UNITED BANCSHARES INC /PA - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - UNITED BANCSHARES INC /PA	ex321.htm
EX-31.2 - EXHIBIT 31.2 - UNITED BANCSHARES INC /PA	ex312.htm
EX-31.1 - EXHIBIT 31.1 - UNITED BANCSHARES INC /PA	ex311.htm
EX-32.2 - EXHIBIT 32.2 - UNITED BANCSHARES INC /PA	ex322.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015 OR

___

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.

(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 X 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 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 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 $.01 par value Common Stock and 500,000 shares of $0.01 par value Series A Preferred Stock.

The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998. This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights. Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock. There is no market for the Common Stock. As of October 30, 2015, the aggregate number of the shares of the Registrant’s Common Stock issued was 826,921.

The Series A Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A Preferred stock of which 124,342 shares are issued as of October 30, 2015.

FORM 10-Q

Index

Item No.		Page
PART I-FINANCIAL INFORMATION

1. Financial Statements		4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
3. Quantitative and Qualitative Disclosures about Market Risk		39
4. Controls and Procedures		39
PART II-OTHER INFORMATION

1. Legal Proceedings		40
1A. Risk Factors		40
2. Unregistered Sales of Equity Securities and Use of Proceeds		40
3. Defaults upon Senior Securities		40
4 Mine Safety Disclosures		40
5. Other Information		40
6. Exhibits		40

INDEX

Item 1.

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets:	September 30, 2015			December 31, 2014
Cash and due from banks	$	2,406,637		$	1,919,494
Interest-bearing deposits with banks		310,575			310,088
Federal funds sold		10,118,000			1,007,000
Cash and cash equivalents		12,835,212			3,236,582

Investment securities available-for-sale, at fair value		7,164,289			8,539,892

Loans held for sale		535,344			6,160,183

Loans held at fair value		2,473,475			628,750

Loans, net of unearned discounts and deferred fees		34,554,640			40,861,890
Less allowance for loan losses		(469,259	)		(734,567	)
Net loans		34,085,381			40,127,323
Bank premises and equipment, net		516,218			549,466
Accrued interest receivable		189,129			249,571
Other real estate owned		718,793			563,543
Prepaid expenses and other assets		627,249			408,956
Total assets	$	59,145,090		$	60,464,266
Liabilities and Shareholders’ Equity
Liabilities:
Demand deposits, noninterest-bearing	$	14,953,410		$	14,984,387
Demand deposits, interest-bearing		14,738,172			13,738,476
Savings deposits		11,596,740			12,091,282
Time deposits, under $250,000		8,085,606			9,393,551
Time deposits, $250,000 and over		6,501,126			6,754,617
Total deposits		55,875,054			56,962,313
Accrued interest payable		13,228			16,253
Accrued expenses and other liabilities		345,916			305,060
Total liabilities		56,234,198			57,283,626

Shareholders’ equity:
Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 124,342 issued and outstanding at September 30, 2015 and 136,842 issued and outstanding at December 31, 2014		1,243			1,368
Common stock, $0.01 par value; 2,000,000 shares authorized;
826,921 issued and outstanding at September 30, 2015 and 876,921 issued and outstanding at December 31, 2014		8,269			8,769
Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value;
191,667 issued and outstanding at December 31, 2014		-			1,917
Additional paid-in-capital		14,752,394			14,749,852
Accumulated deficit		(11,881,049	)		(11,568,043	)
Accumulated other comprehensive income (loss)		30,035			(13,223	)
Total shareholders’ equity		2,910,892			3,180,640
Total liabilities and shareholders’ equity	$	59,145,090		$	60,464,266

The accompanying notes are an integral part of these statements.

