7) outside directors and one (1) insider. This leadership group has diverse experiences in business, banking, and community development that are important to fulfill their oversight responsibilities.
L. Armstead Edwards serves as Chairman and is one of two remaining founding members currently active on the board. Mr. Edwards spent a number of years as an educator and small business owner. He understands the plight of small business owners and combined with his experience in organizational dynamics, he brings a unique perspective to the role. He chairs the Executive Committee and serves on the Asset Liability, Loan and Audit/Compliance Committees. Mr. Edwards has encouraged deliberations to take place at the committee level so the board meeting can focus more on strategic initiatives and engage management on execution and performance measures.
Rev. William B. Moore is a founding member of the board and serves as Vice Chairman and is a member of the Executive and Audit/Compliance Committees. In addition, Rev. Moore became the Chairman of the Audit Committee in April 2018 following the retirement of Joseph T. Drennan. The Chairman and Vice Chairman alternate in leading the board meetings. Rev. Moore has a rich history in the faith community and has been the Senior Pastor of Tenth Memorial Baptist Church for over 30 years. He serves as a strong catalyst in rallying the faith community to support the Bank which is evidenced with the high percentage of loans to churches in the loan portfolio. Rev. Moore also leads an informal Advisory Group of Pastors who offer advice to the Bank’s management regarding the financial needs of the urban community to continue to bridge the economic divide in the region. As a former executive with a quasi-governmental agency, he has a broad-based consistency and is very effective in building multi-sector coalitions to ensure economic inclusion.
Marionette Y. Wilson a director since 1993 serves as Secretary of the Board and member of the Executive and Asset Liability Committees. Prior to her retirement, Ms. Wilson was co-founder of a construction management company and her expertise in this area is very helpful as the Bank works to provide financing to emerging contractors in the region. In addition, she is a leader in the faith community and has been instrumental in directing relationships to the Bank.
Evelyn F. Smalls serves as an inside director since 2000 when she was appointed President and Chief Executive Officer of the Bank. She serves on the Executive, Asset Liability and Loan Committees. Ms. Smalls brings versatile skills with over 25 years’ experience in banking and community and economic development know-how. Her leadership is propelled by her passion to move more inner-city communities into the economic mainstream.
David R. Bright a retired Bank President has a rich history in commercial lending and credit administration. Mr. Bright, a director since 2001, serves as Chairman of the Loan Committee and a member of the Executive Committee. In addition, he brought to the Bank a keen knowledge of community reinvestment initiatives that can propel economic inclusion and impact. Mr. Bright’s community interests include his participation on a number of boards including Greater Philadelphia Urban Affairs Coalition, West Oak Lane Charter School, and Allegheny West CDC.
Dr. Bernard E. Anderson a director since 2002 and chairs the Asset Liability Committee. Dr. Anderson as an economist brings a dynamic perspective to the Bank as a retired Whitney E. Young, Jr., Professor of Management, The Wharton School, University of Pennsylvania As an Advisor to the Urban League of Philadelphia as well as the National Urban League, Dr. Anderson firmly believes that economic disparities among minority groups can be remediated through public and private policies aimed at expanding economic opportunity for all with the Philadelphia region specifically and across the country in general.
Ernest L. Wright a director since 1992 serves as member of the Loan and Asset Liability Committees. His passion is sales and his expertise is in the construction field. He is the proprietor of Wright Construction Management. Mr. Wright was very helpful when the Bank upgraded its branch facilities by conceptualizing affordable designs and sharing his project management skills. He has been instrumental in referring new clients to the Bank particularly from the faith and small business sectors.
CORPORATE GOVERNANCE
The Bylaws provide that a Board of Directors of not less than five (5) and not more than twenty-five (25) directors shall manage our business. The Board, as provided in the bylaws, is divided into four classes of directors: Class A, Class B, Class C and Class D, with each class being as nearly equal in number as possible. The Board of Directors has fixed the number of directors at nine (9), with three (3) members in Class A, one (1) member in Class B (vacant), three (3) members in Class C, and two (2) members in Class D.
Under UBS’ bylaws, persons elected by the Board of Directors to fill a vacancy on the Board serve as directors for the balance of the term of the director who that person succeeds.
Communicating with the Board of Director
Shareholders may communicate with any UBS or Bank director or member of a Committee of the Board of Directors of UBS or the Bank by writing to United Bancshares, Inc., Attention: Board of Directors, P.O. Box 54212, Philadelphia, PA 19105.The written communications will be provided to Marionette Y. Wilson, a director and Secretary of the Board of Directors, who will determine the further distribution of the communications which are appropriate based on the nature of the information contained in the communications. For example, communications concerning accounting internal controls and auditing matters will be shared with the Chairman of the Audit/Compliance Committee of UBS’ Board of Directors.
