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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

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

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2019

¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _____________

UNITED BANCSHARES, INC. /PA (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

0-25976

Commission File Number

Pennsylvania		23-2802415
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

30 S. 15th Street, Suite 1200, Philadelphia, PA		19102
(Address of principal executive office)		(Zip Code)

(215) 351-4600

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to filed such reports), and (2) has been subject to such filing requirements for the past 90 day. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨☒ ~~Nox~~No ☐

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer ¨☐ Smaller Reporting Company x☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

Yes ¨ No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨☐ No ¨☐ Not Applicable.

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

United Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of capital stock authorized 2,000,000 shares of $0.01 par value Common Stock and 500,000 shares of $0.01 par value Series Preferred Stock. The Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A, 7,000 as Series B, and 1,100 as Series C for which there were 99,442, 1,850, ~~and~~ 1,100 shares are issued, respectively as of ~~August~~October 3124, ~~2021~~2022.

The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998. This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights. Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock. There is no market for the Common Stock. As of ~~August~~October 3124, ~~2021~~2022, the aggregate number of the shares of the Registrant’s Common Stock issued was 843,050.

FORM 10-Q

Index

Item No. Page PART I - OTHER INFORMATION 4 Item 1. Financial Statements (unaudited) 4 Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 30 Item 3. Quantitative and Qualitative Disclosures about Market Risk 40 Item 4. Controls and Procedures 41 PART II - OTHER INFORMATION 42 Item 1. Legal Proceedings. 42 Item 1A. Risk Factors. 42 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 42 Item 3. Defaults Upon Senior Securities. 42 Item 4. Mine Safety Disclosures. 42 Item 5. Other Information. 42 Item 6. Exhibits. 43

Item No.		Page
PART I - OTHER INFORMATION		3

Item 1. Financial Statements (unaudited)		3

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3. Quantitative and Qualitative Disclosures about Market Risk		40

Item 4. Controls and Procedures		40

PART II - OTHER INFORMATION		41

Item 1. Legal Proceedings.		41

Item 1A. Risk Factors.		41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		41

Item 3. Defaults Upon Senior Securities.		41

Item 4. Mine Safety Disclosures.		41

Item 5. Other Information.		41

Item 6. Exhibits.		42

2 3Table of Contents

PART I - OTHER INFORMATION

Item 1. Financial Statements (unaudited)

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2018		December 31, 2017
Assets:	June 30, 2019			December 31, 2018
Assets:
Cash and due from banks	$	1,370,241		$	2,003,085
Cash and due from banks	$1,951,155		$2,075,258
Interest-bearing deposits with banks		3,414,513			3,360,937
Interest-bearing deposits with banks	3,334,124		311,995
Federal funds sold		4,632,747			3,074,021
Federal funds sold and other cash equivalents	2,936,296		9,284,000
Cash and cash equivalents		9,417,501			8,438,043
Cash and cash equivalents	8,221,576		11,671,253
Investment securities available-for-sale, at fair value		4,516,551			4,580,610
Investment securities available-for-sale, at fair value	4,587,304		5,144,707
Loans held for sale		7,512,219			10,072,777
Loans held for sale	12,583,544		10,297,168
Loans held at fair value		6,115,603			5,420,004
Loans held at fair value	5,182,526		4,450,901
Loans, net of unearned discounts and deferred fees		18,394,364			20,542,863
Loans, net of unearned discounts and deferred fees	22,075,761		25,725,700
Less allowance for loan losses		(236,415	)		(278,095	)
Less allowance for loan losses	(202,353)		(179,949)
Net loans		18,157,949			20,264,768
Net loans	21,873,408		25,545,751
Operating lease right of use asset		1,735,163			-
Bank premises and equipment, net	~~186,352~~	124,848	~~303,298~~		163,124
Accrued interest receivable	~~193,952~~	162,170	~~153,415~~		152,953
Other real estate owned	~~391,571~~	235,571	~~626,071~~		391,571
Servicing asset	~~284,039~~	297,140	~~319,368~~		313,489
Prepaid expenses and other assets	~~548,260~~	411,172	~~496,935~~		397,284
Total assets	$~~54,052,532~~	48,685,884	~~$59,008,867~~	$	50,194,623
Liabilities and Shareholders’ Equity
Liabilities:
Demand deposits, noninterest-bearing	$~~16,714,432~~	15,620,626	~~$19,606,017~~	$	16,216,607
Demand deposits, interest-bearing	~~15,327,070~~	12,116,366	~~15,004,238~~		13,599,641
Savings deposits	~~10,820,460~~	10,490,588	~~11,505,417~~		10,589,054
Time deposits, under $250,000	~~4,390,631~~	3,198,312	~~4,331,306~~		3,467,732
Time deposits, $250,000 and over	~~3,849,892~~	2,148,411	~~5,008,276~~		4,399,159
Total deposits	~~51,102,485~~	43,574,303	~~55,455,254~~		48,272,193
Accrued interest payable	11,556		13,939
Operating lease liability		1,841,199			-
Accrued expenses and other liabilities	161,099		259,152
Accrued interest payable		7,599			17,376
Total liabilities	51,275,140		55,728,345
Accrued expenses and other liabilities		93,762			145,308
Shareholders’ equity:
Total liabilities		45,516,863			48,434,877
Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 99,342 issued and outstanding	993		993
Shareholders’ equity:
Series B preferred stock, noncumulative, 7%, $0.01 par value, 7,000 shares authorized; 1,850 issued and outstanding	18		18
Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 99,342 issued and outstanding		993			993
Common stock, $0.01 par value; 2,000,000 shares authorized; 826,921 issued and outstanding	8,269		8,269
Series B preferred stock, noncumulative, 7%, $0.01 par value, 7,000 shares authorized; 1,850 issued and outstanding		18			18
Additional paid-in-capital	15,677,626		15,677,626
Common stock, $0.01 par value; 2,000,000 shares authorized; 826,921 issued and outstanding		8,269			8,269
Accumulated deficit	(12,755,939)		(12,348,988)
Additional paid-in-capital		15,677,626			15,677,626
Accumulated other comprehensive loss	(153,575)		(57,396)
Accumulated deficit		(12,524,145	)		(13,834,625	)
Total shareholders’ equity	2,777,392		3,280,522
Accumulated other comprehensive income (loss)		6,260			(92,535	)
Total liabilities and shareholders’ equity	$54,052,532		$59,008,867
Total shareholders’ equity		3,169,021			1,759,746
Total liabilities and shareholders’ equity	$	48,685,884		$	50,194,623

See accompanying notes to the unaudited consolidated financial statements.

3 4Table of Contents

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months ended September 30, 2018		Three Months ended September 30, 2017	Nine Months ended September 30, 2018		Nine Months ended September 30, 2017
	Three Months endedJune 30, 2019			Three Months endedJune 30, 2018			Six Months ended June 30, 2019			Six Months ended June 30, 2018
Interest income:
Interest and fees on loans	$~~600,438~~	552,152	~~$612,112~~	$~~1,745,278~~	598,378	~~$1,729,095~~	$	1,038,243		$	1,144,840
Interest on investment securities	~~28,394~~	27,155	~~29,985~~	~~86,743~~	28,815	~~92,550~~		55,915			58,349
Interest on federal funds sold	~~27,531~~	34,494	~~32,074~~	~~115,980~~	47,139	~~68,863~~		62,086			88,449
Interest on time deposits with other banks	21,950		202	22,690		574
Interest on interest bearing deposits with other banks		27,276			284			54,024			740
Total interest income	~~678,313~~	641,077	~~674,373~~	~~1,970,691~~	674,616	~~1,891,082~~		1,210,268			1,292,378
Interest expense:
Interest on time deposits	~~10,787~~	7,233	~~11,021~~	~~35,064~~	12,356	~~28,775~~		18,100			24,277
Interest on demand deposits	~~6,675~~	5,727	~~6,515~~	~~19,708~~	6,531	~~18,953~~		11,577			13,033
Interest on savings deposits	~~1,395~~	1,292	~~1,470~~	~~4,234~~	1,427	~~4,399~~		2,586			2,839
Total interest expense	~~18,857~~	14,252	~~19,006~~	~~59,006~~	20,314	~~52,127~~		32,263			40,149
Net interest income	~~659,456~~	626,825	~~655,367~~	~~1,911,685~~	654,302	~~1,838,955~~		1,178,005			1,252,229
Provision (credit) for loan losses	~~20,000~~	30,000	~~(15,000)~~	~~45,000~~	5,000	~~(91,000)~~		(22,000	)		25,000
Net interest income after provision (credit) for loan losses	~~639,456~~	596,825	~~670,367~~	~~1,866,685~~	649,302	~~1,929,955~~		1,200,005			1,227,229
Noninterest income:
Customer service fees	~~106,909~~	92,834	~~101,476~~	~~309,849~~	102,851	~~298,786~~		185,908			202,940
ATM fee income	~~24,777~~	24,888	~~30,644~~	~~76,134~~	26,635	~~93,791~~		48,660			51,357
Gain on sale of loans	~~41,204~~	-	~~54,459~~	~~265,022~~	67,271	~~206,319~~		81,475			223,818
Net change in fair value of financial instruments	~~83,278~~	(656,516	~~197,665~~)	~~103,794~~	11,423	~~271,182~~		(709,425	)		20,516
Gain (loss) on sale of other real estate	16	1,488	-	~~(11,588)~~	(9,522	-)		(18,723	)		(11,604	)
Loan Syndication Fees	100,000		90,400	100,000		90,400
Grant income		2,500,000			-			2,500,000			-
Other income	36,247		14,875	84,343		76,753
Servicing fees on loans		35,964			15,495			68,123			28,170
Total noninterest income	392,431		489,519	927,554		1,037,231
Other income		10,524			7,305			22,675			19,926
Noninterest expense:
Total noninterest income		2,009,182			221,458			2,178,693			535,123
Salaries, wages and employee benefits	372,642		395,915	1,154,522		1,175,163
Noninterest expense:
Occupancy and equipment	244,865		253,981	746,000		755,115
Salaries, wages and employee benefits		334,935			381,826			663,757			781,880
Office operations and supplies	62,202		84,643	200,825		247,362
Occupancy and equipment		244,374			246,093			460,850			501,135
Marketing and public relations	1,742		3,056	27,069		11,865
Office operations and supplies		48,984			61,713			99,603			138,623
Professional services	65,481		76,182	137,753		177,622
Marketing and public relations		1,987			6,765			4,319			25,327
Data processing	98,878		95,509	307,735		290,861
Professional services		34,460			35,293			110,628			72,272
Deposit insurance assessments	24,000		27,000	73,000		72,000
Data processing		107,113			107,422			213,894			208,857
Other real estate expense	~~13,850~~	5,578	~~28,440~~	~~38,629~~	10,944	~~58,326~~		15,408			24,779
Loan and collection expense	50,974		43,979	115,968		124,603
Loan and collection costs		104,504			36,414			180,080			64,994
Other operating	154,132		122,558	399,689		343,564
Deposit insurance assessments		23,000			24,000			32,353			49,000
Total noninterest expense	1,088,766		1,131,263	3,201,190		3,256,481
Other operating		113,624			112,336			237,865			245,557
Net (loss) income before income taxes	(56,879)		28,623	(406,951)		(289,295)
Total noninterest expense		1,018,559			1,022,806			2,018,757			2,112,424
Provision for income taxes	-		-	-		-
Net income (loss) before income taxes		1,587,448			(152,046	)		1,243,737			(350,072	)
Net (loss) income	$(56,879)		$28,623	$(406,951)		$(289,295)
Provision for income taxes		-			-			-			-
Net (loss) income per common share—basic and diluted	$(0.07)		$0.03	$(0.49)		$(0.35)
Net income (loss)	$	1,587,448		$	(152,046	)	$	1,359,941		$	(350,072	)
Weighted average number of common shares outstanding	826,921		826,921	826,921		826,921
Net income (loss) per common share—basic and diluted	$	1.92		$	(0.18	)	$	1.64		$	(0.42	)
Comprehensive (loss) income:
Weighted average number of common shares outstanding		826,921			826,921			826,921			826,921
Net (loss) income	$(56,879)		$28,623	$(406,951)		$(289,295)
Comprehensive income (loss):
Unrealized (losses) gains on available for sale securities, net of taxes	(26,040)		4,835	(96,179)		39,800
Net income (loss)	$	1,587,448		$	(152,046	)	$	1,359,941		$	(350,072	)
Total comprehensive (loss) income	$(82,919)		$33,458	$(503,130)		$(249,495)
Unrealized gains (losses) on available for sale securities, net of taxes		40,905			(16,259	)		98,795			(70,138	)
Total comprehensive income (loss)	$	1,628,353		$	(168,305	)	$	1,458,736		$	(420,210	)

See accompanying notes to the unaudited consolidated financial statements.

4 5Table of Contents

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019

	~~Series A Preferred stock~~	Series A Preferred stock	~~Series B Preferred stock~~		~~Common stock~~		~~Additional paid-in~~	~~Accumulated~~	~~Accumulated Other Comprehensive~~	~~Total~~Series ~~Shareholders’~~B Preferred stock				Common stock				Additional paid-in		Accumulated			AccumulatedOtherComprehensive			TotalShareholders’
	~~Shares~~	~~Amount~~Shares	~~Shares~~	~~Amount~~	~~Shares~~	Amount	~~capital~~	~~Deficit~~	~~Loss~~	~~Equity~~Shares		Amount		Shares		Amount		capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2017	99,342	$993	1,850	$18	826,921	$8,269	$15,677,626	($12,348,988)	($57,396)	$3,280,522
Balance at December 31, 2018			99,342			$	993				1,850	$	18		826,921	$	8,269	$	15,677,626	$	(13,834,625	)	$	(92,535	)	$	1,759,746
Net loss	-	-	-	-	-	-	-	~~(198,026)~~	-	~~(198,026)~~	-		-		-		-		-		(227,508	)		-			(227,508	)
Other comprehensive loss, net of tax	-	-	-	-	-	-	-	-	(53,879)	(53,879)
Cumulative effect of adoption of ASU 2016-02, Leases (Topic 842)																					(49,460	)					(49,460	)
Issuance of Series B Preferred Stock	-	-			-	-	-	-	-	-
Other comprehensive income,net of tax			-				-				-		-		-		-		-		-			57,890			57,890
			-	-
Balance atMarch 31, 2019			99,342			$	993				1,850	$	18		826,921	$	8,269	$	15,677,626	$	(14,111,593	)	$	(34,645	)	$	1,540,668
Balance at March 31, 2018	99,342	$993	1,850	$18	826,921	$8,269	$15,677,626	(12,547,014)	(111,275)	3,028,617
Net income			-				-				-		-		-		-		-		1,587,448			-			1,587,448
Net loss		-		-	-	-	-	(152,046)	-	(152,046)
Other comprehensive income, net of tax			-				-				-		-		-		-		-		-			40,905			40,905
Other comprehensive loss, net of tax	-	-	-	-	-	-	-	-	(16,259)	(16,259)
Balance at June 30, 2019			99,342			$	993				1,850	$	18		826,921	$	8,269	$	15,677,626	$	(12,524,145	)	$	6,260		$	3,169,021
Balance at June 31, 2018	99,342	$993	1,850	$18	826,921	$8,269	$15,677,626	$(12,699,060)	$(127,534)	$2,860,312
Net loss	-	-	-	-	-	-	-	(56,879)	-	(56,879)
Other comprehensive loss, net of tax	-	-	-	-	-	-	-	-	(26,041)	(26,041)
Balance at September 31, 2018	99,342	$993	1,850	$18	826,921	$8,269	$15,677,626	$(12,755,939)	$(153,575)	$2,777,392

See accompanying notes to the unaudited consolidated financial statements.