INDEX

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months ended September 30, 2015			Three Months ended September 30, 2014			Nine Months ended September 30, 2015			Nine Months ended September 30, 2014
Interest income:

Interest and fees on loans	$	588,991		$	677,703		$	1,833,681		$	1,963,866
Interest on investment securities		42,561			57,763			135,152			177,555
Interest on federal funds sold		4,739			2,004			8,998			6,577
Interest on time deposits with other banks		166			166			492			3,153
Total interest income		636,457			737,636			1,978,323			2,151,151

Interest expense:
Interest on time deposits		9,472			10,194			29,264			29,697
Interest on demand deposits		6,426			6,806			18,705			20,157
Interest on savings deposits		1,493			1,521			4,430			4,667
Total interest expense		17,391			18,521			52,399			54,521
Net interest income		619,066			719,115			1,925,924			2,096,630
Provision (credit) for loan losses		83,000			62,000			(17,000	)		132,000

Net interest income after provision for loan losses		536,066			657,115			1,942,924			1,964,630

Noninterest income:
Customer service fees		89,368			92,654			324,920			290,629
ATM fee income		27,661			36,002			90,810			123,249
Gain on sale of loans		176,229			10,618			380,625			10,618
Gain on sale of other real estate		4,048			1,348			1,759			1,348
Net change in fair value of financial instruments		19,225			71,695			50,104			69,116
Loan syndication fees		-			-			85,000			87,550
Other income		17,245			18,194			43,854			71,080
Total noninterest income		333,776			230,511			977,072			653,590

Noninterest expense:
Salaries, wages and employee benefits		377,504			394,190			1,180,883			1,208,180
Occupancy and equipment		240,517			247,361			742,761			743,864
Office operations and supplies		76,253			72,216			226,635			206,193
Marketing and public relations		7,935			10,477			34,124			47,747
Professional services		76,977			89,296			242,392			235,436
Data processing		94,218			103,327			281,305			323,198
Other real estate expense (income)		9,999			(30,328	)		(53,215	)		6,828
Loan and collection costs		42,345			43,218			146,116			82,146
Deposit insurance assessments		34,200			34,200			100,600			106,200
Other operating		119,803			106,665			331,401			265,623
Total noninterest expense		1,079,751			1,070,622			3,233,002			3,225,415
Net loss before income taxes		(209,909	)		(182,996	)		(313,006	)		(607,195	)
Provision for income taxes		-			-			-			-
Net loss	$	(209,909	)	$	(182,996	)	$	( 313,006	)	$	(607,195	)
Net loss per common share—basic and diluted	$	(0.25	)	$	(0.17	)	$	(0.32	)	$	(0.57	)
Weighted average number of common shares		826,921			1,068,588			986,487			1,068,588
Comprehensive loss:
Net loss	$	(209,909	)	$	(182,996	)	$	(313,006	)	$	(607,195	)
Unrealized gains on available for sale securities		64,491			109,208			43,258			240,898
Total comprehensive loss	$	(146,418	)	$	(73,788	)	$	(269,748	)	$	(366,297	)

The accompanying notes are an integral part of these statements.

INDEX

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

	2015			2014

Cash flows from operating activities:
Net loss	$	(313,006	)	$	(607,195	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
(Credit)provision for loan losses		(17,000	)		132,000
Accretion of discounts on investments		(1,220	)		(1,301	)
Amortization of premiums on investments		14,617			18,869
Depreciation on fixed assets		132,713			130,544
Net change in fair value of financial instruments		(50,104	)		(69,116	)
Gain on sale of loans		(380,625	)		(10,618	)
(Write-up) Write-down of other real estate owned		(88,460	)		(33,766	)
Gain on sale of other real estate owned		(1,759	)		(1,348	)
Proceeds from the sale of loans held-for-sale		6,433,243			1,755,721
Loans originated for sale		(377,675	)		(476,983	)
Increase in accrued interest receivable and
other assets		(157,850	)		(48	)
Increase (decrease) in accrued interest payable and
other liabilities		37,831			(72,460	)
Net cash provided by operating activities		5,230,705			744,300

Cash flows from investing activities:
Proceeds from maturity and principal reductions of
available-for-sale investment securities		1,405,542			321,966
Purchase of securities available-for-sale		(79	)		(32	)
Proceeds from sale of other real estate		83,209			29,642
Net decrease (increase) in loans		5,910,701			(1,344,911	)
Net increase in loans held at fair value		(1,844,725	)		(167,159	)
Purchase of bank premises and equipment		(99,465	)		(69,714	)
Net cash provided by (used in) investing activities		5,455,183			(1,230,208	)