Code of Conduct
UBS and the Bank have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all its directors, employees and officers and including its Chief Executive Officer and its Chief Financial Officer. The Code meets the requirement of a code of ethics for UBS’ and the Bank’s principal executive officer and principal financial officer or persons performing similar functions under Item 406 of the SEC’s Regulation S-K. Any amendments to the Code or any waivers of the Code for directors or executive officers will be disclosed promptly on a Form 8-K filed with the SEC or by any other means approved by the SEC.The Code complies with requirements of the Sarbanes - Oxley Act and the listing standards of NASDAQ and UBS provides a copy of the Code to each director, officer and employee.
Under our Code of Ethics, the Board is responsible for resolving any conflict of interest involving the directors, executive officers and senior financial officers. The executive officers are responsible for resolving any conflict of interest involving any other officer or employee.
UBS will provide, without charge, a copy of its Code of Business Conduct and Ethics to any person who requests a copy of the Code. A copy of the Code may be requested by writing to the President of UBS at United Bank of Philadelphia at 30 S. 15th Street, Suite 1200, Philadelphia, PA 19102.
Board Leadership Structure
The positions of the Board Chairman and President and Chief Executive Officer are held by two individuals. The Board believes this structure is appropriate for UBS and the Bank because of the need for the Chairman to have independence in leading the Board of Directors to oversee and direct management and the President and CEO’s direct involvement in leading management of UBS and the Bank.
Directors’ Qualifications
In considering any individual nominated to be a director on UBS’ and the Bank’s Board of Directors’, the Board of Directors considers a variety of factors, including whether the candidate is recommended by the Bank’s executive management and the Board’s Nominating Committee, the individual’s professional or personal qualifications, including business experience, education and community and charitable activities and the individual’s familiarity with the communities in which UBS or the Bank is located or is seeking to locate.
Risk Oversight
The Board of Directors establishes and revises policies to identify and manage various risks inherent in the business of the Company, and both directly and through its committees, periodically receives and reviews reports from management to ensure compliance with and evaluate the effectiveness of risk controls. The President and Chief Executive Officer meets regularly with other senior officers to discuss strategy and risks facing UBS. Senior management attends monthly Board meetings and is available to address any questions or concerns raised by the Board on risk-management-related and any other matters. Each month the Board receives presentations from senior management on strategic matters and discusses significant challenges, risks and opportunities for UBS.
The Board has an active role, as a whole and also at the committee level, in overseeing management of UBS’ risks. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to areas of financial reporting, internal controls and compliance with accounting regulatory requirements.Employees who oversee day-to-day risk management duties, including the Vice President/Chief Risk Officer and Compliance Officer, report their findings to the Audit Committee. The Loan Committee of the Bank assists the Board with fulfilling its oversight responsibilities with respect to management of risks related to the Bank’s loan portfolio and its credit quality. The Asset Liability Management Committee of the Bank assists the Board with fulfilling its oversight responsibilities with respect to management of interest risk and the Bank’s investment portfolio.
Nomination for Directors
Section 3.4 of Article 3 UBS’ Bylaws provides that no shareholder shall be permitted to nominate a candidate for election as a director, unless such shareholder shall provide to the Secretary of UBS information about such candidate as is equivalent to the information concerning candidates nominated by the Board of Directors that was contained in the UBS Proxy Statement for the immediately preceding Annual Meeting of shareholders in connection with election of directors. Such information consists of the name, age, any position or office held with UBS or the Bank, a description of any arrangement between the candidate and any other person(s), naming such persons pursuant to which he or she was nominated as a director, his/her principal occupation for the five (5) years prior to the meeting, the number of shares of UBS stock beneficially owned by the candidate and a description of any material transactions or series of transactions to which UBS or the Bank is a party and in which the candidate or any of his affiliates has a direct or indirect material interest, which description should specify the amount of the transaction and where practicable the amount of the candidates interest in the transaction.
Such information shall be provided in writing not less than one hundred twenty (120) days before the first anniversary preceding the annual meeting of UBS’ shareholders. The Chairman of the Board of Directors is required to determine whether the director nominations have been made in accordance with the provisions of the UBS’ Bylaws, and if any nomination is defective, the nomination and any votes cast for the nominee(s) shall be disregarded.