5 6Table of Contents

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

	~~Series A Preferred stock~~	Series A Preferred stock	~~Series B Preferred stock~~		~~Common stock~~		~~Additional paid-in~~	~~Accumulated~~	~~Accumulated Other Comprehensive~~	~~Total~~Series ~~Shareholders’~~B Preferred stock				Common stock				Additional paid-in		Accumulated			AccumulatedOtherComprehensive			TotalShareholders’
	~~Shares~~	~~Amount~~Shares	~~Shares~~	~~Amount~~	~~Shares~~	Amount	~~capital~~	~~Deficit~~	~~Loss~~	~~Equity~~Shares		Amount		Shares		Amount		capital		Deficit			Loss			Equity
Balance at December 31, 2016	99,342	$993	-	$-	826,921	$8,269	$14,752,644	$(12,038,281)	$(63,710)	$2,659,915
Balance at December 31, 2017			99,342			$	993				1,850	$	18		826,921	$	8,269	$	15,677,626	$	(12,348,988	)	$	(57,396	)	$	3,280,522
Net loss	-	-	-	-	-	-	-	~~(202,621)~~	-	~~(202,621)~~	-		-		-		-		-		(198,026	)		-			(198,026	)
Other comprehensive loss, net of tax	-	-	-	-	-	-	-	-	9,767	9,767
Other comprehensive loss,net of tax			-				-				-		-		-		-		-		-			(53,879	)		(53,879	)
Issuance of Series B Preferred Stock		-	1,350	13	-	-	674,987	-	-	675,000
Balance at March 31, 2018			99,342				993				1,850		18		826,921		8,269		15,677,626		(12,547,014	)		(111,275	)		3,028,617
Balance at March 31, 2017	99,342	993	1,350	13	826,921	8,269	15,427,631	(12,240,902)	(53,943)	3,142,061
Net loss			-				-				-		-		-		-		-		(152,046	)		-			(152,046	)
Net loss	-	-	-	-	-	-	-	(115,297)	-	(115,297)
Other comprehensive loss, net of tax			-				-				-		-		-		-		-		-			(16,259	)		(16,259	)
Other comprehensive income, net of tax	-	-	-	-	-	-	-	-	25,198	25,198
Balance at June 30, 2018			99,342			$	993				1,850	$	18		826,921	$	8,269	$	15,677,626	$	(12,699,060	)	$	(127,534	)	$	2,860,312
Balance at June 30, 2017	99,342	$993	1,350	$13	826,921	$8,269	$15,427,631	$(12,356,199)	$(28,745)	$3,051,962
Net loss	-	-	-	-	-	-	-	28,623	-	28,623
Other comprehensive income, net of tax	-	-	-	-	-	-	-	-	4,835	4,835
Issuance of Series B Preferred Stock			500	5	-	-	249,995	-	-	250,000
Balance at September 30, 2017	99,342	$993	1,850	$18	826,921	$8,269	$15,677,626	$(12,327,576)	$(23,910)	$3,335,420

See accompanying notes to the unaudited consolidated financial statements.

6 7Table of Contents

UNITED BANCSHARES, INC. AND SUBSIDIARY

~~UNITED~~CONSOLIDATED ~~BANCSHARES,~~STATEMENTS ~~INC.~~OF ~~AND~~CASH ~~SUBSIDIARY~~FLOWS

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~(Unaudited)

~~(Unaudited)~~Six Months Ended June 30,

Nine Months Ended September 30,

	2019			2018

Cash flows from operating activities:
Net income (loss)	$	1,359,941		$	(350,072	)
Adjustments to reconcile net income (loss) to net cash
Provided by(used in) operating activities:
(Credit) provision for loan losses		(22,000	)		25,000
Amortization of premiums on investments		2,858			3,792
Loss on disposition of other real estate		18,723			11,604
Write-down of other real estate		-			5,000
Amortization of servicing asset		24,198			55,141
Depreciation on fixed assets		41,557			96,845
Net change in fair value of financial instruments		709,425			(20,516	)
Gain on sale of loans		(81,475	)		(223,818	)
Proceeds from the sale of loans held-for-sale		1,144,073			2,412,827
Loans originated for sale, net of payments		92,938			(3,328,794	)
Increase in accrued interest receivable and other assets		(30,952	)		(123,798	)
Decrease in accrued interest payable and other liabilities		(4,747	)		(45,345	)
Net cash provided by (used in) operating activities		3,254,539			(1,482,134	)

Cash flows from investing activities:
Proceeds from maturity and principal reductions of
available-for-sale investment securities		159,994			360,821
Purchase of securities available-for-sale		-			(1,083	)
Net decrease in loans		2,128,819			2,417,898
Proceeds from sale of other real estate		137,277			207,096
Purchase of bank premises and equipment		(3,281	)		(8,033	)
Net cash provided by investing activities		2,422,809			2,976,599

Cash flows from financing activities:
Net decrease in deposits		(4,697,890	)		(3,080,718	)
Net cash used in financing activities		(4,697,890	)		(3,080,718	)
Net increase (decrease) in cash and cash equivalents		979,458			(1,586,253	)
Cash and cash equivalents at beginning of period		8,438,043			11,671,253
Cash and cash equivalents at end of period	$	9,417,501		$	10,085,000
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	42,040		$	30,315
Transfer of investments to other cash equivalents	$	-		$	132,614
Transfer of loans from held for sale to held at fair value	$	1,475,873		$	538,309
Non-cash addition of operating lease right of use asset	$	(1,735,163	)	$	-
Non-cash addition of operating lease liability	$	1,841,199		$	-

	2018	2017
Cash flows from operating activities:
Net loss	$(406,951)	$(289,295)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision (credit) for loan losses	45,000	(91,000)
Amortization of premiums on investments, net	5,360	7,442
Loss on disposition of other real estate	11,588	-
Write-down of other real estate	5,000	-
Amortization of servicing asset	91,919	26,706
Depreciation on fixed assets	137,032	138,767
Net change in fair value of financial instruments	(103,794)	(271,182)
Gain on sale of loans	(265,022)	(206,319)
Proceeds from the sale of loans held-for-sale	3,098,258	2,174,935
Loans originated for sale	(5,747,443)	(4,337,673)
Increase in accrued interest receivable and other assets	(148,453)	(187,053)
Increase in accrued interest payable and other liabilities	(100,436)	(13,781)
Net cash used in operating activities	(3,345,041)	(3,048,452)
Cash flows from investing activities:
Proceeds from maturity and principal reductions of available-for-sale investment securities	457,629	324,771
Purchase of securities available-for-sale	(1,765)	(1,026)
Net decrease in loans	3,627,344	1,504,606
Proceeds from sale of other real estate	217,911	-
Purchase of bank premises and equipment	(20,086)	(22,121)
Net cash provided by investing activities	4,281,031	1,806,230
Cash flows from financing activities:
Proceeds from the sale of preferred stock	-	925,000
Net decrease in deposits	(4,385,667)	7,316,406
Net cash (used in) provided by financing activities	(4,385,667)	8,241,406
Net (decrease) increase in cash and cash equivalents	(3,449,677)	6,999,184
Cash and cash equivalents at beginning of period	11,671,253	7,802,831
Cash and cash equivalents at end of period	$8,221,576	$14,802,015
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$61,390	$32,493
Transfer of investment to other cash equivalents	$133,296	$-
Transfer of loans from held-for-sale to held at fair value	$731,625	$437,111

See accompanying notes to the unaudited consolidated financial statements.

~~See~~7 ~~accompanying~~Table ~~notes~~of ~~to the unaudited consolidated financial statements.~~Contents

NOTES 8TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

~~NOTES~~1. TOSignificant ~~CONSOLIDATED~~Accounting ~~FINANCIAL STATEMENTS—(unaudited)~~Policies

1United Bancshares, Inc. ~~Significant~~(the ~~Accounting~~"Company") ~~Policies~~is a bank holding company registered under the Bank Holding Company Act of 1956. The Company's principal activity is the ownership and management of its wholly owned subsidiary, United Bank of Philadelphia (the "Bank").

~~United~~During ~~Bancshares~~interim periods, ~~Inc. (~~the "Company") isfollows athe ~~bank~~accounting ~~holding~~policies ~~company~~set ~~registered~~forth ~~under~~in ~~the~~its ~~Bank~~Annual ~~Holding~~Report ~~Company~~on ~~Act~~Form of10-K ~~1956~~filed with the Securities and Exchange Commission. ~~The~~ Readers are encouraged to refer to the Company's ~~principal~~Form ~~activity~~10-K isfor the ~~ownership~~fiscal ~~and~~year ~~management~~ended ofDecember ~~its~~31, ~~wholly~~2018 ~~owned~~when ~~subsidiary~~reviewing this Form 10-Q. Because this report is based on an interim period, ~~United~~certain ~~Bank~~information ofand ~~Philadelphia~~footnote (disclosures normally included in the ~~"Bank")~~Annual Report on Form 10-K have been condensed or omitted. Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

~~During~~In ~~interim periods,~~ the ~~Company~~opinion ~~follows~~of management, the ~~accounting~~accompanying ~~policies~~unaudited ~~set~~consolidated ~~forth~~financial instatements ~~its~~contain ~~Annual~~all ~~Report~~adjustments on(consisting ~~Form~~of ~~10-K~~normal ~~filed~~recurring ~~with~~adjustments) ~~the~~considered ~~Securities~~necessary ~~and Exchange Commission. Readers are encouraged~~ to ~~refer~~present tofairly the Company's ~~Form~~consolidated ~~10-K~~financial ~~for~~position ~~the~~as ~~fiscal~~of ~~year~~June ~~ended December 31~~30, ~~2017~~2019 ~~when~~and ~~reviewing~~December ~~this Form 10-Q. Because this report is based on an interim period~~31, ~~certain~~2018 ~~information~~ and ~~footnote disclosures normally included in~~ the ~~Annual~~consolidated ~~Report~~results onof ~~Form~~its ~~10-K~~operations ~~have~~and ~~been~~its ~~condensed~~cash orflows ~~omitted.~~for ~~Quarterly~~the ~~results~~three ~~reported~~and ~~herein~~six ~~are~~months ~~not~~ended ~~necessarily~~June ~~indicative~~30, of2019 ~~results~~and ~~to be expected for other quarters~~2018.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company'Management’s ~~consolidated~~Use ~~financial position as~~ of ~~September~~Estimates ~~30, 2018 and December 31, 2017 and the consolidated results of its operations and its cash flows for the three and nine months ended September 30, 2018 and 2017.~~

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

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

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

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

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

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

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

~~The~~Loans ~~Bank~~Held ~~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~~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.Value

~~Loans~~The ~~Held~~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~~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. When a SBA loan held at fair value becomes nonperforming, the fair value estimate is based on the net liquidation value of collateral or the present value of future cashflows.

~~The~~8 ~~Bank~~Table 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.Contents

9Loans

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

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

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

~~The~~Various ~~allowance~~regulatory ~~for~~agencies ~~loan~~periodically ~~losses~~review isthe ~~established~~adequacy asof ~~losses~~the ~~are~~Bank’s ~~estimated~~allowance ~~to have occurred through a provision~~ for loan losses~~. Loans~~ ~~that~~as ~~are~~an ~~determined~~integral topart beof ~~uncollectible~~their ~~are~~examination ~~charged~~process. Such ~~against~~agencies ~~the~~may ~~allowance~~require ~~account,~~the ~~and~~Bank ~~subsequent~~to ~~recoveries,~~recognize ifadditions ~~any,~~or ~~are~~reductions ~~credited~~ to the allowance~~. When~~ ~~evaluating~~based ~~the~~on ~~adequacy~~their ofevaluation ~~the allowance, an assessment~~ of ~~the~~information ~~loan~~available ~~portfolio~~to ~~will~~them ~~typically~~at ~~include changes in~~ the ~~composition~~time ~~and volume~~ of ~~the~~their ~~loan~~examination. It ~~portfolio,~~is ~~overall~~reasonably ~~portfolio~~possible ~~quality~~that ~~and~~the ~~past~~above ~~loss~~factors ~~experience, review of specific problem loans, current economic conditions which~~ may ~~affect~~change ~~borrowers’~~significantly ~~ability to repay~~and, ~~and other factors which may warrant current recognition. Such periodic assessments may~~therefore, inaffects management’s ~~judgment,~~determination ~~require~~of the ~~Bank~~allowance tofor ~~recognize~~loan ~~additions~~losses orin ~~reductions to~~ the ~~allowance~~near term.

~~Various~~The ~~regulatory~~allowance ~~agencies~~consists ~~periodically~~of ~~review~~specific ~~the~~and ~~adequacy~~general ofcomponents. ~~the~~The ~~Bank’s~~specific ~~allowance~~component ~~for~~relates ~~loan~~to ~~losses~~loans that are classified as animpaired. For ~~integral~~those ~~part~~loans ofthat ~~their~~are ~~examination~~classified ~~process. Such~~as ~~agencies~~impaired, ~~may~~an ~~require~~allowance ~~the~~is ~~Bank~~established towhen ~~recognize~~the ~~additions~~discounted orcash ~~reductions~~flows to(or ~~the~~collateral ~~allowance~~value ~~based~~or onobservable ~~their~~market ~~evaluation~~price) of ~~information~~the ~~available~~impaired toloan ~~them~~is atlower than the ~~time~~carrying value of ~~their~~that ~~examination~~loan. It The isgeneral ~~reasonably~~component ~~possible~~covers ~~that~~non-impaired ~~the~~loans ~~above~~and ~~factors~~is ~~may~~based ~~change~~on ~~significantly~~historical ~~and~~charge-off experience, ~~therefore~~other qualitative factors, ~~affects~~and ~~management’s~~adjustments ~~determination~~made ofto the allowance for ~~loan~~pools ~~losses~~of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the ~~near~~historical ~~term~~loss or risk rating data. The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

~~The~~A ~~allowance~~loan ~~consists~~is ofconsidered ~~specific~~impaired ~~and~~when, ~~general~~based ~~components.~~on ~~The~~current ~~specific~~information ~~component~~and ~~relates~~events, toit ~~loans~~is probable that ~~are~~the ~~classified~~Bank aswill ~~impaired. For~~be ~~those~~unable ~~loans~~to ~~that~~collect ~~are~~the ~~classified~~scheduled aspayments ~~impaired,~~of anprincipal ~~allowance~~or isinterest ~~established~~ when ~~the~~due ~~discounted~~according ~~cash~~to ~~flows~~the ~~(or~~contractual ~~collateral~~terms ~~value~~of orthe ~~observable~~loan ~~market~~agreement. Factors ~~price)~~considered ofby ~~the~~management ~~impaired~~in ~~loan~~determining isimpairment ~~lower~~include ~~than~~payment ~~the~~status, ~~carrying~~collateral value, and the probability of ~~that~~collecting ~~loan~~scheduled principal and interest payments when due. ~~The~~ Loans ~~general~~that ~~component~~experience ~~covers~~insignificant ~~non-~~payment delays and payment shortfalls generally are not classified as impaired. Management ~~loans~~determines the significance of payment delays and ispayment ~~based~~shortfalls on ~~historical~~a ~~charge~~case-~~off~~by-case ~~experience~~basis, ~~other~~taking ~~qualitative~~into ~~factors,~~consideration ~~and~~all ~~adjustments~~of ~~made~~the tocircumstances surrounding the ~~allowance~~loan ~~for~~and ~~pools~~the borrower, including the length of ~~loans~~the ~~after~~delay, anthe ~~assessment~~reasons offor ~~internal~~the ordelay, ~~external~~the ~~influences~~borrower’s onprior ~~credit~~payment ~~quality~~record, ~~that~~and ~~are~~the ~~not~~amount ~~fully~~of ~~reflected~~the shortfall in ~~the~~relation ~~historical~~to ~~loss~~the orprincipal ~~risk~~and ~~rating~~interest ~~data~~owed. The Bank ~~does~~will ~~not~~identify ~~allocate~~and ~~reserves~~assess ~~for~~loans ~~unfunded~~that ~~commitments~~may tobe ~~fund~~impaired ~~lines~~through any of ~~credit.~~the following processes:

A· ~~loan~~During isregularly ~~considered~~scheduled ~~impaired~~meetings ~~when,~~of ~~based on current information and events, it is probable that~~ the ~~Bank~~Asset ~~will~~Quality beCommittee ~~unable~~· toDuring ~~collect~~regular ~~the~~reviews ~~scheduled payments~~ of ~~principal~~the ordelinquency ~~interest~~report ~~when~~· ~~due~~During ~~according to~~ the ~~contractual~~course ~~terms~~ of ~~the~~routine ~~loan~~account ~~agreement. Factors considered by management in determining impairment include payment status~~servicing, ~~collateral~~annual ~~value~~review, ~~and~~or ~~the~~credit ~~probability~~file ofupdate ~~collecting~~· ~~scheduled~~Upon ~~principal~~receipt ~~and~~of ~~interest~~verifiable ~~payments~~evidence ~~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~~material ~~basis,~~reduction ~~taking~~in ~~into consideration all of~~ the ~~circumstances~~value ~~surrounding the loan and the borrower, including the length~~ of ~~the~~collateral ~~delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation~~ to ~~the~~a ~~principal~~level ~~and interest owed. The Bank will identify and assess loans~~ that ~~may~~creates bea ~~impaired~~less ~~through~~than ~~any~~desirable ofLoan-to-Value ~~the following processes:~~ratio

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

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

~~·During~~9 ~~the~~Table ~~course~~ of ~~routine account servicing, annual review, or credit file update~~ Contents

~~·Upon~~Non-accrual ~~receipt~~and ofPast ~~verifiable~~Due ~~evidence~~Loans. ~~of a material reduction in the value of collateral to a level that creates a less than desirable Loan-to-Value ratio~~

~~Impairment~~Loans isare ~~measured~~considered onpast adue ~~loan~~if bythe ~~loan~~required ~~basis~~principal ~~for~~and ~~commercial~~interest ~~loans~~payments byhave ~~either~~not ~~the~~been ~~present~~received ~~value~~within 30 days as of ~~expected~~the ~~future~~date ~~cash~~such ~~flows~~payments ~~discounted~~were atdue. The ~~the~~Bank generally places a loan’s ~~effective~~on non-accrual status when interest ~~rate,~~or principal is past due 90 days or more. If it otherwise appears doubtful that the loan’s ~~obtainable~~will ~~market~~be ~~price~~repaid, ormanagement may place the ~~fair~~loan ~~value~~on ofnonaccrual status before the ~~collateral~~lapse ifof 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection. When a loan is ~~collateral~~placed ~~dependent~~on nonaccrual status, previously accrued and unpaid interest is reversed out of income. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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

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

~~Loans~~When tax returns are ~~considered~~filed, ~~past~~it ~~due~~is ifhighly certain that some positions taken would be sustained upon examination by the ~~required~~taxing ~~principal~~authorities, ~~and~~while ~~interest~~others ~~payments~~are ~~have~~subject ~~not~~to ~~been~~uncertainty ~~received~~about ~~within~~the 30merits ~~days~~of asthe position taken or the amount of the ~~date~~position ~~such~~that ~~payments~~ultimately ~~were~~would ~~due~~be sustained. The ~~Bank~~benefit ~~generally~~of ~~places~~ a ~~loan~~tax onposition ~~non-accrual~~is ~~status~~recognized ~~when~~in ~~interest~~the orfinancial ~~principal~~statements isin ~~past~~the ~~due~~period 90during ~~days~~which, orbased ~~more. If~~on all available evidence, management believes it ~~otherwise~~is ~~appears~~more-likely-than ~~doubtful~~not that the ~~loan~~position will be ~~repaid,~~sustained ~~management~~upon ~~may~~examination, ~~place~~including the ~~loan~~resolution onof ~~nonaccrual~~appeals ~~status~~or ~~before~~litigation ~~the~~processes, ~~lapse~~if any. The evaluation of 90a ~~days.~~tax ~~Interest~~position ontaken ~~loans~~is ~~past~~considered ~~due~~by 90itself ~~days~~and ornot ~~more~~offset ~~ceases~~or toaggregated ~~accrue~~with ~~except~~other ~~for~~positions. ~~loans~~Tax positions that ~~are~~meet ~~well~~the ~~collateralized~~more-likely-than ~~and~~not inrecognition threshold are measured as the ~~process~~largest amount of ~~collection. When~~tax abenefit ~~loan~~that is ~~placed~~more onthan ~~nonaccrual~~50 ~~status,~~percent ~~previously~~likely ~~accrued~~of ~~and~~being ~~unpaid~~realized ~~interest~~upon issettlement ~~reversed~~with ~~out~~the ofapplicable ~~income~~taxing authority. ~~Loans~~ ~~are~~The ~~returned~~portion toof ~~accrual~~benefits ~~status~~associated ~~when~~with ~~all~~tax positions taken that exceeds the ~~principal~~amount ~~and~~measured ~~interest~~as ~~amounts~~described ~~contractually~~above ~~due~~is ~~are~~reflected ~~brought~~as ~~current~~a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and ~~future~~penalties ~~payments~~that ~~are~~would ~~reasonably~~be ~~assured~~payable to the taxing authorities upon examination.

Interest 10and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

2. Net Income ~~Taxes~~(Loss) Per Share

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

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

	Three Months Ended June 30, 2019		Three Months Ended June 30, 2018			Six Months Ended June 30, 2019		Six Months Ended June 30, 2018
Basic:
Net income (loss) available to common shareholders	$	1,587,448	$	(152,046	)	$	1,359,941	$	(350,072	)
Average common shares outstanding-basic		826,921		826,921			826,921		826,921
Net income (loss) per share-basic	$	1.92	$	(0.18	)	$	1.64	$	(0.42	)
Diluted:
Average common shares-diluted		826,921		826,921			826,921		826,921
Net income (loss) per share-diluted	$	1.92	$	(0.18	)	$	1.64	$	(0.42	)

~~Interest~~The ~~and~~preferred ~~penalties~~stock ~~associated~~is ~~with~~non-cumulative ~~unrecognized~~and ~~tax~~the ~~benefits,~~Company ifis ~~any~~restricted from paying dividends. Therefore, ~~would~~no beeffect ~~recognized~~of inthe ~~income~~preferred ~~tax~~stock ~~expense~~is included in the ~~consolidated~~loss ~~statements~~per ofshare ~~operations~~calculations.

2.10 ~~Net~~Table ~~(Loss)~~of ~~Income Per Share~~Contents

~~The~~3.Changes ~~calculation~~in ofAccumulated ~~net~~Other ~~loss~~Comprehensive ~~per~~Income ~~share follows:~~(Loss)

	Three Months Ended September 30, 2018	Three Months EndedSeptember 30, 2017	Nine Months EndedSeptember 30, 2018	Nine Months EndedSeptember 30, 2017
Basic:
Net (loss) income available to common shareholders	$(56,879)	$28,623	$(406,951)	$(289,295)
Average common shares outstanding-basic	826,921	826,921	826,921	826,921
Net (loss) income per share-basic	$(0.07)	$0.03	$(0.49)	$(0.35)
Diluted:
Average common shares-diluted	826,921	826,921	826,921	826,921
Net (loss) income per share-diluted	$(0.07)	$0.03	$(0.49)	$(0.35)

The following table presents the changes in accumulated other comprehensive income (loss), which is solely comprised of the unrealized gain or loss of available for sale investment securities:

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

	Three Months Ended June 30, 2019
	Before tax			Deferred			Net of tax
(in (000’s)	Amount			Taxes			Amount
Beginning balance	$	(44	)	$	10		$	(34	)
Unrealized gain on securities:
Unrealized holding gain arising during period		52			(12	)		40
Other comprehensive income, net		52			(12	)		40
Ending balance	$	8		$	(2	)	$	6

	Three Months Ended June 30, 2018
	Before tax			Deferred			Net of tax
(in (000’s)	Amount			Taxes			Amount
Beginning balance	$	(141	)	$	30		$	(111	)
Unrealized loss on securities:
Unrealized holding loss arising during period		(20	)		4			(16	)
Other comprehensive loss, net		(20	)		4			(16	)
Ending balance	$	(161	)	$	34		$	(127	)

	Six Months Ended June 30, 2019
	Before tax			Deferred			Net of tax
(in (000’s)	Amount			Taxes			Amount
Beginning balance	$	(117	)	$	25		$	(92	)
Unrealized gain on securities:
Unrealized holding gain arising during period		125			(27	)		98
Other comprehensive income, net		125			(27	)		98
Ending balance	$	8		$	(2	)	$	6

	Six Months Ended June 30, 2018
	Before tax			Deferred			Net of tax
(in (000’s)	Amount			Taxes			Amount
Beginning balance	$	(73	)	$	16		$	(57	)
Unrealized loss on securities:
Unrealized holding loss arising during period		(88	)		18			(70	)
Other comprehensive loss, net		(88	)		18			(70	)
Ending balance	$	(161	)	$	34		$	(127	)

4. 11New Authoritative Accounting Guidance

~~3.Changes~~Adoption inof ~~Accumulated~~Accounting ~~Other Comprehensive Loss~~ Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The ~~following~~standard ~~table~~requires ~~presents~~lessees to recognize the ~~changes~~assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in ~~accumulated~~the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) — Targeted Improvements , which, among other ~~comprehensive~~things, ~~loss:~~provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASU 2016-02 and its related amendments as of January 1, 2019, which resulted in the recognition of operating right-of-use assets totaling $1,824,729, as well as operating lease liabilities totaling $1,931,239 estimate of credit losses that are expected to occur over the remaining life of a financial asset. The Company elected to adopt the transition relief provisions from ASU 2018-11 and recorded the impact of adoption as of January 1, 2019, without restating any prior-year amounts or disclosures. The related policy elections made by the Company and the additional lease disclosures can be found in Note 8. The cumulative effect adjustment to retained earnings was a reduction of $49,460.

	Three Months Ended September 30, 2018
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount
Beginning balance	$(161)	$34	$(127)
Unrealized loss on securities:
Unrealized holding loss arising during period	(32)	6	(26)
Other comprehensive loss, net	(32)	6	(26)
Ending balance	$(193)	$40	$(153)

Table of Contents

	Three Months Ended September 30, 2017
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount
Beginning balance	$(43)	$14	$(29)
Unrealized gain on securities:
Unrealized holding gain arising during period	8	(3)	5
Other comprehensive income, net	8	(3)	5
Ending balance	$(35)	$11	$(24)

Effect of Upcoming Accounting Standards

	Nine Months Ended September 30, 2018
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount
Beginning balance	$(73)	$16	$(57)
Unrealized loss on securities:
Unrealized holding loss arising during period	(120)	24	(96)
Other comprehensive loss, net	(120	24	(96)
Ending balance	$(193)	$40	$(153)

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

	Nine Months Ended September 30, 2017
	Before tax		Net of tax
(in (000’s)	Amount	Taxes	Amount
Beginning balance	$(97)	$33	$(64)
Unrealized gain on securities:
Unrealized holding gain arising during period	62	(22)	40
Other comprehensive income, net	62	(22)	40
Ending balance	$(35)	$11	$(24)

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

In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. ~~New~~GAAP ~~Authoritative~~guidance ~~Accounting~~on ~~Guidance~~contract modifications to ease the financial reporting burdens of the expected market transition from LIBOR to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company has identified its LIBOR exposure across product categories and is analyzing the risks associated with the LIBOR transition. However, it is too early to predict whether a new rate index replacement and the adoption of this ASU will have a material impact on the Company’s financial statements.

~~Effect~~5. Investment ofSecurities ~~the Adoption of Accounting Standards~~

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

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

(in 000’s)	June 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale:
U.S. Government agency securities	$	2,349	$	-	$	(7	)	$	2,342
Government Sponsored Enterprises residential mortgage-backed securities		2,159		19		(4	)		2,174
	$	4,508	$	19	$	(11	)	$	4,516

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale:
U.S. Government agency securities	$	2,349	$	-	$	(72	)	$	2,277
Government Sponsored Enterprises residential mortgage-backed securities		2,349		9		(54	)		2,304
	$	4,698	$	9	$	(126	)	$	4,581

The 12amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of June 30, 2019, are as follows:

to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

(in 000’s)	Amortized Cost		Fair Value
Due in one year	$	-	$	-
Due after one year through five years		-		-
Due after five years through ten years	$	2,349	$	2,342
Government Sponsored Enterprises residential mortgage-backed securities	$	2,159	$	2,174
	$	4,508	$	4,516

~~The~~12 ~~Company~~Table ~~has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement~~ of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 8 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the March 31, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and time deposits and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values.Contents

~~Effect~~Expected maturities will differ from contractual maturities because the issuers of ~~Upcoming~~certain ~~Accounting~~debt ~~Standards~~securities have the right to call or prepay their obligations without any penalties.

InThere ~~February~~were ~~2016,~~no ~~the~~sales FASB issued ASU 2016-02, Leases (Topic 842). The standard ((along with subsequent amendments and clarifications in ASUs; 2018-01, 2018-11 and 2018-20) requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of ~~financial~~securities ~~position~~during ~~a liability to make lease payments (~~the ~~lease~~three ~~liability)~~ and asix ~~right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12~~ months orended ~~less~~June ~~and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases~~30, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and ~~for interim periods within fiscal years beginning after December 15, 2020~~2018. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ~~underlying~~table ~~premise~~below ofindicates the ~~Update~~length is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of ~~credit~~time ~~losses~~individual ~~that~~securities are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have ~~taken~~been ~~place~~in during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a ~~cumulative~~continuous ~~effect~~unrealized ~~adjustment~~loss to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position orat ~~results~~June of30, ~~operations.~~2019:

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

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

U.S. Government agency securities		4	$	249	$	(1	)	$	1,243	$	(6	)	$	1,492	$	(7	)

Government Sponsored Enterprises residential mortgage-backed securities		4		190		(1	)		315		(3	)		505		(4	)

Total temporarily impaired investment Securities		8	$	439	$	(2	)	$	1,558	$	(9	)	$	1,997	$	(11	)

The 13table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2018:

5. Investment Securities

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

U.S. Government agency securities		7	$	-	$	-		$	2,277	$	(72	)	$	2,277	$	(72	)

Government Sponsored Enterprises residential mortgage-backed securities		14		718		(10	)		1,299		(44	)		2,017		(54	)

Total temporarily impaired investment Securities		21	$	718	$	(10	)	$	3,576	$	(116	)	$	4,294	$	(126	)

Government Sponsored Enterprises residential mortgage-backed securities. Unrealized losses on the Company’s investment in Government Sponsored Enterprises residential mortgage-backed securities were caused by market interest rate increases. The ~~following~~Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a ~~summary~~price less than the amortized cost basis of the Company'’s ~~investment~~investments. ~~portfolio:~~ Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

(In 000’s)	September 30, 2018
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
Available-for-sale:
U.S. Government agency securities	$2,349	$-	$(116)	$2,233
Government Sponsored Enterprises residential mortgage-backed securities	2,432	10	(88)	2,354
	$4,781	10	(204)	$4,587

U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by market interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

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

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. On a quarterly basis, the Company reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company’s ability and intent to hold the security for a period of time that allows for the recovery in value.

~~Effective~~As ~~January~~of 1June 30, ~~2018~~2019, ~~the~~and ~~Company~~December ~~adopted~~31, ~~ASU 2016-01~~2018, ~~Financial~~investment ~~Instruments~~securities aswith ~~describe~~a incarrying ~~Note~~value ~~4. As~~of a$1,184,000 ~~result~~and $3,668,000, ~~the~~respectively, ~~Investment~~were inpledged ~~Money~~as ~~Market~~collateral ~~Mutual~~to ~~Funds~~secure ~~was~~public ~~reclassed~~deposits toand ~~Federal~~contingent ~~Funds~~borrowing ~~Sold~~at ~~and~~the ~~other~~Federal ~~cash~~Reserve ~~equivalents~~Discount Window.

~~The~~13 ~~amortized~~Table ~~cost and fair value~~ of ~~debt securities classified as available-for-sale by contractual maturity as of September 30, 2018, are as follows:~~Contents

(In 000’s)	Amortized Cost	Fair Value
Due in one year	$-	$-
Due after one year through five years	-	-
Due after five years through ten years	2,349	2,233
Government Sponsored Enterprises residential mortgage-backed securities	2,432	2,354
	$4,781	$4,587

6. Loans and Allowance for Loan Losses

~~Expected~~The ~~maturities~~composition ~~will differ from contractual maturities because the issuers~~ of ~~certain debt securities have~~ the ~~right~~Bank’s toloan ~~call~~portfolio oris ~~prepay~~as ~~their obligations without any penalties.~~ follows:

There were no sales of securities during the three and nine months ended September 30, 2018 and 2017.