The Nominating Committee’s process for identifying and evaluating nominees for director, including nominees recommended by security holders and for incumbent directors whose terms of office are set to expire, include review of the directors’ overall service during their terms, including meetings attended, level of participation, quality of performance, and contributions towards advancing UBS’s interests and enhancing shareholder value. With respect to new directors, the procedure includes a review of the candidates’ biographical information and qualifications and a possible check of candidates’ references. All potential candidates are interviewed by all members of the Committee and other members of the board. Using this information, the committee evaluates the nominee and determines whether it should recommend to the board that the board nominate or elect to fill a vacancy with the prospective candidate.
The Committee believes the following qualifications must be met by a nominee: a good character, have a reputation, personally and professionally, consistent with UBS’s image and reputation; be an active or former leaders of organizations; possess knowledge in the field of financial services; have an understanding of the Bank’s marketplace; be independent; be able to represent all of the shareholders; be willing to commit the necessary time to devote to board activities, and be willing to assume fiduciary responsibility.
Policy for Attendance at Annual Meetings
UBS has a policy requiring all of its directors to attend UBS’ annual meeting.
GENERAL INFORMATION ABOUT UBS’ AND BANK’S BOARDS OF DIRECTORS
Director Independence
The Board of Directors of the Company and the Bank has determined that all of its members are independent and meet the independence requirements of National Association of Securities Dealers (“ NASDAQ”) except Evelyn F. Smalls. Because Ms. Smalls is the President and Chief Executive Officer of the Company and the Bank she is not independent as defined by NASDAQ. In determining the independence of its directors, other than Ms. Smalls, the Board of Directors considered routine banking transactions between the Bank and each of the directors, their family members and businesses with whom they are associated. In each case, the Board of Directors determined that none of the transaction relationships or arrangements impaired the independence of the director.
Meetings and Executive Sessions of Independent Directors
In 2018, the UBS’ and the Bank’s Board of Directors met at least monthly, except in August, and during 2018 held eleven (11) meetings. The independent directors of UBS and the Bank Boards of Directors hold executive sessions on a regular basis, but, in any event, not less than twice a year. During 2018, two (2) executive sessions were held. Each director attended at least 75% of the Board meetings held during 2018, and the committee meetings held by each committee on which the director served.
Information About the Committees of the Boards of Directors of the Corporation and the Bank
The Committees of UBS’ Board of Directors are the Executive Committee, Audit/Compliance Committee, Compensation Committee and the Nominating Committee. The Corporation and the Bank have the same committees with the same members for each committee, except that the Bank also has an Asset Liability Management Committee and a Loan Committee.
Executive Committee. The Executive Committee, comprised of L. Armstead Edwards (Chairman), William B. Moore, David R. Bright, Evelyn F. Smalls and Marionette Y. Wilson meets, when necessary, at the call of the Chairman, to exercise the authority and powers of the Board of Directors of the Corporation and the Bank at intervals between meetings of the Board of Directors insofar as may be permitted by law. The Executive Committee held eleven (11) meetings during 2018.
Compensation Committee. The Compensation Committee is comprised of L. Armstead Edwards (Chairman), William B. Moore, and Marionette Y. Wilson (Frazier). The Committee meets to discuss compensation matters. It annually reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO’s performance in light of those goals and objectives and determines and approves the compensation and benefits to be paid or provided to Evelyn F. Smalls the President of UBS and Brenda M. Hudson-Nelson Executive Vice President and Chief Financial Officer. The Committee has the responsibility to review and provide recommendations to the full Board regarding compensation and benefit policies, plans and programs. Each member of the Compensation Committee is independent as defined by NASDAQ. During 2018, the Compensation Committee held one (1) meeting to discuss the performance and compensation of the executive officers. A copy of the Compensation Committee charter is not available on our website but can be found as Exhibit A to our Proxy Statement filed with the SEC on November 3, 2014.
Audit/Compliance Committee. The Audit/Compliance Committee of UBS’ Board of Directors is comprised of William B. Moore (Chairman), L. Armstead Edwards, and Marionette Y. Wilson (Frazier), meets when necessary at the call of the Chairman. The Committee meets with the internal auditor to review audit programs and the results of audits of specific areas, as well as other regulatory compliance issues. The Committee selects the independent registered public accounting firm. In addition, the Committee meets with UBS’ independent registered public accounting firm to perform quarterly financial statement reviews, review the results of the annual audit and other related matters as well as other regulatory compliance issues. Each member of the Committee is “independent” as defined in the applicable listing standards of the NASDAQ. The Committee held four (4) meetings during 2018. The Audit Committee charter will be made available, without charge, upon written request by the shareholders of UBS to the corporate secretary of UBS. A copy of the charter is not available on our website but can be found as Exhibit A to our Proxy Statement filed with the SEC on November 3, 2014.
Each member of the Audit/Compliance Committee is financially literate as defined by NASDAQ. The Boards of Directors of the Company and the Bank have determined that William B Moore is the “Financial Expert,” as defined in the Commission’s regulations.
The Compliance Committee was combined with the Audit Committee and is comprised of the same members. On a quarterly basis compliance matters are addressed to include the review of regulatory compliance matters, the Bank’s compliance programs and the CRA Act activities.
Nominating Committee. The Nominating Committee, comprised of L. Armstead Edwards (Chairman), and Ernest L. Wright meets at the call of the Chairman. The Committee is responsible for considering and recommending future director nominees to the Board of Directors of UBS and the Bank and the Committee is independent and meets the requirements for independence of NASDAQ. The Nominating Committee does not currently have a formal policy with respect to diversity. However, in considering nominees for director, the Nominating Committee also considers the Board’s desire to be a diverse body with diversity reflecting gender, ethnic background and professional experience. The Board and the Nominating Committee believe it is essential that the Board members represent diverse viewpoints. The Nominating Committee charter will be made available, without charge, upon written request by the shareholders of UBS to the corporate secretary of UBS. A copy of the charter is not available on our website but can be found as Exhibit A to our Proxy Statement filed with the SEC on November 3, 2014. The Committee held one (1) meeting during 2018.
Asset Liability Management Committee. The Asset Liability Management Committee of the Bank, comprised of Bernard E. Anderson (Chairman), L. Armstead Edwards, Evelyn F. Smalls and Ernest L. Wright meets, when necessary, at the call of the Chairman, to review and manage the Bank’s exposure to interest rate risk, market risk and liquidity risk. During 2018, the Asset and Liability Management Committee held four (4) meetings.
Loan Committee. The Loan Committee of the Bank, comprised of David R. Bright (Chairman), L. Armstead Edwards, Evelyn F. Smalls, and Ernest Wright meets when necessary to review and approve loans that are $200,000 and over and to discuss other loan-related matters. During 2018, the Loan Committee held ten (10) meetings.
Board of Directors Compensation
The normal non-officer director fee to be paid by the Bank is Three Hundred Fifty Dollars ($350) for attending each Board meeting and One Hundred Seventy-five Dollars ($175) per quarter for attending the Board of Directors’ Committee meetings. Directors’ fees are not paid to officer directors for attending Bank Board of Directors or Committee meetings. UBS does not pay any fees to any directors for attending UBS’ Board of Directors or Committee meetings. Effective April 1, 2002, the Board of Directors elected to waive all fees for an indefinite period of time.Therefore, no table summarizing the compensation paid to non-employee directors is required for the fiscal year ended December 31, 2018.
Audit Committee Report
Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of our consolidated financial statements in accordance with generally accepted accounting principles. Our independent registered public accounting firm is responsible for auditing those financial statements. The Audit Committee’s responsibility is to monitor and review these processes, acting in an oversight capacity relying on the information provided to it and on the representations made by management and the independent registered accounting firm.
In connection with the preparation and filing of UBS’ Annual Report on Form 10-K for the year ended December 31, 2018, the Audit Committee (i) reviewed and discussed the consolidated audited financial statements with our management, (ii) discussed with S.R. Snodgrass, P.C., our independent registered public accounting firm, the matters required to be discussed by the standards of the Public Company Accounting Oversight Board (“PCAOB”) (United States), (iii) discussed the independence of S.R. Snodgrass, P.C, and (iv) has received and reviewed the written disclosures and the letter from S.R. Snodgrass, P.C required by PCAOB Rule 3526 “Communication with Audit Committee Concerning Independence” regarding S.R. Snodgrass, P.C.’s communications with the Audit Committee concerning independence and has discussed with S.R. Snodgrass, P.C., its independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in UBS’ Annual Report on Form 10-K for the year ending December 31, 2018 to be filed with the SEC.
UBS’ Audit Committee is composed of William B. Moore (Chairman), L. Armstead Edwards, and Marionette Y. Wilson who each endorsed this report.