(in 000’s)	June 30, 2019		December 31, 2018
Commercial and industrial	$	1,385	$	1,545
Commercial real estate		15,192		17,038
Consumer real estate		1,120		1,226
Consumer loans other		697		734
Total loans	$	18,394	$	20,543

~~The~~There ~~table~~was ~~below~~no ~~indicates~~unearned ~~the~~discount ~~length~~at ofJune ~~time~~30, ~~individual~~2019 ~~securities~~and ~~have~~December ~~been in a continuous unrealized loss position at September 30~~31, 2018:.

(in 000’s)	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	Securities	Value	Losses	Value	losses	Value	Losses
U.S. Government agency securities	7	$-	$-	$2,233	$(116)	$2,233	$(116)
Government Sponsored Enterprises residentialmortgage-backed securities	14	1,374	(48)	700	(40)	2,044	(88)
Total temporarily impaired investment Securities	21	$1,374	$(48)	$2,903	$(156)	$4,277	$(204)

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:

· 14Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans. · Historical Charge-Off Component – Applies an eight-quarter rolling historical charge-off rate to all portfolio segments of non-classified loans. · Qualitative Factors Component – The loan portfolio is broken down into portfolio segments, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.

~~The~~All ~~table~~of ~~below~~these ~~indicates~~factors may be susceptible to significant change. During the ~~length~~six ofmonths ~~time~~ended ~~individual~~June ~~securities~~30, ~~have~~2019, ~~been~~the Bank did not change any of its qualitative factors in aany ~~continuous~~segment ~~unrealized~~of the loan portfolio; however, the average historical loss ~~position~~factor increased significantly for commercial and industrial loans because of net charge-offs that resulted in an increase in general reserves. Credits to the provision for the six months ended June 30, 2019 were primarily related to decreases in the balance of loans as well as the origination of SBA loans that are accounted for at ~~December~~fair 31value and are not included in the calculation of the allowance for loan losses. During the six months ended June 30, ~~2017:~~2019, there was an increase in the commercial real estate reserve allocation because of the modification of an impaired commercial industrial loan to become secured by real estate. Specific reserves allocated to this loan were reclassified to commercial real estate. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. The following table presents an analysis of the allowance for loan losses.

(in 000’s)	Number	Less than 12 months		12 months or longer		Total
(in 000's)		For the Three months ended June 30, 2019
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
		Commercial and industrial				Commercial real estate			Consumer real estate			Consumer loans Other			Unallocated			Total
Securities	securities	Value	Losses	Value	losses	Value	Losses
Beginning balance		$	85			$	101		$	4		$	-		$	33		$	223
U.S. Government agency securities	7	$ 245	$ (5)	$2,028	$ (71)	$2,273	$ (76)
(Credit) provision for loan losses			(32	)			97			(3	)		1			(33	)		30
Government Sponsored Enterprises residentialmortgage-backed securities	8	1,124	(7)	377	(11)	1,501	(18)
Charge-offs			(5	)			(21	)		(12	)		(6	)		-			(44	)
Total temporarily impaired investment Securities	15	$1,369	$ (12)	$ 2,405	$(82)	$ 3,774	$ (94)
Recoveries			1				8			13			5			-			27
Net (charge-offs) recoveries			(4	)			(13	)		1			(1	)		-			(17	)
Ending balance		$	49			$	185		$	2		$	-		$	-		$	236

~~Government~~14 ~~Sponsored~~Table Enterprises residential mortgage-backed securities. Unrealized losses on the Company’s investment in Government Sponsored Enterprises residential mortgage-backed securities were caused by market interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.Contents

U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by market interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

(in 000's)	For the Three months ended June 30, 2018
	Commercial and industrial			Commercial real Estate			Consumer real estate			Consumer loans Other			Unallocated			Total
Beginning balance	$	8		$	158		$	6		$	10		$	20		$	202
Provision (credit) for loan losses		4			8			(2	)		-			(5	)		5

Charge-offs		(10	)		(18	)		-			(2	)		-			(30	)
Recoveries		1			2			-			-			-			3
Net charge-offs		(9	)		(16	)		-			(2	)		-			(27	)

Ending balance	$	3		$	150		$	4		$	8		$	15		$	180

(in 000's)	For the Six months ended June 30, 2019
	Commercial and industrial			Commercial real estate			Consumer real estate			Consumer loans Other			Unallocated			Total
Beginning balance	$	102		$	139		$	4		$	-		$	33		$	278
(Credit) provision for loan losses		(37	)		59			(10	)		(1	)		(33	)		(22	)

Charge-offs		(19	)		(21	)		(12	)		(6	)		-			(58	)
Recoveries		3			8			20			7			-			38
Net (charge-offs) recoveries		(16	)		(13	)		8			1			-			(20	)

Ending balance	$	49		$	185		$	2		$	-		$	-		$	236

As of September 30, 2018 and December 31, 2017, investment securities with a carrying value of $3,567,000 and $4,297,000, respectively, were pledged as collateral to secure public deposits and contingent borrowing at the Federal Reserve Discount Window.

(in 000's)	For the Six months ended June 30, 2018
	Commercial and industrial			Commercial real estate			Consumer real estate			Consumer loans Other			Unallocated		Total
Beginning balance	$	7		$	155		$	10		$	8		$	-	$	180
Provision (credit) for loan losses		4			11			(6	)		1			15		25

Charge-offs		(10	)		(18	)		-			(7	)		-		(35	)
Recoveries		2			2			-			6			-		10
Net charge-offs		(8	)		(16	)		-			(1	)		-		(25	)

Ending balance	$	3		$	150		$	4		$	8		$	15	$	180

6. Loans and Allowance for Loan Losses

(in 000's)			June 30, 2019
	Commercial and industrial		Commercial real Estate		Consumer real estate		Consumer loans Other		Unallocated		Total

Period-end amount allocated to:

Loans individually evaluated for impairment	$	-	$	99	$	-	$	-	$	-	$	99
Loans collectively evaluated for impairment		49		86		2		-		-		137
	$	49	$	185	$	2	$	-	$	-	$	236

Loans, ending balance:
Loans individually evaluated for impairment	$	76	$	1,141	$	-	$	-	$	-	$	1,217
Loans collectively evaluated for impairment		1,309		14,051		1,120		697		-		17,177
Total	$	1,385	$	15,192	$	1,120	$	697	$	-	$	18,394

~~The~~15 ~~composition~~Table of ~~the Bank’s loan portfolio is as follows:~~Contents

(in 000’s)	September 30, 2018	December 31, 2017
(in 000's)		December 31, 2018
~~Commercial and industrial~~	~~$1,790~~	~~$1,798~~Commercial and industrial		Commercial real Estate		Consumer real estate		Consumer loans Other		Unallocated		Total
Commercial real estate	18,325	21,389
Period-end amount allocated to:
Consumer real estate	1,252	1,729
Loans individually evaluated for impairment		$	95	$	44	$	-	$	-	$	-	$	139
Consumer loans other	708	809
Loans collectively evaluated for impairment			7		95		4		-		33		139
Total loans	$22,075	$25,725
		$	102	$	139	$	4	$	-	$	33	$	278
Loans, ending balance:
Loans individually evaluated for impairment		$	289	$	1,148	$	-	$	-	$	-	$	1,437
Loans collectively evaluated for impairment			1,256		15,890		1,226		734		-		19,106
Total		$	1,545	$	17,038	$	1,226	$	734	$	-	$	20,543

AtNonperforming ~~September~~and ~~30,~~Nonaccrual ~~2018, there was no unearned discount. At December 31, 2017, the unearned discount totaled $10,858 respectively,~~ and isPast ~~included~~Due ~~in the related loan accounts.~~Loans

~~The~~An ~~determination~~age analysis of ~~the~~past ~~allowance~~due ~~for~~loans, ~~loan~~segregated ~~losses~~by ~~involves~~class aof ~~higher~~loans, ~~degree~~as of ~~judgment~~June ~~and~~30, ~~complexity~~2019 ~~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.

			Accruing		Nonaccrual
	Loans		Loans 90 or		Loans 90 or
(in 000's)	30-89 Days		More Days		More Days		Total Past		Current
	Past Due		Past Due		Past Due		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	-	$	-	$	-	$	-	$	1,050	$	1,050
SBA loans		-		-		-		-		-		-
Asset-based		-		-		76		76		259		335
Total Commercial and industrial		-		-		76		76		1,309		1,385

Commercial real estate:
Commercial mortgages		212		-		839		1,051		6,920		7,971
SBA loans		-		-		63		-		172		235
Construction		-		-		-		-		-		-
Religious organizations		289		-		179		468		6,518		6,986
Total Commercial real estate		501		-		1,081		1,519		13,610		15,192

Consumer real estate:
Home equity loans		-		149		250		399		160		559
Home equity lines of credit		-		-		-		-		14		14
1-4 family residential mortgages		-		-		-		-		547		547
Total consumer real estate		-		149		250		399		721		1,120

Total real estate		501		149		1,331		1,918		14,331		16,312

Consumer and other:
Student loans		19		31		-		50		566		616
Other		-		2		-		2		79		81
Total consumer and other		19		33		-		52		645		697

Total loans	$	520	$	182	$	1,407	$	2,109	$	16,285	$	18,394

16 15Table of Contents

~~·Historical~~An ~~Charge-Off~~age ~~Component~~analysis ~~– Applies~~of anpast ~~eight-quarter~~due ~~rolling~~loans, ~~historical~~segregated ~~charge-off~~by ~~rate~~class toof ~~all~~loans, ~~portfolio~~as ~~segments~~ of ~~non-classified~~December ~~loans.~~ 31, 2018 is as follows:

·Qualitative Factors Component – The loan portfolio is broken down into portfolio segments, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.

			Accruing		Nonaccrual
	Loans		Loans 90 or		Loans 90 or
	30-89 Days		More Days		More Days		Total Past		Current
(in 000's)	Past Due		Past Due		Past Due		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	-	$	-	$	-	$	-	$	1,055	$	1,055
SBA Loans		-		-		18		18		-		18
Asset-based		-		-		76		76		396		472
Total Commercial and industrial		-		-		94		94		1,451		1,545

Commercial real estate:
Commercial mortgages		-		45		902		947		8,585		9,532
SBA loans		-		-		69		69		179		248
Construction		-		-		-		-		-		-
Religious organizations		-		-		179		179		7,078		7,257
Total Commercial real estate		-		45		1,150		1,195		15,843		17,038

Consumer real estate:
Home equity loans		-		150		281		431		197		628
Home equity lines of credit		-		-		-		-		15		15
1-4 family residential mortgages		-		-		85		85		498		583
Total consumer real estate		-		150		366		516		710		1,226

Total real estate		-		195		647		1,711		16,553		18,264

Consumer and other:
Student loans		14		57		-		71		551		622
Other		1		-		-		1		111		112
Total consumer and other		15		57		-		72		662		734

Total loans	$	15	$	252	$	1,661	$	1,928	$	18,615	$	20,543

~~All~~Loan ofOrigination/Risk ~~these factors may be susceptible to significant change~~Management. ~~During~~ The ~~the nine months ended September 30, 2018 the~~ Bank ~~did~~has ~~not~~lending ~~change~~policies ~~any~~and ofprocedures ~~its qualitative factors~~ in ~~any~~place ~~segment~~to ofmaximize ~~the~~ loan ~~portfolio. In~~income ~~addition,~~within ~~the~~an ~~average~~acceptable ~~historical~~level ~~loss~~of ~~factors were relatively unchanged as there were minimal net recoveries during the quarter~~risk. Management ~~The~~reviews ~~increase~~and inapproves ~~provision~~these ~~for~~policies ~~commercial~~ and ~~industrial~~procedures ~~loans~~on ~~for the nine months ended September 30, 2018 is related to~~ a ~~specific~~regular ~~reserve~~basis. A ~~required~~reporting ~~for~~system ~~one~~supplements ~~impaired loan. Credits to~~ the ~~provision~~review ~~for~~process ~~commercial~~by ~~real~~providing ~~estate~~management ~~loans~~with ~~during~~periodic ~~2018~~reports ~~was~~ related to aloan ~~decrease~~origination, inasset ~~balance~~quality, inconcentrations ~~outstanding loans as well as the origination~~ of ~~SBA~~credit, ~~loans~~loan ~~that~~delinquencies ~~are~~and ~~accounted~~non-performing ~~for at fair value~~ and ~~are~~emerging ~~not~~problem ~~included~~loans. Diversification in the ~~calculation~~portfolio ofis ~~the~~a ~~allowance~~means ~~for~~of ~~loan~~managing ~~losses. To~~risk ~~the~~with ~~extent~~fluctuations ~~actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings~~ in ~~future~~economic ~~periods~~conditions. ~~The following table presents an analysis of the allowance for loan losses.~~

(in 000's)	For the Three months ended September 30, 2018
	Commercial and industrial	Commercial real estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Beginning balance	$3	$150	$4	$8	$15	$180
Provision (credit) for loan losses	80	(37)	-	(8)	(15)	20
Charge-offs	-	-	-	(1)	-	(1)
Recoveries	1	1	-	1	-	3
Net recoveries	1	1	-	-	-	2
Ending balance	$84	$114	$4	$-	$-	$202

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

(in 000's)	For the Three months ended September 30, 2017
	Commercial and industrial	Commercial real Estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Beginning balance	$74	$170	$8	$10	$(10)	$252
Provision (credit) for loan losses	(65)	18	-	-	32	(15)
Charge-offs	-	-	-	(1)	-	(1)
Recoveries	1	2	-	-	-	3
Net recoveries	1	2	-	(1)	-	2
Ending balance	$10	$190	$8	$9	$22	$239

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

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

	·	Risk ratings of “5” are assigned to “Special Mention” loans that do not presently expose the Bank to a significant degree of risks, but have potential weaknesses/deficiencies deserving Management’s closer attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned. Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit. Secondary sources of repayment are accessible and considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result in repayment. The asset is currently protected, but is potentially weak. This category may include credits with inadequate loan agreements, control over the collateral or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material. These borrowers would have limited ability to obtain credit elsewhere.

(in 000's)	For the Nine months ended September 30, 2018
	Commercial and industrial	Commercial real estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Beginning balance	$7	$155	$10	$8	$-	$180
Provision (credit) for loan losses	84	(26)	(6)	(7)	-	45
Charge-offs	(10)	(18)	-	(8)	-	(36)
Recoveries	3	3	-	7		13
Net (charge-offs) recoveries	(7)	(15)	-	(1)	-	(23)
Ending balance	$84	$114	$4	$-	$-	$202

Table of Contents

(in 000's)	For the Nine months ended September 30, 2017
	Commercial and industrial	Commercial real estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Beginning balance	$68	$179	$10	$11	32	$300
Provision (credit) for loan losses	(61)	(16)	(3)	(1)	(10)	(91)
Charge-offs	-	-	-	(4)	-	(4)
Recoveries	3	27	1	3	-	34
Net (charge-offs) recoveries	3	27	1	(1)	-	30
Ending balance	$10	$190	$8	$9	22	$239

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

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

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

For 16consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt as well as loans that are 90 days or more past due and have not been placed on nonaccrual. These credit quality indicators are updated on an ongoing basis. A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan.