Respectfully submitted:
William B. Moore (Chairman)
L. Armstead Edwards,
Marionette Y. Wilson (Frazier)
UBS’S AND BANK’S EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the current executive officers of UBS and Bank as of July 18, 2022:
Name, Principal Occupation and
Business Experience For Past 5 Years
Age as of
July 18, 2022
Office with the UBS and/or Bank
UBS Stock
Beneficially
Owned
Evelyn F. Smalls(1)(2)
President and Chief Executive Officer and
Director of UBS and Bank
Brenda M. Hudson-Nelson (3)
Executive Vice President and Chief Financial Officer
of UBS and Bank
Footnote Information Concerning Executive Officers
(1)
Ms. Smalls was elected as a director and was appointed as President and Chief Executive Officer in June 2000. Prior to that, Ms. Smalls was Senior Vice President of Human Resources and Compliance from December 1993 to May 2000.
(2)
The President and Chief Executive Officer, currently Evelyn F. Smalls, acts as Trustee of certain voting trust agreements (the “Voting Trusts”) pursuant to which Fahnstock, Inc. deposited 5,209 shares of Common Stock of UBS.
(3)
Ms. Hudson-Nelson was appointed Senior Vice President and Chief Financial Officer in June 2000. Prior to that, Ms. Hudson-Nelson was Vice President and Controller from January 1992 to May 2000. In May 2002, Ms. Hudson-Nelson was promoted to Executive Vice President and Chief Financial Officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that UBS’ directors and executive officers file reports of their holdings of UBS’ Common Stock with the SEC. Based on UBS’ records and other information available to UBS believes that the SEC’s Section 16(a) reporting requirements applicable to UBS’ directors and executive officers were complied with for UBS’ fiscal year ended December 31, 2018.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11 - EXECUTIVE COMPENSATION
The Compensation Committee is comprised of L. Armstead Edwards (Chairman of the Board), William B. Moore(Vice Chairman of the Board), Marionette Y. Wilson, and David R. Bright and meets to discuss compensation matters. It annually reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO’s performance in light of those goals and objectives and determines and approves the compensation and benefits to be paid or provided to the Evelyn F. Smalls the President of UBS and Brenda M. Hudson-Nelson Executive Vice President and Chief Financial Officer. Each member of the Compensation Committee is independent as defined by NASDAQ. During 2018, the Compensation Committee held one (1) meeting as the Compensation Committee.
The Committee’s Process
The Compensation Committee reviewed relevant industry data to assist with carrying out certain responsibilities with respect to executive compensation including a “benchmarking” study of executive officer compensation comparing each officer’s salary and total compensation with a financial services industry database with similar size and complexity organizations and positions. The review indicated that the total compensation of the Company’s executive officers was significantly below the average of its peer group.
The goals set forth in the Company’s strategic plan were not met. While the committee remains focused on the achievement of financial and growth goals, it recognizes that the Bank’s financial results were impacted by the weak economic conditions of the last several years; however, the implementation of a sales driven organization is still a work in progress. Given these factors and the continued focus on achieving core profitability, no increases were provided to the executive officers in 2018.
Components of Compensation for 2018
For the fiscal year ended December 31, 2018, the components of executive compensation were:
•
Salary;
•
Life Insurance in the amount of two times salary; and
•
Automobile Allowance.
Salary
Salary provides the compensation base rate and is intended to be internally fair among executive officers at the same level of responsibility.
In setting the salary for the chief executive officer, the committee considers financial results, organizational development, marketing initiatives, board relations, management development, work on representing us to our customers, clients and the public, and results in developing, expanding and integrating our products and services. The committee also considers the effects of inflation. The committee exercises discretion in setting the chief executive officer’s salary and may increase or decrease the chief executive officer’s salary based on our financial performance or on non-financial performance factors, if it so decides. However, the employment contract with Ms. Smalls, chief executive officer, sets a minimum salary of $160,000 per year.
The committee receives evaluations of the other executive officer performance from Ms. Smalls and her recommendations for base salaries for the other officer. The recommendations are based on the officer’s level of responsibility and performance of duties. The committee then reviews and modifies, where appropriate, the recommendations and sets the salaries for the other executive officer.
Life Insurance and Auto Allowance
These benefits help to attract and retain qualified personnel within the current financial constraints.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the Named Executive Officers for the years ended December 31, 2018 and 2017.