(in 000's)	September 30, 2018
	Commercial and industrial	Commercial real Estate	Consumer real estate	Consumer loans Other	Unallocated	Total
Period-end amount allocated to:
Loans individually evaluated for impairment	$76	$-	$-	$-	$-	$76
Loans collectively evaluated for impairment	8	114	4	-	-	126
	$84	$114	$4	$-	$-	$202
Loans, ending balance:
Loans individually evaluated for impairment	$152	$1,359	$-	$-	$-	$1,511
Loans collectively evaluated for impairment	1,638	16,966	1,252	708	-	20,564
Total	$1,790	$18,325	$1,252	$708	$-	$22,075

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

(in 000's)	~~December 31, 2017~~	Commercial LoansJune 30, 2019
	Commercial and industrial	Commercial real Estate	Consumer real estate	Consumer loans Other	Unallocated	Total
		Good/Excellent				Satisfactory		Pass		Special Mention		Substandard		Doubtful		Total
Period-end amount allocated to:
Commercial and industrial:
Loans individually evaluated for impairment	$-	$-	$-	$-	$-	$-
Commercial		$	250			$	586	$	-	$	2	$	212	$	-	$	1,050
Loans collectively evaluated for impairment	7	155	10	8	-	180
SBA loans			-				-		-		-		-		-		-
	$7	$155	$10	$8	$-	$180
Asset-based			-				259		-		-		-		76		335
Loans, ending balance:
			250				845		-		2		212		76		1,385
Loans individually evaluated for impairment	$76	$1,201	$-	$-	$-	$1,277
Commercial real estate:
Loans collectively evaluated for impairment	1,722	20,188	1,729	809	-	24,448
Commercial mortgages			-				5,551		1,733		-		489		198		7,971
Total	$1,798	$21,389	$1,729	$809	$-	$25,725
SBA Loans			-				172		-		-		63		-		235
Construction			-				-		-		-		-		-		-
Religious organizations			13				4,587		2,055		-		331		-		6,986
			13				10,310		3,788		-		883		198		15,192
Total commercial loans		$	263			$	11,155	$	3,788	$	2	$	1,095	$	274	$	16,577

	Residential Mortgage and Consumer Loans June 30, 2019
	Performing		Nonperforming		Total

Consumer Real Estate:
Home equity	$	160	$	399	$	559
Home equity line of credit		14		-		14
1-4 family residential mortgages		547		-		547
		721		399		1,120

Consumer Other:
Student loans		585		31		616
Other		81		-		81
		666		31		697

Total consumer loans	$	1,387	$	430	$	1,817

~~Nonperforming~~18 ~~and~~Table ~~Nonaccrual~~of ~~and Past Due Loans~~Contents

An age analysis of past due loans, segregated by class of loans, as of September 30, 2018 is as follows:

(In 000's)	Commercial Loans, December 31, 2018
	Good/ Excellent		Satisfactory		Pass		Special Mention		Substandard		Doubtful		Total

Commercial and industrial:
Commercial	$	250	$	592	$	-	$	-	$	213	$	-	$	1,055
SBA loans		-		-		-		-		-		-		18
Asset-based		-		272		124		-		18		76		472
		250		964		124		-		231		76		1,545

Commercial real estate:
Commercial mortgages		-		5,814		2,759		52		703		204		9,532
SBA Loans		-		179		-		-		69		-		248
Construction		-		-		-		-		-		-		-
Religious organizations		24		5,041		2,013		-		180		-		7,258
		24		11,034		4,772		52		952		204		17,038

Total commercial loans	$	274	$	11,898	$	4,896	$	52	$	1,183	$	280	$	18,583

		Accruing	Nonaccrual
		Residential Mortgage and Consumer LoansDecember 31, 2018
	Loans	Loans 90 or	Loans 90 or
		Performing				Nonperforming		Total
(In 000's)	30-89 Days	More Days	More Days	Total Past	Current
Consumer Real Estate:
	Past Due	Past Due	Past Due	Due Loans	Loans	Total Loans
Home equity		$	197			$	431	$	628
Commercial and industrial:
Home equity line of credit			15				-		15
Commercial	$70	$-	$76	146	636	$782
1-4 family residential mortgages			498				85		583
SBA loans	-	-	-	-	-	-
			710				516		1,226
Asset-based	-	-	125	125	883	1,008
Consumer Other:
Total Commercial and industrial	70	-	201	271	1,519	1,790
Student loans			565				57		622
Commercial real estate:
Other			112				-		112
Commercial mortgages	144	-	1,108	1,252	9,000	10,252
			677				57		734
SBA loans	-	-	72	72	179	251
Total consumer loans		$	1,387			$	573	$	1,960
Construction	-	-	-	-	305	305
Religious organizations	-	126	179	305	7,212	7,517
Total Commercial real estate	144	126	1,359	1,629	16,696	18,325
Consumer real estate:
Home equity loans	-	150	283	433	205	638
Home equity lines of credit	-	-	-	-	15	15
1-4 family residential mortgages	31	-	26	57	542	599
Total consumer real estate	31	150	309	490	762	1,252
Total real estate	175	276	1,668	2,119	17,458	19,577
Consumer and other:
Student loans	42	17	-	59	563	622
Other	5	1	-	6	80	86
Total consumer and other	47	18	-	65	643	708
Total loans	$292	$294	$1,869	$2,455	$19,620	$22,075

AnImpaired ~~age~~Loans. ~~analysis~~The ofBank ~~past~~identifies ~~due~~a ~~loans,~~loan ~~segregated~~as byimpaired ~~class~~when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans, asunder ofthe ~~December~~cash ~~31,~~basis ~~2017~~when the collateral on the loan is assufficient ~~follows:~~to cover the outstanding obligation to the Bank. If these factors do not exist, the Bank will record interest payments on the cost recovery basis.

		Accruing	Nonaccrual
	Loans	Loans 90 or	Loans 90 or
	30-89 Days	More Days	More Days	Total Past	Current
(In 000's)	Past Due	Past Due	Past Due	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$-	$-	$-	$-	$909	$909
SBA Loans	-	-	-	-	19	19
Asset-based	-	-	76	76	794	870
Total Commercial and industrial	-	-	76	76	1,722	1,798
Commercial real estate:
Commercial mortgages	50	208	935	1,193	10,478	11,671
SBA loans	-	-	81	81	588	669
Construction	-	-	-	-	419	419
Religious organizations	-	-	187	187	8,443	8,630
Total Commercial real estate	50	208	1,203	1,461	19,928	21,389
Consumer real estate:
Home equity loans	38	123	289	450	191	641
Home equity lines of credit	-	-	-	-	17	17
1-4 family residential mortgages	64	-	48	112	959	1,071
Total consumer real estate	102	123	337	561	1,168	1,729
Total real estate
Consumer and other:
Student loans	32	55	-	87	613	700
Other	6	1	-	7	102	109
Total consumer and other	38	56	-	94	715	809
Total loans	$190	$387	$1,616	$2,192	$23,533	$25,725

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

The 18Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss. Specific reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. There were no partial charge-offs for the six months ended June 30, 2019.

~~Loan~~Consumer ~~Origination/Risk~~real ~~Management. The~~estate ~~Bank has lending policies~~ and ~~procedures~~other inloans ~~place~~are tonot ~~maximize~~individually ~~loan~~evaluated ~~income~~for within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with periodic reports related to loan originationimpairment, ~~asset~~but ~~quality,~~collectively ~~concentrations of credit~~evaluated, ~~loan~~because ~~delinquencies~~they ~~and~~are ~~non-performing~~pools ~~and emerging problem loans. Diversification in the portfolio is a means~~ of ~~managing~~smaller ~~risk~~balance ~~with~~homogeneous ~~fluctuations in economic conditions~~loans.

~~Credit~~19 ~~Quality~~Table ~~Indicators. For commercial loans, management uses internally assigned risk ratings as the best indicator~~ of credit quality. Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating. The Bank uses a 1 through 8 loan grading system that follows regulatory accepted definitions as follows:Contents

~~·Risk~~Impaired ~~ratings of “1” through “3” are used for~~ loans ~~that~~as ~~are~~of ~~performing~~June ~~and~~30, ~~meet~~2019 ~~and~~ are ~~expected to continue to meet all of the terms and conditions~~ set forth in the ~~original loan documentation and are generally current on principal and interest payments. Loans with these risk ratings are reflected as “Good/Excellent” and “Satisfactory” in the~~ following table.

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

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

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

Commercial real estate:
Commercial mortgages		899		533		366		899		99
SBA Loans		63		63		-		63		-
Religious organizations		179		179		-		179		-
Total commercial real estate		1,141		775		366		1,141		99

Total loans	$	1,217	$	775	$	442	$	1,217	$	99

~~·Risk~~Impaired ~~ratings of “5” are assigned to “Special Mention”~~ loans ~~that~~as ~~do not presently expose the Bank to a significant degree~~ of ~~risks,~~December ~~but have potential weaknesses/deficiencies deserving Management’s closer attention. If left uncorrected~~31, ~~these~~2018 potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned. Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit. Secondary sources of repayment are ~~accessible~~set ~~and~~forth ~~considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result~~ in ~~repayment. The asset is currently protected, but is potentially weak. This category may include credits with inadequate loan agreements, control over~~ the ~~collateral~~following ~~or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material~~table. ~~These borrowers would have limited ability to obtain credit elsewhere.~~

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

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

Commercial and industrial:
Commercial	$	213	$	-	$	213	$	213	$	81
SBA		-		-		-		-		-
Asset based		76		-		76		76		14
Total Commercial and industrial		289		-		289		289		95

Commercial real estate:
Commercial mortgages		898		739		159		898		13
SBA Loans		71		71		-		71		-
Religious Organizations		179		-		179		179		31
Total Commercial real estate		1,148		810		338		1,148		44
Total loans	$	1,437	$	810	$	627	$	1,437	$	139

~~·Risk~~20 ~~ratings~~Table of “7” are assigned to “Doubtful” loans which have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weakness makes the collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. The borrower's recent performance indicates an inability to repay the debt. Recovery from secondary sources is uncertain. The possibility of a loss is extremely high, but because of certain important and reasonably- specific pending factors, its classification as a loss is deferred. Contents

~~·Risk~~The ~~rating~~Bank ofrecognizes ~~“8”~~interest ~~are~~income ~~assigned~~on toimpaired ~~“Loss”~~ loans ~~which~~under ~~are~~the ~~considered~~cash ~~non-collectible~~basis ~~and~~when dothe ~~not~~collateral ~~warrant~~on ~~classification~~the asloan ~~active~~is ~~assets. They~~sufficient ~~are~~to ~~recommended~~cover ~~for~~the ~~charge-off~~outstanding ifobligation ~~attempts~~ to ~~recover~~the ~~will be long term in nature~~Bank. ~~This~~ If ~~classification~~these ~~does~~factors do not ~~mean that an asset has no recovery or salvage value~~exist, ~~but~~the ~~rather,~~Bank ~~that~~will itrecord isinterest ~~not~~payments ~~practical~~on ~~or desirable to defer writing off~~ the ~~loss,~~cost ~~although a future~~ recovery ~~may be possible~~basis. ~~Loss~~ ~~should~~The ~~always~~following betables ~~taken~~present inadditional ~~the~~information ~~period~~about inimpaired ~~which they surface and are identified as non-collectible as a result there is no tabular presentation~~loans.

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

(In 000's)	Three Months Ended June 30, 2019				Three Months Ended June 30, 2018
	Average		Interest recognized		Average		Interest recognized
	Recorded		on impaired		Recorded		on impaired
	Investment		Loans		Investment		Loans

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

Commercial real estate:
Commercial mortgages		921		2		958		-
SBA loans		64		-		76		-
Religious organizations		179		-		182		-
Total commercial real estate		1,164		2		1,216		-

Total loans	$	1,240	$	2	$	1,292	$	-

(In 000's)	Six Months Ended June 30, 2019				Six Months Ended June 30, 2018
	Average		Interest recognized		Average		Interest recognized
	Recorded		on impaired		Recorded		on impaired
	Investment		Loans		Investment		Loans

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

Commercial real estate:
Commercial mortgages		921		5		951		-
SBA loans		64		-		77		-
Religious organizations		179		-		184		-
Total commercial real estate		1,164		5		1,212		-

Total loans	$	1,240	$	5	$	1,288	$	-

~~The~~Troubled ~~tables~~debt ~~below~~restructurings ~~detail~~(“TDRs”). TDRs ~~the~~occur ~~Bank~~when a creditor, for economic or legal reasons related to a debtor’s ~~loans~~financial bycondition, ~~class~~grants ~~according~~a concession to ~~their~~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 ~~quality~~to ~~indictors~~begin ~~discussed~~the ~~above~~amortization of principal. The terms of these loans do not include any financial concessions and are not consistent with the current market. Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties). Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring. Therefore, the Company had no troubled debt restructurings at June 30, 2019 and December 31, 2018.

(In 000's)	Commercial Loans September 30, 2018
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$-	$492	$-	$-	$214	$76	$782
SBA loans	-	-	-	-	-	-	-
Asset-based	250	537	-	9	136	76	1,008
	250	1,029	-	9	350	152	1,790
Commercial real estate:
Commercial mortgages	-	7372	1,768	-	901	211	10,252
SBA Loans	-	178	-	-	73	-	251
Construction	-	305	-	-	-	-	305
Religious organizations	30	5,195	2,113	-	179	-	7,517
	30	13,050	3,881	-	1,153	211	18,325
Total commercial loans	$280	$14,079	$3,881	$9	$1,503	$363	$20,115

Table of Contents

	Residential Mortgage and Consumer Loans September 30, 2018
	Performing	Nonperforming	Total
Consumer Real Estate:
Home equity	$ 205	$ 433	$ 638
Home equity line of credit	15	-	15
1-4 family residential mortgages	573	26	599
	793	459	1,252
Consumer Other:
Student loans	605	17	622
Other	85	1	86
	690	18	708
Total consumer loans	$ 1,483	$ 477	$ 1,960

7. Other Real Estate Owned

(In 000's)	Commercial Loans, December 31, 2017
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$250	$423	$-	$19	$217	$-	$909
SBA loans	-	-	19	-	-	-	19
Asset-based	-	549	152	-	93	76	870
	250	972	171	19	310	76	1,798
Commercial real estate:
Commercial mortgages	-	7,876	2,764	17	797	217	11,671
SBA Loans	-	588	-	-	81	-	669
Construction	-	419	-	-	-	-	419
Religious organizations	48	7,560	835	-	187	-	8,630
	48	16,443	3,599	17	1,065	217	21,389
Total commercial loans	$298	$17,415	$3,770	$36	$1,375	$293	$23,187

Other real estate owned (“OREO”) consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense. Activity in other real estate owned for the periods was as follows:

(in 000's)	Three Months Ended		Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2019		June 30, 2018			June 30, 2019			June 30, 2018

Beginning balance	$	236	$	569		$	392		$	626
Additions, transfers from loans		-		-			-			-
Sales		-		(162	)		(156	)		(219	)
		236		407			236			407
Write-ups (downs)		-		(5	)		-			(5	)
Ending Balance	$	236	$	402		$	236		$	402

	Residential Mortgage and Consumer LoansDecember 31, 2017
	Performing	Nonperforming	Total
Consumer Real Estate:
Home equity	$352	$289	$641
Home equity line of credit	17	-	17
1-4 family residential mortgages	1,023	48	1,071
	1,392	337	1,729
Consumer Other:
Student loans	700	-	700
Other	109	-	109
	809	-	809
Total consumer loans	$2,201	$337	$2,538

There were no loans in the process of foreclosure at June 30, 2019 and December 31, 2018.

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

(in 000's)	June 30, 2019		December 31, 2018
Commercial real estate	$	161	$	168
Residential real estate		75		224
Total	$	236	$	392

~~The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss~~8. ~~Specific~~ Lease reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. There was one commercial real estate partial charge-off totaling $18,000 for the nine months ended September 30, 2018.Commitments

~~Consumer~~Due ~~real~~to ~~estate~~the adoption of ASU 2016-02, Leases (Topic 842) , the Company completed a comprehensive review and ~~other~~analysis ~~loans~~of ~~are~~all ~~not~~its ~~individually~~property ~~evaluated~~contracts. ~~for~~As ~~impairment~~a result of this review, ~~but~~it ~~collectively~~was ~~evaluated~~determined that the Company leases two office locations and office equipment under operating leases. Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company’s existing lease commitments, ~~because~~including ~~they~~the ~~are~~allocation ~~pools~~of consideration in the contracts between lease and non-lease components, determination of ~~smaller~~the ~~balance~~lease ~~homogeneous~~term, ~~loans~~and determination of the discount rate used in calculating the present value of the lease payments.