Name and Principal
Position
Year
Salary ($)
Bonus
($)(1)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation(1)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(1)
All Other
Compensation
($)(2)
Total
($)
Evelyn F. Smalls
$ 168,000
$ 0
$ 0
$ 0
$ 0
$ 0
$ 11,358
$ 179,358
Chief Executive Officer
168,000
$ 11,358
$ 179,358
Brenda Hudson-Nelson,
$ 121,000
$ 7,250
$ 128,250
Chief Financial Officer
$ 121,000
$ 7,250
$ 128,250
(1)
Amounts are not included in the Bonus, Stock Awards, Option Awards, Non-equity Incentive Plan Compensation, Change in Pension and Nonqualified Deferred Compensation Earnings and All Other Compensation columns of the table because no compensation of this nature was paid by UBS or the Bank and the restricted stock awards and long-term incentive payouts columns are not included in the Compensation Table since these benefits are not made available by UBS or the Bank.
(2)
The President/Chief Executive Officer receives a $750 per month automobile allowance and the Executive Vice President /Chief Financial Officer receives a $500 per month automobile allowance. UBS’ executives are provided with life insurance policies for which the cost is $2,538/annually for Evelyn Smalls and $1,250/annually for Brenda Hudson-Nelson
Executive Employment Agreements
The Bank entered into an Employment Agreement with Evelyn F. Smalls in November 2004 to continue to serve as the Bank’s President and Chief Executive Officer. The term of the Employment Agreement was three (3) year. The contract expired in November 2007. Renewal terms are under review by the Compensation Committee. Ms. Smalls is currently working under the provisions of the expired contract which provide for an annual base salary of $160,000 that may be increased, but not decreased as well as life insurance equivalent to two times her base salary, and a $500 per month automobile allowance. In 2013, the Compensation Committee approved an increase in Ms. Smalls’ automobile allowance to $750 per month.
The Bank entered into an Employment Agreement with Brenda M. Hudson-Nelson in November 2004 to continue to serve as the Bank’s Executive Vice President and Chief Financial Officer. The term of the Employment Agreement was three (3) years. Renewal terms are under review by the Compensation Committee. Ms. Hudson-Nelson is currently working under the provisions of the expired contract which provide for an annual base salary of $115,000 that may be increased, but not decreased as well as life insurance equivalent to two times her base salary, and a $500 per month automobile allowance.
Payments Upon Termination
The named executive officers are only entitled to payment of their salary, life insurance, and automobile allowance through the date of termination.
Other Compensation Tables
We have not included a grant of plan-based awards table, an outstanding equity awards table, options exercises and stock vested table, and pension benefits table because those tables are not applicable.
Transactions with Related Parties
Some of our directors, executive officers, and members of their immediate families and the companies with which they are associated were our customers of and had banking transactions with us in the ordinary course of our business during the year 2018. All loans and commitments to lend were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. In our opinion, the transactions and loan commitments did not involve more than normal risk of collectively or present other unfavorable features.
Our written Audit Committee Charter requires our Audit Committee to approve related party transactions. Our written Policy on Related Party Transactions establishes procedures for the Audit Committee’s review and approve of related party transactions other than excepted transactions and preapproved transactions. Transactions available to all employees generally, and transactions involving less than $120,000 when aggregated with all similar transactions in any calendar year, are excepted transactions. The following types of transactions are preapproved transactions:
•
Compensation payable to directors or officers if reportable under Item 402 of the Commission’s Regulation S-K;
•
Compensation payable to an immediate family member of another director or executive officer, if approved by the Executive Committee acting as the Compensation Committee;
•
∙Transactions with another company (including charitable contributions, grants or endowments to a charitable organization) at which a related person’s only relationship is as an employee (other than executive officer), director or less than 10% owner, if the aggregate amount involved does not exceed $200,000 or 5% of that company’s total revenues; and
•
Routine banking relationships that otherwise comply with banking laws and regulations.
The Audit Committee is to apply the following standards when it reviews related party transactions for approval:
•
Whether the transaction is on terms no less favorable to the Corporation than terms generally available with an unaffiliated third party under similar circumstances;
•
The extent of the related person’s interest in the transaction; and
•
∙Other factors the committee deems appropriate.
For loan transactions, our written Regulation O Policy requires the Executive Committee to review and approve loan transactions with directors, executive officers and their related interests in accordance with the standards established by Federal Reserve Board Regulation O.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to UBS, as of July 18, 2022(1), with respect to the only persons to UBS’ knowledge, who may be beneficial owners of more than 5% of UBS’ Common Stock.
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
of Corporation
Common Stock
Percentage of
Outstanding
Corporation
Common Stock
Owned
Philadelphia Municipal
71,667
8.53 %
Retirement System
2000 Two Penn Center
Philadelphia, Pennsylvania 19102
Greater Philadelphia Urban Affairs Coalition
47,500
5.65 %
1207 Chestnut Street, Floor 7
Philadelphia, PA 19107
(1)
As of July 18, 2022, there were 843,050 shares of UBS’ voting Common Stock outstanding.
(2)
UBS does not know of any person having or sharing voting power and/or investment power with respect to more than 5% of the UBS’ Common Stock other than Philadelphia Municipal Retirement System, Greater Philadelphia Urban Affairs Coalition, and the Estate of James F. Bodine.
The following table lists the beneficial ownership of shares of the UBS’ Common Stock as of July 18, 2022 for each of the UBS’ directors and executive officers. The table also shows the total number of shares of Common Stock ownership by the directors and executive officers of UBS as a group.
Name
Common
Stock1,2,3
Percent of
Outstanding Stock
Current Directors
L. Armstead Edwards
10,833
1.25 %
Marionette Y. Wilson (Frazier)
17,900
2.13 %
Ernest L. Wright
7,084
*
Bernard E. Anderson
*
David R. Bright
*
William B. Moore
1,834
*
Evelyn F. Smalls
*
Certain Executive Officers
Evelyn F. Smalls
500**
*
Brenda M. Hudson-Nelson
*
All Current Directors and Executive Officers as a Group
39,901
4.753 %
_________________
Footnotes Concerning Beneficial Ownership of Stock
*
Less than one percent.
**
Ms. Smalls is also a Director; see listing above.
(1)
Stock ownership information is given as of July 18, 2022 and includes shares that the individual has the right to acquire (other than by exercise of stock options) within sixty (60) days of July 18, 2022. Unless otherwise indicated, each director and each such named executive officer holds sole voting and investment power over the shares listed.
(2)
The number of shares “beneficially owned” in each case includes, when applicable, shares owned beneficially, directly or indirectly, by the spouse or minor children of the director, and shares owned by any other relatives of the director residing with the director. None of the directors holds title to any shares of UBS of record that such director does not own beneficially.
(3)
None of the common stock of directors and executive officers is pledged to secure a debt.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of our directors, executive officers, and members of their immediate families and the companies with which they are associated were our customers of and had banking transactions with us in the ordinary course of our business during the year 2018 all loans and commitments to lend were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. In our opinion, the transactions and loan commitments did not involve more than normal risk of collectively or present other unfavorable features.
Our written Audit Committee Charter requires our Audit Committee to approve related party transactions. Our written Policy on Related Party Transactions establishes procedures for the Audit Committee’s review and approve of related party transactions other than excepted transactions and preapproved transactions. Transactions available to all employees generally, and transactions involving less than $120,000 when aggregated with all similar transactions in any calendar year, are excepted transactions. The following types of transactions are preapproved transactions:
- Compensation payable to directors or officers if reportable under Item 402 of the Commission’s Regulation S-K;
- Compensation payable to an immediate family member of another director or executive officer, if approved by the Executive Committee acting as the Compensation Committee;
- Transactions with another company (including charitable contributions, grants or endowments to a charitable organization) at which a related person’s only relationship is as an employee (other than executive officer), director or less than 10% owner, if the aggregate amount involved does not exceed $200,000 or 5% of that company’s total revenues; and
- Routine banking relationships that otherwise comply with banking laws and regulations.
The Audit Committee is to apply the following standards when it reviews related party transactions for approval:
- Whether the transaction is on terms no less favorable to the Corporation than terms generally available with an unaffiliated third party under similar circumstances;
- The extent of the related person’s interest in the transaction; and
- Other factors the committee deems appropriate.
For loan transactions, our written Regulation O Policy requires the Executive Committee to review and approve loan transactions with directors, executive officers and their related interests in accordance with the standards established by Federal Reserve Board Regulation O.
All of the members of the Board of Directors of UBS and the Bank, except Ms. Smalls, are independent and meet the requirements for independence of the NASDAQ Stock market.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents the fees for each of the last two fiscal years for the UBS’ principal accountants by category:
Audit Fees (1)
$ 96,000
$ 96,000
Audit-related fees
-
-
Tax fees (2)
9,000
12,500
All other fees
-
-
Total fees
$ 105,000
$ 108,500
Services Provided by S.R. Snodgrass P.C
1)
Audit Fees-These are fees for professional services performed by S.R. Snodgrass P.C. for 2018 and 2017, for the audit, including an audit of consolidated financial statements reporting, and review of financial statements included in our Form 10-Q and Form 10-K filings.