~~Impaired~~The ~~loans~~Company has elected to account for the variable non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of ~~September~~Operations 30when paid. These variable non-lease components were excluded from the calculation of the present value of the remaining lease payments, ~~2018~~therefore, they are ~~set~~not ~~forth~~included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three-month period ending March 31, 2019 (in thousands). Total operating rent expense recorded during the three-month period ended June 30, 2019 and 2018 was $120,000 and $119,000, respectively. Total operating rent expense recorded during the six-month period ended June 30, 2019 and 2018 was $251,000 and $236,000, respectively.

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial	$76	$-	$76	$76	$76
SBA loans	-	-	-	-	-
Asset-based	76	76	-	76	-
Total commercial and industrial	152	76	76	152	76
Commercial real estate:
Commercial mortgages	1,108	1,108	-	1,108	-
SBA Loans	72	72	-	72	-
Religious organizations	179	179	-	179	-
Total commercial real estate	1,359	1,359	-	1,359	-
Total loans	$1,511	$1,435	$76	$1,511	$76

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at June 30, 2019.

	Operating
Weighted-average remaining term (years)		4.87
Weighted-average discount rate		3.50	%

~~Impaired~~22 ~~loans~~Table as of ~~December 31, 2017 are set forth in the following table.~~ Contents

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial	$-	$-	$-	$-	$-
SBA	-	-	-	-	-
Asset based	76	76	-	76	-
Total Commercial and industrial	76	76	-	76	-
Commercial real estate:
Commercial mortgages	933	933	-	933	-
SBA Loans	81	81	-	81	-
Religious Organizations	187	187	-	187	-
Total Commercial real estate	1,201	1,201	-	1,201	-
Total loans	$1,277	$1,277	$-	$1,277	-

The following table presents the undiscounted cash flows due related to operating and financing leases as of June 30, 2019, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets.

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

	Operating
Undiscounted cash flows due:
Within 1 year	$	433
After 1 year but within 2 years		438
After 2 years but within 3 years		447
After 3 years but within 4 years		455
After 4 years but within 5 years		128
After 5 years		155
Total undiscounted cash flows		2,056
Discount on cash flows		(215	)
Total lease liabilities	$	1,841

(In 000's)	Three Months Ended September 30, 2018		Three Months Ended September 30, 2017
	Average	Interest recognized	Average	Interest recognized
	Recorded	on impaired	Recorded	on impaired
	Investment	Loans	Investment	Loans
Commercial and industrial:
Commercial	$25	$-	$-	$-
SBA loans	-	-	-	-
Asset-based	76	-	243	-
Total commercial and industrial	101	-	265	-
Commercial real estate:
Commercial mortgages	936	1	1,355	-
SBA loans	73	-	245	-
Religious organizations	180	-	189	-
Total commercial real estate	1,189	-	1,789	-
Total loans	$1,290	$1	$2,032	$-

Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of June 30, 2019, the Company had one lease for its Mount Airy branch that had a term of twelve months or less that did not include a purchase option. This lease is excluded from total lease liabilities.

(In 000's)	Nine Months Ended September 30, 2018		Nine Months Ended September 30, 2017
	Average	Interest recognized	Average	Interest recognized
	Recorded	on impaired	Recorded	on impaired
	Investment	Loans	Investment	Loans
Commercial and industrial:
Commercial	$8	$2	$-	$-
SBA loans	-	-	-	-
Asset-based	76	-	261	-
Total commercial and industrial	84	2	270	-
Commercial real estate:
Commercial mortgages	946	1	1,355	-
SBA loans	76	-	249	-
Religious organizations	182	-	192	-
Total commercial real estate	1,204	-	1,796	-
Total loans	$1,288	$3	$2,057	$-

9. Fair Value

~~Troubled~~Fair ~~debt~~Value restructurings (“TDRs”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal. The terms of these loans do not include any financial concessions and are not consistent with the current market. Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt Measurement

The 22Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

~~restructuring~~The fair value guidance in FASB ASC 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (~~i.e.~~that ~~whether~~is, not a forced liquidation or distressed sale) between market participants at the ~~creditor~~measurement date under current market conditions. If there has been ~~granted~~a significant decrease in the volume and level of activity for the asset or liability, a ~~concession~~change in valuation technique or isthe ~~experiencing~~use ~~financial~~of ~~difficulties)~~multiple valuation techniques may be appropriate. ~~Based~~ In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on ~~this~~the ~~review~~facts and ~~evaluation,~~circumstances ~~none~~and ofrequires the ~~modified~~use ~~loans~~of ~~met~~significant judgment. The fair value is a reasonable point within the ~~criteria~~range that is most representative of afair ~~troubled~~value ~~debt~~under ~~restructuring~~current market conditions. ~~Therefore~~ In accordance with this guidance, the Company ~~had~~groups noits ~~troubled~~assets ~~debt~~and ~~restructurings~~liabilities carried at ~~September~~fair ~~30,~~value ~~2018~~in ~~and~~three ~~December~~levels ~~31,~~as ~~2017.~~follows:

7.Level ~~Other Real Estate Owned~~ 1

~~Other~~· ~~real~~Unadjusted ~~estate~~quoted ~~owned~~prices ~~(“OREO”) consists of properties acquired as a result of deed~~ in~~-lieu-of~~ ~~foreclosure~~active ~~and~~markets ~~foreclosures.~~that ~~Properties or other assets~~ are ~~classified~~accessible ~~as OREO and are reported~~ at the ~~lower~~measurement ofdate ~~carrying~~for ~~value or fair value~~identical, ~~less~~unrestricted ~~estimated~~assets ~~costs to sell. Costs relating to the development~~ or ~~improvement of assets are capitalized, and costs relating to holding the property are charged to expense~~liabilities. ~~Activity in other real estate owned for the periods was as follows:~~

(in 000's)	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30, 2018	September 30, 2017	September 30, 2018	September 30, 2017
Beginning balance	$402	$447	$626	$447
Additions, transfers from loans	-	-	-	-
Sales	(10)	-	(229)	-
	392	447	397	447
Write-ups (downs)	-	-	(5)	-
Ending Balance	$392	$447	$392	$447

Level 2

~~There~~· ~~were~~Quoted noprices ~~loans~~for similar assets or liabilities in active markets. · Quoted prices for identical or similar assets or liabilities in markets that are not active. · Inputs other than quoted prices that are observable, either directly or indirectly, for the ~~process~~term of ~~foreclosure~~the atasset ~~September~~or 30liability (e.g., ~~2018~~interest ~~and~~rates, ~~December~~yield 31curves, ~~2017~~credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

~~The~~23 ~~following~~Table ~~schedule reflects the components~~ of ~~other real estate owned:~~ Contents

(in 000's)	September 30, 2018	December 31, 2017
Commercial real estate	$317	$317
Residential real estate	75	309
Total	$392	$626

Level 3

~~The~~· ~~following~~Prices ~~table~~or ~~details~~valuation techniques that require inputs that are both unobservable (i.e., supported by little or no market activity) and that are significant to the ~~components~~fair value of ~~net~~the ~~expense~~assets or liabilities. · These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of ~~other~~fair ~~real~~value ~~estate~~requires ~~owned:~~significant management judgment or estimation.

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
(in 000's)	September 30, 2018	September 30, 2017	September 30, 2018	September 30, 2017
Insurance	$4	$-	$10	$7
Legal Fees	-	-	-	-
Professional fees	1	-	1	5
Real estate taxes	4	14	12	21
Utilities	4	1	6	2
Maintenance	1	13	4	22
Write downs	-	-	5	-
Other	-	-	1	-
Total	$14	$28	$39	$57

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

8. Fair Value on a Recurring Basis

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

~~The~~Loans ~~Company~~Held ~~uses~~for ~~fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures~~Sale. ~~In accordance with the~~ Fair ~~Value~~values Measurements and Disclosures topic of ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are noestimated ~~quoted~~by ~~market~~using ~~prices~~actual ~~for~~indicative ~~the Company's various financial instruments. In cases where quoted~~ market ~~prices~~bids ~~are not available, fair values are based~~ on ~~estimates~~a ~~using~~loan ~~present value or other valuation techniques. Those techniques are significantly affected~~ by ~~the~~loan ~~assumptions used, including the discount rate and estimates of future cash flows~~basis. ~~Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.~~

~~The~~Loans ~~fair~~Held ~~value~~at ~~guidance~~Fair inValue. Fair ~~FASB~~values ~~ASC~~for ~~820~~loans ~~provides~~for ~~a consistent definition of fair value,~~ which ~~focuses~~the onguaranteed ~~exit~~portion ~~price in an orderly transaction (that~~ is, ~~not~~intended ato ~~forced~~be ~~liquidation~~sold orare ~~distressed~~estimated ~~sale)~~by ~~between~~using ~~market~~actual ~~participants~~quoted ~~at the measurement date under current~~ market ~~conditions.~~bids Ifon ~~there has been~~ a ~~significant~~loan ~~decrease~~by inloan ~~the~~basis. ~~volume~~Fair ~~and~~values ~~level of activity~~ for the ~~asset~~un-guaranteed orportion ~~liability,~~of aSBA ~~change~~loans inare ~~valuation~~estimated ~~technique~~based oron the ~~use~~present value of ~~multiple~~future ~~valuation~~cashflows ~~techniques~~for ~~may~~each beasset ~~appropriate.~~based Inon ~~such~~their ~~instances~~unique characteristics, ~~determining the price at which willing~~ market-based ~~participants~~assumptions ~~would~~for ~~transact~~prepayment atspeeds, ~~the~~discount ~~measurement~~rates, ~~date~~default ~~under~~and ~~current~~voluntary ~~market~~prepayments ~~conditions~~as ~~depends~~well onas ~~the~~assumptions ~~facts~~for ~~and~~losses ~~circumstances~~ and ~~requires the use of significant~~ recoveries.

Servicing 23Assets. Fair values for servicing assets related to SBA loans are estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.

~~judgment.~~Assets ~~The~~on ~~fair value is a reasonable point within~~ the ~~range~~consolidated ~~that~~balance issheets ~~most~~measured ~~representative~~at of fair value ~~under~~on ~~current~~a ~~market~~recurring ~~conditions.~~basis Inare ~~accordance~~summarized ~~with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:~~below.

Level 1

(in 000’s)	Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at June 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
U.S. Government agency securities	$	2,342	$	-	$	2,342	$	-
Government Sponsored Enterprises residential mortgage-backed securities		2,174		-		2,174		-
Total	$	4,516	$	-	$	4,516	$	-
Loans held for sale	$	7,512	$	-	$	7,512	$	-
Loans held at fair value	$	6,116	$	-	$	-	$	6,116
Servicing asset	$	297	$	-	$	-	$	297

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

(in 000’s)	Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
U.S. Government agency securities	$	2,277	$	-	$	2,277	$	-
Government Sponsored Enterprises residential mortgage-backed securities		2,304		-		2,304		-
Total	$	4,581	$	-	$	4,581	$	-
Loans held for sale	$	10,073	$	-	$	10,073	$	-
Loans held at fair value	$	5,420	$	-	$	-	$	5,420
Servicing asset	$	313	$	-	$	-	$	313

~~Level~~24 2Table of Contents

~~·Quoted~~The fair value of the Bank’s AFS securities portfolio was approximately $4,516,000 and $4,581,000 at June 30, 2019 and December 31, 2018, respectively. All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”). The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar instruments and all relevant information. There were no transfers between Level 1 and Level 2 assets orduring ~~liabilities~~the inperiods ~~active~~ended ~~markets~~June 30, 2019 and December 31, 2018.

~~·Quoted~~When ~~prices~~estimating ~~for~~the ~~identical~~fair orvalue ~~similar~~of ~~assets~~Level or3 ~~liabilities~~financial ininstruments, ~~markets~~management ~~that~~uses ~~are~~various ~~not~~observable ~~active~~and unobservable inputs. These inputs include estimated cashflows, prepayment speeds, average projected default rate and discount rates as follows:

~~·Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability~~ (~~e.g.,~~in ~~interest rates, yield curves, credit risks, prepayment speeds or volatilities~~000’s) ~~or “market corroborated inputs.”~~

Level 3

Assets measured at fair value

June 30,

2019

Fair value

December 31,

2018

Fair Value

Principal

valuation

techniques

Significant

observable inputs

June 30,

2019

Range of inputs

December 31,

2018

Range of inputs

Loans held at fair value:

6,116

5,420

Discounted cash flow

Constant prepayment rate

10.92% to 18.09%

0% to 16.5%

Discount rate

8.80% to 12.49%

5.49% to 9.76%

Weighted average life

1.85 yrs to 6.50 yrs

2.04 yrs. to 6.09 yrs.

Projected default rate

1.14% to 11.16%

1.07% to 10.12%

~~·Prices or valuation techniques that require inputs that are both unobservable~~ (~~i.e.,~~in ~~supported by little or no market activity~~000’s) ~~and that are significant to the fair value of the assets or liabilities.~~

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

Assets measured at fair value

June 30,

2019

Fair value

December 31,

2018

Fair Value

Principal

valuation

techniques

Significant

observable inputs

June 30,

2019

Range of inputs

December 31,

2018

Range of inputs

Servicing asset

297

313

Discounted cash flow

Constant prepayment rate

6.94% to 18.59%

4.94% to 15.92 %

Discount rate

7.96% to 17.37%

11.38% to 19.61%

Weighted average life

1.70 yrs to 6.01 yrs

2.04 yrs. to 6.77 yrs.

ADue ~~financial~~to ~~instrument’s categorization within~~ the ~~valuation~~inherent ~~hierarchy~~uncertainty isof ~~based~~determining on the ~~lowest~~fair ~~level~~value of ~~input~~assets that isdo ~~significant~~not tohave ~~the~~a readily available market value, fair value ~~measurement~~as determined by management may fluctuate from period to period.

~~Fair~~The ~~Value~~following table summarizes additional information about assets measured at fair value on a ~~Recurring~~recurring ~~Basis~~basis for which level 3 inputs were utilized to determine fair value for the six months ended June 30, 2019:

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

(in 000’s)	Loans held at fair value			Servicing Asset
Balance at December 31, 2018	$	5,420		$	313
Origination of loans/transfers		1,618			17
Principal repayments/amortization		(223	)		(24	)
Change in fair value of financial instruments		(700	)		(9	)
Balance at June 30, 2019	$	6,116		$	297

~~Loans~~The ~~Held~~following table summarizes additional information about assets measured at fair value on a recurring basis for ~~Sale.~~which ~~Fair~~level ~~values~~3 ~~are~~inputs ~~estimated~~were byutilized ~~using~~to ~~actual~~determine ~~indicative~~fair ~~market~~value ~~bids~~for onthe asix ~~loan~~months byended ~~loan~~June ~~basis.~~30, 2018:

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

(in 000’s)	Loans held at fair value			Servicing Asset
Balance at December 31, 2017	$	4,451		$	319
Origination of loans/additions		538			48
Principal repayments/amortization		(90	)		(56	)
Change in fair value of financial instruments		90			-
Balance at June 30, 2018	$	4,989		$	311

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

~~Assets~~Certain onassets ~~the~~are ~~consolidated~~not ~~balance sheets~~ measured at fair value on a recurring basis but are ~~summarized~~subject ~~below~~to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of June 30, 2019 and December 31, 2018, for which a nonrecurring change in fair value has been recorded during the three months ended June 30, 2019 and year ended December 31, 2018.

(in 000’s)	Fair Value Measurements at Reporting Date Using:
	Assets Measured atFair Value atSeptember 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
U.S. Government agency securities	$2,233	$-	$2,233	$-
Government Sponsored Enterprises residential mortgage-backed securities	2,354	-	2,354	-
Total	$4,587	$-	$4,587	-
Loans held for sale	$12,583	-	$12,583
Loans held at fair value	$5,183	-	-	$5,183
Servicing asset	$284	-	-	$284

Table of Contents

Carrying 24Value at June 30, 2019:

(in 000’s)	~~Fair Value Measurements at Reporting Date Using:~~	Total			Quoted Prices in Active markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
	Assets Measured atFair Value atDecember 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans		$	269		$	-	$	-	$	269
Investment securities available-for-sale:
Other real estate owned (“OREO”)		$	236		$	-	$	-	$	236
U.S. Government agency securities	$2,273	$-	$2,273	$-
Government Sponsored Enterprises residential mortgage-backed securities	2,740	-	2,740	-
Money market funds	132	132	-	-
Total	$5,145	$132	$5,013	$-
Loans held for sale	$10,297	$-	$10,297	$-
Loans held at fair value	$4,451	$-	$-	$4,451
Servicing asset	$319	$-	$-	$319

~~The~~Carrying ~~fair~~Value ~~value of the Bank’s AFS securities portfolio was approximately $4,914,000 and $5,145,000~~ at ~~September 30, 2018 and~~ December 31, 2017, respectively. All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”). The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar instruments and all relevant information. There were no transfers between Level 1 and Level 2 assets during the periods ended September 30, 2018 ~~and 2017.~~:

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

(in 000’s)

Total

Quoted Prices in Active markets for Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

Impaired Loans

324

Other real estate owned (“OREO”)

392

~~(in~~The ~~000~~Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. At June 30, 2019 and December 31, 2018, the fair values shown above exclude estimated selling costs of $28,500 and $15,000, respectively.

Assets measured at fair value	September 30, 2018 Fair value	December 31, 2017 Fair Value	Principal valuation techniques	Significant observable inputs	September 30, 2018 Range of inputs	December 31, 2017 Range of inputs
Loans held at fair value:	$ 5,183	$ 4,451	Discounted cash flow	Constant prepayment rate	11.44% to 15.00%	8.54% to 10.41 %
				Weighted average discount rate	8.91% to 12.63%	9.00% to 11.62%
				Weighted average life	2.23 yrs. to 7.26 yrs.	2.67 yrs. to 9.29 yrs.
				Projected default rate	1.02% to 9.26%	0.75% to 7.61%

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

~~(in~~Fair ~~000’s)~~Value of Financial Instruments

Assets measured at fair value	September 30, 2018 Fair value	December 31, 2017 Fair Value	Principal valuation techniques	Significant observable inputs	September 30, 2018 Range of inputs	December 31, 2017 Range of inputs
Servicing asset	$284	$ 319	Discounted cash flow	Constant prepayment rate	7.36% to 14.64%	5.58% to 10.67 %
				Weighted average discount rate	11.45% to 27.06%	11.75% to 19.74%
				Weighted average life	2.23 yrs. to 7.13 yrs.	2.67 yrs. to 9.09 yrs.

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

~~Due~~The ~~to the inherent uncertainty of determining the~~ fair value of assets ~~that~~and doliabilities not ~~have~~previously adisclosed ~~readily~~are ~~available~~depicted ~~market value, fair value as determined by management may fluctuate from period to period.~~ below:

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

			June 30, 2019				December 31, 2018
(in 000’s)	Level in		Carrying		Fair		Carrying		Fair
	Value Hierarchy		Amount		Value		Amount		Value
(Dollars in thousands)
Assets:
Cash and cash equivalents	Level 1		$	9,418	$	9,418	$	8,438	$	8,438
Loans, net of allowance for loan losses		(1)		18,158		18,211		20,265		21,979
Accrued interest receivable	Level 1			162		162		153		153
Liabilities:
Demand deposits	Level 1			27,737		27,737		29,816		29,816
Savings deposits	Level 1			10,491		10,491		10,589		10,589
Time deposits		(2)		5,347		5,283		7,867		7,757
Accrued interest payable	Level 1			8		8		17		17

(in 000’s)	Loans held at fair value	Servicing Asset
Balance at December 31, 2017	$ 4,451	$ 319
Origination of loans/additions	732	62
Principal repayments/amortization	(104)	(92)
Change in fair value of financial instruments	104	(5)
Balance at September 30, 2018	$5,183	$284

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

(2) Level 251 for variable rate instruments, level 3 for fixed rate instruments.

~~Fair~~26 ~~Value~~Table onof ~~a Nonrecurring Basis~~Contents

~~Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment)~~10. ~~The~~ ~~following~~Revenue table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of September 30, 2018 and December 31, 2017, for which a nonrecurring change in fair value has been recorded during the nine months ended September 30, 2018 and year ended December 31, 2017.Recognition

~~Carrying~~Management ~~Value~~determined atthat ~~September~~the 30primary sources of revenue associated with financial instruments, ~~2018:~~including interest income on loans and investments, along with certain noninterest revenue sources including gains on the sale of loans, the change in fair value of financial instruments, are not within the scope of Topic 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 83.5% of the total revenue of the Company.

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$76	-	-	$76
Other real estate owned (“OREO”)	$392	-	-	$392

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

~~Carrying~~Customer ~~Value~~Service atFees ~~December~~and 31ATM Fees — The Company has contracts with its deposit account customers where fees are charged for certain items or services. Service charges include account analysis fees, ~~2017:~~monthly service fees, overdraft fees, and other deposit account related fees. Additionally, the Company collects revenue when outside customers utilize the Bank’s ATM machines for transactions. Revenue related to account analysis fees, ATM transactions and service fees is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. Fees attributable to specific performance obligations of the Company (i.e. overdraft fees, etc.) are recognized at a defined point in time based on completion of the requested service or transaction.

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired Loans	$134	-	—	$134
Other real estate owned (“OREO”)	$626	-	-	$ 626

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2019 and 2018.

The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level 3 measurement. If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. At September 30, 2018 and December 31, 2017, the fair values shown above exclude estimated selling costs of $39,000.

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
(Dollars in thousands)
Noninterest income:
In-scope of Topic 606
Customer Service Fees	$	93		$	103	$	186		$	203
ATM Fee Income		25			27		49			51
Other income		2,556			23		2,591			48
Noninterest income (in-scope of Topic 606)		2,664			153		2,826			302
Noninterest income (out-of-scope of Topic 606)		(655	)		68		(648	)		279
Total noninterest income		2,009		$	221	$	2,178		$	535

~~OREO is carried at the lower of cost or fair value, which is measured at the foreclosure date~~11. If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level 2 measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as Level 3 measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.Regulatory

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

~~FASB~~The ~~ASC~~Orders ~~Topic~~will ~~825~~remain ~~requires~~in ~~disclosure~~effect ofuntil ~~the~~modified ~~fair~~or ~~value~~terminated ofby ~~financial~~the ~~assets~~FDIC and ~~financial~~the ~~liabilities,~~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 ~~those~~making ~~financial~~loans, ~~assets~~establishing lines of credit, accepting deposits and ~~financial~~processing ~~liabilities~~banking ~~that~~transactions. Customer ~~are~~deposits ~~not~~remain ~~measured~~fully insured to the highest limits set by the FDIC. The FDIC and ~~reported~~the atDepartment ~~fair~~did ~~value~~not onimpose 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 ~~recurring~~more ~~basis~~tailored orapproach ~~non~~by regulators to strengthen and preserve minority-~~recurring~~owned ~~basis~~financial institutions like United Bank of Philadelphia. The priority for the Board of Directors and management is to comply with the Order promptly. The requirements of the Orders are as follows:

~~The~~· ~~fair~~Increase ~~value~~participation of ~~assets~~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 ~~liabilities~~objectives ~~not~~and ~~previously~~for ~~disclosed~~supervising ~~are~~the ~~depicted~~Bank’s ~~below:~~management; · Have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers. Add two additional board members with banking experience.

		September 30, 2018		December 31, 2017
(in 000’s)	Level in	Carrying	Fair	Carrying	Fair
	Value Hierarchy	Amount	Value	Amount	Value
(Dollars in thousands)
Assets:
Cash and cash equivalents	Level 1	$8,088	$8,088	$11,671	$11,671
Loans, net of allowance for loan losses	(1)	21,873	21,797	25,545	25,831
Servicing asset	Level 3	284	284	319	319
Accrued interest receivable	Level 1	194	194	153	153
Liabilities:
Demand deposits	Level 1	32,041	32,041	34,610	34,610
Savings deposits	Level 1	10,820	10,820	11,505	11,505
Time deposits	(2)	8,241	8,152	9,339	9,280
Accrued interest payable	Level 1	12	12	14	14

Table of Contents

· 26Complete audited financial statements for 2016, 2017, and 2018. · Formulate and implement a Restoration/Strategic Plan to increase profitability reduce expenses and improve operating performance and related ratios. · Develop and implement a Strategic Plan for each year during which the orders are in effect, to be revised Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, by September 2019; · Formulate a written plan to improve asset quality and reduce the Bank’s risk positions in assets classified as “Doubtful” or “Substandard” at its regulatory examination; · Eliminate all assets classified as “Loss” at its current regulatory examination; · Refrain from accepting any brokered deposits; Prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the Orders. · Refrain from paying cash dividends without prior approval of the FDIC and the Department;

~~(1)Level~~As 2of ~~for~~June ~~non-impaired~~30, ~~loans;~~2019, ~~Level~~and December 31, 2018, the Bank’s tier one leverage capital ratio was 5.77% and 3.00%, ~~for~~respectively, ~~impaired~~and ~~loans~~its total risk-based capital ratio was 13. 25% and 6.34%, respectively. The leverage ratios is below the level required by the Consent Orders. Management is in the process of addressing all matters outlined in the Consent Orders. The net loss during the quarter resulted in a decrease in the capital ratios. Management has developed and submitted a Capital Plan that focuses on the following:

(· Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital. · Extern equity investments—During 2017, the Company received external investments of $925,000 and from other financial institutions. In May 2021, the Company received a $600,000 capital investment from another financial institution. · 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~~)Level~~.5 1million ~~for~~economic ~~variable~~stimulus ~~rate~~grant ~~instruments~~from the City of Philadelphia. · Other grants---In September 2020, ~~level~~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 ~~fixed~~up ~~rate~~to ~~instruments~~six months for struggling small businesses in the Bank’s loan portfolio. · Further, in August 2021, the Bank was awarded a grant totaling $1,286,000 from the US Treasury’s CDFI Rapid Response Program that was geared to strengthen the Bank as the economy recovers from the effects of the COVID-19 pandemic. This grant resulted in further improvement in the Bank’s capital ratios.

As a result of the above actions, management believes that the Bank has and will be able to comply with the terms and conditions of the Orders. At June 30, 2022, the Bank’s Tier 1 leverage ratio was 9.50% ~~Revenue~~and ~~Recognition~~its total risk-based capital ratio was 21.92% which is considered “well capitalized” under the regulatory framework for prompt and corrective action.

Management determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including gains on the sale of loans, the change in fair value of financial instruments, are not within the scope of Topic 60612. Going ~~As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 83.5% of the total revenue of the Company.~~Concern

The ~~significant~~Company’s ~~components~~consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of ~~noninterest~~operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its consolidated financial statements, the Company reported net income ~~within~~of approximately $1,360,000 for the ~~scope~~six months ended June 30, 2019 and a net loss of ~~Topic~~approximately ~~606~~$350,000 ~~are~~for the same period in 2018; additionally, the Company reported a net loss of $1,486,000 for the year ended 2018 and net loss of $319,000 for the year ended 2017. Further, the Company has entered into Consent Orders with the FDIC and the Department which, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.00% and its total risk-based capital ratio to 12.50%. As of June 30, 2019, the Bank’s tier one leverage capital ratio was 5.77% and its total risk-based capital ratio was 13.25%. The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory supervision and/or actions. The ability of the Bank to continue as ~~follows:~~a going concern is dependent on many factors, including achieving required capital levels, earnings and fully complying with the Consent Orders. The Consent Orders raise substantial doubt about the Company’s ability to continue as a going concern.

~~Customer~~28 ~~Service~~Table Fees and ATM Fees — The Company has contracts with its deposit account customers where fees are charged for certain items or services. Service charges include account analysis fees, monthly service fees, overdraft fees, and other deposit account related fees. Additionally, the Company collects revenue when outside customers utilize the Bank’s ATM machines for transactions. Revenue related to account analysis fees, ATM transactions and service fees is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. Fees attributable to specific performance obligations of ~~the Company (i.e. overdraft fees, etc.) are recognized at a defined point in time based on completion of the requested service or transaction.~~Contents

~~Loan~~Management ~~Syndication~~has ~~Fees~~developed ~~– The Company contracts with certain corporate entities as an arranging institution for loan syndications whereby~~ a ~~fee~~plan ~~is earned by the Company for soliciting, assembling, and obtaining commitments from other lenders related~~ to ~~certain~~alleviate ~~facilities of~~ the ~~corporate~~substantial ~~entity. A~~doubt ~~portion~~about of the ~~fee~~Company’s isability ~~paid~~to ascontinue ~~an up-front payment for acting~~ as ~~the~~a ~~arranger,~~going ~~which is earned and recognized on the date the contract is signed without further commitment~~concern. ~~Another~~This ~~portion~~plan ~~of the fee~~ is ~~earned,~~primarily ~~and~~based ~~generally~~on ~~paid, upon completion of~~ the ~~loan syndication arrangement which is the performance obligation for that portion of the fee.~~following:

~~The~~· ~~following~~Increase ~~presents~~earnings: Core profitability is essential to stop the erosion of capital. Noninterest income will continue to be an important element of the Bank’s earnings enhancement plan, specifically noninterest income from SBA loans will continue to be an important income strategy for the Bank. In addition, ~~segregated~~management will seek to reduce noninterest expense by ~~revenue~~reducing ~~streams~~targeted areas of overhead including the closure of the Mount Airy branch in 2018 as well as the projected recovery of SBA loan fair value write-~~scope~~downs and ~~out~~other cost reduction strategies. During 2018 and in 2019, there were SBA fair value write-downs on defaulted loans that totaled approximately $1.2 million. Management has developed forbearance agreements and implemented other collection strategies including the sale of underlying collateral to mitigate the exposure on these loans that management believes will result in the recovery of some fair value write-~~scope~~downs. · Strengthen Capital: A concentrated effort will continue to be made to stabilize and strengthen the Bank’s capital. Management has identified potential sources of ~~Topic~~external ~~606~~capital that have been received in 2020 and 2021. This capital will be used to further strengthen the Bank’s balance sheet. At June 30, ~~for~~2022, the ~~three~~Bank’s Tier 1 leverage ratio was 9.50% and ~~six~~its ~~months~~total ~~ended~~risk-based ~~September~~capital 30ratio was 21.92% which is considered “well capitalized”. · Comply with the Consent Orders: Management has developed a Restoration Plan to address matters outlined in the Consent Orders including strengthening management, ~~2018~~asset quality, profitability and ~~2017~~capital. This plan received a “non-objection” from the Bank’s primary regulators. Management plans to implement the Restoration Plan in an attempt to comply with the terms and conditions of the Orders.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
(Dollars in thousands)
Noninterest income:
In-scope of Topic 606
Customer Service Fees	$107	$101	$310	$299
ATM Fee Income	25	31	76	94
Loan Syndication Fees	100	90	100	90
Other income	36	15	84	77
Noninterest income (in-scope of Topic 606)	268	237	570	560
Noninterest income (out-of-scope of Topic 606)	124	253	358	477
Total noninterest income	$392	$490	$928	$1,037

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

1013. Subsequent ~~Regulatory~~ Events

OnBeginning ~~April~~in ~~25,~~March ~~2018~~2020, the ~~Bank~~onset ~~entered~~of ~~into~~the ~~stipulations~~COVID-19 ~~consenting~~pandemic tohas ~~the~~had ~~issuance~~an ofadverse ~~amended~~economic ~~and~~effect ~~restated~~on ~~Consent~~a ~~Orders~~global, ~~with~~national, and local level. Following the ~~Federal~~outbreak, ~~Deposit~~market ~~Insurance~~interest ~~Corporation~~rates ~~(“FDIC”)~~have ~~and~~declined significantly, as the ~~Pennsylvania~~10-year ~~Department~~Treasury ofbond ~~Banking~~fell ~~(“Department”)~~below ~~which~~1.00% ~~serve~~in asearly March 2020 that could lead to a ~~prescriptive~~reduction ~~Restoration~~in ~~Plan~~the ~~providing~~Bank’s ~~benchmarks~~net ~~for~~interest ~~capital~~margin. In addition, ~~earnings~~this ~~and~~event may adversely affect asset quality. ~~The~~related ~~material~~to ~~terms~~the Company’s small business loan customers that have been affected by a reduction in their business operations because of government-imposed restrictions. As a result, the ~~Consent~~Company ~~Orders~~has ~~are~~deferred ~~identical~~loan payments as necessary for those customers that have been impacted by the pandemic. The ~~requirements~~pandemic has also affected the way that the Company is conducting business. Since notice of the pandemic, the Company has temporarily closed its Center City branch office and ~~status~~consolidated all customer service activity at its Progress Plaza branch. In addition, the Company has maintained limited on-site presence of ~~items~~four ~~included~~employees or less in the ~~Orders~~Lending ~~are~~Department aswhile ~~follows:~~all other employees work remotely in an effort to slow the spread of the pandemic. The full extent of the effect of the pandemic is not yet known.