2)
Tax Fees-These are fees that were paid during 2018 for professional services performed by S.R. Snodgrass P.C. with respect to tax compliance and tax advice. This includes preparation of our tax returns, tax research and tax advice.
Our Audit Committee has considered whether the provision of the non-audit services is compatible with maintaining the independence of S.R. Snodgrass, P.C. and determined that to be the case.
Pre-approval of Services
The Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for UBS by its independent auditor, subject to the minimus exceptions for non-audit services described in Section 10A (i) (1) (B) of the Exchange Act which are approved by the Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting. All services performed by the independent public accounting firm are approved by the Audit Committee.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report of United Bancshares, Inc.
Page
(a)
1.
Financial Statements of United Bancshares, Inc.
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets at December 31, 2018 and 2017.
Consolidated Statements of Operations and Comprehensive Loss for the two years ended December 31, 2018.
Consolidated Statements of Changes in Shareholders’ Equity for the two years ended December 31, 2018.
Consolidated Statements of Cash Flows for the two years ended December 31, 2018.
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.
3.
The following Exhibits are filed herewith or incorporated by reference as a part of this Annual Report:
Exhibit Number
Item
(3(i))
Articles of Incorporation (Incorporated by reference to Registrant’s 1998 Form 10-K).
(3(ii))
Bylaws (Incorporated by reference to Registrant’s 1997 Form 10-K).
(9.1)
Voting Trust Agreement with NationsBank (Incorporated by reference to Registrant’s 1997 Form 10-K).
(9.2)
Voting Trust Agreement with Fahnstock (Incorporated by reference to Registrant’s 1997 Form 10-K).
(10)
Material Contracts
a)
Lease for corporate headquarters office located at The Graham Building, 30 S. 15th Street, Suite 1200, Philadelphia, PA (Incorporated by reference to Registrant’s 2004 Form 10-K)
b)
Lease for branch office located at 1620 Wadsworth Avenue(Incorporated by reference to Registrant’s 2002 Form 10-K)
c)
Lease for branch office located at 1015 North Broad Street(Incorporated by reference to Registrant’s 2002 Form 10-K)
d)
Evelyn F. Smalls’ Employment Agreement, dated November 1, 2004, (Incorporated by reference to Registrant’s 2005 Form 10-K)
e)
Brenda Hudson-Nelson’s Employment Agreement, dated November 1, 2004, , (Incorporated by reference to Registrant’s 2005 Form 10-K)
g)
Lease for Retail office located at The Graham Building, 30 S. 15th Street, Philadelphia, PA, , (Incorporated by reference to Registrant’s 2005 Form 10-K)
f)
Lease for branch office located at 1520 North Broad Street (Incorporated by reference to Registrant’s 2005 Form 10-K)
g)
First Amendment to lease for corporate headquarters office located at The Graham Building, 30 S. 15th Street, Suite 1200, Philadelphia, PA(incorporated by reference to Registrant’s 2009 Form 10-K)
h)
FDIC Stipulation and Consent to Issuance of a Consent Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)
i)
FDIC Consent Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)
j)
Pennsylvania Department of Banking Stipulation and Consent to Entry of Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)
k)
Pennsylvania Department of Banking Consent Order(incorporated by reference to Registrant’s March 5, 2012 Form 8-K/A)
l)
Second Amendment to the lease for the corporate and retail offices located at The Graham Building, 30 S. 15th Street, Suite 1200, Philadelphia, PA(incorporated by reference to Registrant’s August 14, 2013 Form 10-Q)
m)
Certificate of Designation, Preferred Stock, Series B
(11)
Statement of Computation of Earnings Per Share. Included at Note 17 of the Financial Statements hereof.
(12)
Statement of Computation of Ratios. Included at Note 17 of the Financial Statements hereof.
(14)
Code of Conduct and Ethics (Incorporated by reference to Registrant’s 2004 10-K)
(21)
Subsidiaries of Registrant
Name
State of Incorporation
United Bank of Philadelphia
Pennsylvania
(31)
Certification of the Annual Report
(31.1) Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)
Certification Pursuant to issue of Section 1350
(A)
Exhibit 32.1
Certification Pursuant to 18U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer attached hereto as Exhibit 99.1.
(B)
Exhibit 32.2
Certification Pursuant to 18U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer attached hereto as Exhibit 99.2.
(99)
Supplemental Information
(A)
The Annual Report to Shareholders and Proxy material will be furnished after the filing of Form 10-K. Copies of these materials will be submitted to the Commission when they are sent to the shareholders.