~~The~~In ~~Orders~~September ~~will~~2020, ~~remain in effect until modified or terminated by~~ the ~~FDIC~~Bank ~~and~~received ~~the~~a ~~Department~~grant ~~and~~totaling do$3.4 ~~not~~million ~~restrict~~from the ~~Bank~~Pennsylvania ~~from~~CDFI ~~transacting~~Network ~~its~~to ~~normal~~provide ~~banking~~financial ~~business. The~~assistance ~~Bank~~related ~~will continue~~ to ~~serve~~potential ~~its~~losses ~~customers~~related ~~in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions. Customer deposits remain fully insured~~ to the ~~highest~~COVID-19 ~~limits~~pandemic. ~~set~~Approximately ~~by the FDIC~~$2. ~~The~~8 ~~FDIC~~million ~~and~~of ~~the~~this ~~Department~~grant ~~did~~was ~~not~~recorded ~~impose~~as ornoninterest ~~recommend~~income ~~any~~and ~~monetary~~$617,000 ~~penalties~~was inrecorded ~~connection~~as ~~with~~deferred ~~the Consent Orders~~revenue. The ~~Board~~deferred ofrevenue ~~Directors~~portion isof ~~optimistic about~~ the ~~Bank’s~~grant ~~ability~~was allocated to ~~achieve~~be ~~the~~used ~~requirements as stated. These Orders represent a more tailored approach by regulators~~ to ~~strengthen~~make principal and ~~preserve~~interest ~~minority-owned~~payments ~~financial institutions like United Bank of Philadelphia. The priority~~ for ~~the~~up ~~Board of Directors and management is~~ to ~~comply~~six ~~with~~months ~~the~~for ~~Order~~struggling ~~promptly.~~small ~~The~~businesses ~~requirements~~in of the ~~Orders~~Bank’s ~~are~~loan ~~as follows:~~portfolio.

~~·Increase~~In ~~participation~~May 2021, the Company received an external investment of $600,000 from another financial institution from the ~~Bank’s~~issuance ~~board~~of a combination of ~~directors~~Common voting and Series C Preferred Stock. Further, in August 2021, the Bank’s ~~affairs~~was byawarded ~~having~~a grant totaling $1,286,000 from the ~~board~~US ~~assume~~Treasury’s ~~full~~CDFI ~~responsibility~~Rapid ~~for~~Response ~~approving~~Program that was geared to strengthen the Bank’s ~~policies~~as ~~and~~the ~~objectives~~economy ~~and~~recovers ~~for~~from ~~supervising~~the effects of the ~~Bank’s~~COVID-19 ~~management;~~ pandemic.

At 27June 30, 2022, the Bank’s Tier 1 leverage ratio was 9.50% and its total risk-based capital ratio was 21.92% which is considered “well capitalized” under the regulatory framework for prompt and corrective action.

~~·Have~~On ~~and~~October ~~retain~~31, ~~qualified management~~2022, the Board of Directors unanimously approved an Offer of Settlement with the Securities and ~~notify~~Exchange Commission over the ~~FDIC~~Company’s failure to comply with the Exchange Act Section 12(a) and Rules 13a-1 and 13a-13 thereunder because it has not filed periodic reports with the ~~Department~~Commission since the period ended December 31, 2018. The Offer of ~~any~~Settlement ~~changes~~revokes inthe registration of each class of the ~~Bank~~Company’s ~~board~~securities registered pursuant to Section 12 of ~~directors~~the orExchange ~~senior~~Act ~~executive~~as ~~officers.~~of ~~Add~~the effective date of the Offer of Settlement until there are two ~~additional~~consecutive ~~board~~timely ~~members~~filings. ~~with~~There ~~banking~~is ~~experience~~currently no financial impact related to the revocation; however, management is working to remedy the matter to avoid further action.

~~·Complete~~29 ~~audited~~Table ~~financial~~of ~~statements for 2016, 2017, and 2018.~~ Contents

~~·Formulate~~Item ~~and~~2. ~~implement~~Management's aDiscussion ~~Restoration/Strategic~~and ~~Plan~~Analysis toof ~~increase~~Financial ~~profitability~~Condition ~~reduce expenses~~ and ~~improve~~Results ~~operating~~of ~~performance and related ratios~~Operations.

~~·Develop~~United ~~and~~Bancshares, ~~implement~~Inc. ~~a Strategic Plan for each year during which~~ (the ~~orders~~"Company") ~~are~~is ~~in effect, to be revised Develop~~ a ~~written~~bank ~~capital~~holding ~~plan~~company ~~detailing~~registered ~~the~~under ~~manner in which~~ the Bank ~~will~~Holding ~~meet~~Company ~~and~~Act ~~maintain a ratio~~ of ~~Tier~~1956. The 1Company's ~~capital~~principal toactivity ~~total~~is ~~assets~~the ~~(“leverage~~ownership ~~ratio”) of at least 8.5%~~ and amanagement ~~ratio~~ of ~~qualifying~~its ~~total~~wholly ~~capital~~owned tosubsidiary, ~~risk-weighted~~United ~~assets~~Bank ~~(total risk-based capital ratio)~~ of atPhiladelphia ~~least~~(the 12"Bank").~~5%, by September 2019;~~

~~·Formulate~~Special aCautionary ~~written~~Notice ~~plan~~Regarding toForward-looking ~~improve asset quality and reduce the Bank’s risk positions in assets classified as “Doubtful” or “Substandard” at its regulatory examination;~~ Statements

~~·Eliminate~~Certain ~~all~~of ~~assets~~the ~~classified~~matters discussed in this document and the documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may constitute forward looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of United Bancshares, Inc (“~~Loss~~UBS”) atto be materially different from future results, performance or achievements expressed or implied by such forward looking statements. The words “expect,” “anticipate,” “intended,” “plan,” “believe,” “seek,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include: (a) statements of goals, intentions and expectations; and (b) statements regarding business prospects, asset quality, credit risk, reserve adequacy and liquidity. UBS’ actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation: (a) the effects of future economic conditions on UBS and its ~~current~~customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and consumer saving patterns; (b) UBS interest rate risk exposure and credit risk; (c) changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets; (d) governmental monetary and fiscal policies, as well as legislation and regulatory ~~examination~~changes; (e) changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral and securities, as well as interest-rate risks; (f) changes in accounting requirements or interpretations; (g) the effects of competition from other commercial banks, thrifts, mortgage companies, consumer finance companies, credit unions securities brokerage firms, insurance companies, money-market and mutual funds and other financial institutions operating in the UBS’ trade market area and elsewhere including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; (h) any extraordinary events (such as the September 11, 2001 events), the war on terrorism and the U.S. Government’s response to those events or the U.S. Government becoming involved in a conflict in a foreign country including the war in Iraq; (i) the failure of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, and various financial assets and liabilities and technological changes being more difficult or expensive than anticipated; (j) UBS’ success in generating new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time; (k) UBS’ timely development of competitive new products and services in a changing environment and the acceptance of such products and services by its customers; (l) any downgrades, in the credit rating of the United States Government and federal agencies; (m) changes in technology being more expensive or difficult than expected; (n) the ability of key third party providers to perform their obligations to UBS and; (o) the Bank and UBS’ success in managing the risks involved in the foregoing, and (p) failure to comply with the Consent Orders with the FDIC and the Pennsylvania Department of Banking.

~~·Refrain~~All ~~from~~written ~~accepting~~or ~~any~~oral ~~brokered~~forward-looking ~~deposits;~~statements ~~Prepare~~attributed ~~and~~to ~~submit~~the ~~quarterly~~Company ~~reports~~are toexpressly ~~the~~qualified ~~FDIC~~in ~~and~~their ~~the~~entirety ~~Department~~by ~~detailing~~use of the ~~actions~~foregoing ~~taken~~cautionary tostatements. All ~~secure~~forward-looking ~~compliance~~statements ~~with~~included ~~the~~in ~~Orders~~this Report are based upon information presently available, and UBS assumes no obligation to update any forward-looking statement.

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

AsThe Company reported net income of ~~September~~approximately 30$1,598,000 ~~2018~~($1.93 ~~and~~per ~~December~~common ~~31,~~share) ~~2017,~~for the ~~Bank’s~~quarter ~~tier~~ended ~~one~~June ~~leverage~~30, ~~capital~~2019 ~~ratio~~compared ~~was~~to ~~4.77%~~a ~~and~~net ~~5.51%,~~loss ~~respectively~~of approximately $152,000 ~~and~~($0.18 ~~its~~per ~~total~~common ~~risk-based~~share) ~~capital~~for ~~ratio~~the ~~was~~same ~~9.20%~~quarter ~~and~~in 102018.~~11%~~ The Company reported net income of approximately $1,360,000 ~~respectively~~($1.64 ~~These~~per ~~ratios~~common ~~are~~share) ~~below~~or the ~~levels~~six ~~required~~months byended ~~the~~June ~~Consent~~30, ~~Orders. Management~~2019 isand ina ~~the~~net ~~process~~loss of ~~addressing~~approximately ~~all~~$350,000 ~~matters~~($0.42 ~~outlined~~per incommon share) for the ~~Consent~~same ~~Orders~~period in 2018. ~~The~~ Management ~~net~~remains ~~loss~~committed ~~during~~to improving the ~~quarter~~Company’s ~~resulted~~operating inperformance aby ~~decrease~~continuing into ~~the~~implement ~~capital~~its ~~ratios.~~Restoration ~~Management~~Plan ~~has~~and ~~developed~~income enhancement strategies that are centered around small business lending products and ~~submitted~~services. The afollowing ~~Capital~~actions ~~Plan~~are ~~that~~critical ~~focuses~~to onensure continued improvement in the ~~following~~Company’s financial performance:

~~·Core~~Increase ~~Profitability~~Capital. The ~~from~~critical ~~Bank~~importance ~~operations—Core~~of ~~profitability~~establishing isand ~~essential~~maintaining capital levels to ~~stop~~support the ~~erosion~~Bank’s ofrisk profile and growth is understood; however, capital declined as a result of operating losses. A concentrated effort will be made to further stabilize and strengthen the Bank’s capital by the following:

· Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital. Refer to the Earnings Enhancement discussion below. · External equity investments— Utilizing a CRA platform, instead of seeking one large investor, the Board will continue to solicit a number of smaller investments from institutional and individual investors. During 2017, the Company received external investments of $925,000 ~~and~~ from other financial institutions through issuance of Series B Preferred Stock. ~~External~~In ~~capital~~May ~~investments~~2021, ~~will~~the ~~continue~~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 ~~sought~~used to make principal and interest payments for up to six months for struggling small businesses in the Bank’s loan portfolio. In August 2021, the Bank received a Rapid Response grant from the U.S. Department of Treasury totaling approximately $1.3 million to provide support related to the economic impact of the COVID-19 pandemic on the Bank and its small business customers.

~~·Performance~~Manage ~~grants—Management~~asset ~~has~~quality ~~developed~~to aminimize ~~performance~~credit ~~grant~~losses ~~strategy~~and toreduce ~~attract~~collection ~~funding~~costs. ~~based~~There onwas ~~economic~~continued ~~impact~~deterioration ~~and~~in ~~job~~asset ~~creation/retention~~quality during the six months ended June 30, 2019 that resulted in significant fair value write-downs related to defaulted SBA loans. ~~The~~ ~~goal~~Management iswill seek to ~~obtain~~improve ~~grant~~asset ~~funding~~quality ~~from~~by ~~local~~adhering ~~entities~~to ~~that~~its ~~are~~underwriting ~~seeking~~standards aas ~~“return~~well onas ~~impact”~~good customer relationship management practices. In ~~April 2019~~addition, proactive monitoring of the ~~Bank~~loan ~~received~~portfolio ais $2essential to the identification of emerging problem credits and is performed during Asset Quality Committee meetings.5 ~~million~~Forbearance, ~~economic~~foreclosure ~~stimulus~~and/or ~~grant~~other ~~from~~appropriate ~~the~~collection ~~City~~methods ofwill ~~Philadelphia~~be used as necessary and may result in increased loan and collection expense.

InEarnings ~~September~~enhancement ~~2020,~~plan. ~~the~~Management ~~Bank~~seeks ~~received~~to aincrease ~~grant~~noninterest ~~totaling~~income ~~$3.4~~and ~~million~~further ~~from~~reduce ~~the~~noninterest ~~Pennsylvania~~expense ~~CDFI Network~~ to ~~provide~~achieve ~~financial~~core ~~assistance~~earnings. ~~related~~The toprimary ~~potential~~strategy ~~losses~~continues ~~related~~ to ~~the~~focus ~~COVID-19~~on ~~pandemic. Approximately~~increasing ~~$614,000~~SBA ofloan ~~the~~origination ~~grant~~activity ~~was allocated to make principal~~ and ~~interest~~selling ~~payments~~the ~~for~~guaranteed upportion toin ~~six~~the ~~months~~secondary market for ~~struggling~~gains. ~~small~~Management ~~businesses~~continues into grow the ~~Bank’s~~SBA loan ~~portfolio~~pipeline ~~and~~through ~~mitigate~~relationships ~~potential~~with ~~deterioration~~feeder inorganizations ~~asset~~to ~~quality~~maximize this income.

~~Further,~~While insome ~~August~~expense ~~2021,~~reductions ~~the~~were ~~Bank~~achieved ~~was~~during ~~awarded~~the aquarter ~~grant~~in ~~totaling~~salaries, $1occupancy,~~286,000~~ ~~from~~professional ~~the~~services USand ~~Treasury’s~~office ~~CDFI~~operations, ~~Rapid~~there ~~Response~~was ~~Program~~an ~~that~~increase ~~was~~in ~~geared~~loan tocollections ~~strengthen~~costs ~~the~~and ~~Bank~~other asoperating ~~the~~expenses. ~~economy~~Management ~~recovers~~will ~~from~~seek ~~the~~additional ~~effects~~expense ofreductions, ~~the~~where ~~COVID-19~~possible, ~~pandemic. This~~by ~~grant~~performing ~~resulted~~a inline-by-line ~~further~~expense ~~improvement~~review into ~~the~~identify ~~Bank’s~~additional ~~capital ratios~~savings.

AsAnother achallenge ~~result~~to increased earnings is the restriction on asset growth because of the ~~above~~Bank’s ~~actions~~capital levels; however, ~~management~~the ~~believes~~Bank’s ~~that~~net interest margin has remained a significant strength. To further increase the Bank’s ~~has~~net ~~and~~interest ~~will~~margin, bemanagement ~~able~~will seek to ~~comply~~shift ~~with~~excess ~~the~~liquidity ~~terms~~into ~~and~~higher ~~conditions~~yielding loans instead of investments and Federal Funds Sold while managing the ~~Orders~~cost of funds. In addition, management will continue to balance asset growth with capital adequacy requirements.

~~11. Going~~

Filing Compare · UNITED BANCSHARES INC /PA