Cash flows from financing activities:
Net (decrease) increase in deposits		(1,087,258	)		219,548
Net cash used in financing activities		(1,087,258	)		219,548
Net increase in cash and cash equivalents		9,598,630			(266,360	)
Cash and cash equivalents at beginning of period		3,236,582			5,789,778
Cash and cash equivalents at end of period	$	12,835,212		$	5,523,418
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	55,424		$	51,949
Noncash transfer of loans to other real estate	$	148,241		$	192,485

The accompanying notes are an integral part of these statements.

INDEX

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

1. Significant Accounting Policies

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

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission. Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2014 when reviewing this Form 10-Q. Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of September 30, 2015 and December 31, 2014 and the consolidated results of its operations and its cash flows for the three and nine months ended September 30, 2015 and 2014.

Management’s Use of Estimates

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

Commitments

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

Contingencies

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

Loans Held for Sale

From time to time, the Bank originates SBA loans for which the guaranteed portion is intended to be sold within a short period of time in the secondary market. These loans are carried at estimated fair value based on a loan-by-loan valuation using actual market bids in accordance with the irrevocable option permitted under Accounting Standards Codification (“ASC”) 825-10-25 Financial Instruments.

Loans Held at Fair Value

The Bank originates SBA loans for which the un-guaranteed portion is retained after the guaranteed portion is sold in the secondary market. Management has elected to carry these loans at fair value. Fair value of these loans is estimated based on the present value of future cashflows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries.

INDEX

Loans

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

Allowance for Loan Losses

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

Various regulatory agencies periodically review the adequacy of the Bank’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Bank to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination. It is reasonably possible that the above factors may change significantly and, therefore, affects management’s determination of the allowance for loan losses in the near term.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience, other qualitative factors, and adjustments made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Bank will identify and assess loans that may be impaired through any of the following processes:

During regularly scheduled meetings of the Asset Quality Committee

During regular reviews of the delinquency report

During the course of routine account servicing, annual review, or credit file update

Upon receipt of verifiable evidence of a material reduction in the value of collateral to a level that creates a less than desirable Loan-to-Value ratio

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

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

INDEX

Non-accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have not been received 30 days as of the date such payments were due. The Bank generally places a loan on non-accrual status when interest or principal is past due 90 days or more. If it otherwise appears doubtful that the loan will be repaid, management may place the loan on nonaccrual status before the lapse of 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection. When a loan is placed on nonaccrual status, previously accrued and unpaid interest is reversed out of income. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Income Taxes

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

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

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

2. Net Loss Per Share

The calculation of net loss per share follows:

	Three Months Ended September 30, 2015			Three Months Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
Basic:
Net loss available to common shareholders	$	(209,909	)	$	(182,996	)	$	(313,006	)	$	(607,195	)
Average common shares outstanding-basic		826,921			1,068,588			986,487			1,068,588
Net loss per share-basic	$	(0.25	)	$	(0.17	)	$	(0.32	)	$	(0.57	)
Diluted:
Average common shares-diluted		826,921			1,068,588			986,487			1,068,588
Net loss per share-diluted	$	(0.25	)	$	(0.17	)	$	(0.32	)	$	(0.57	)

Wells Fargo (formerly Wachovia Corporation) owned 241,666 shares of UBS Common Stock (50,000 voting shares); however, on February 18, 2015, Wells Fargo returned all shares (voting and non voting) for cancellation.

INDEX

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

3. Changes in Accumulated Other Comprehensive Income

The following table presents the changes in other comprehensive income:

	Three Months Ended September 30, 2015
	Before tax					Net of tax
(in (000’s)	Amount		Taxes			Amount
Unrealized gain on securities:
Unrealized holding gain arising during period	$	97	$	(33	)	$	64
Less: reclassification adjustment for gains (losses)
realized in net loss		-		-			-
Other comprehensive income, net	$	97	$	(33	)	$	64

	Three Months Ended September 30, 2014
	Before tax					Net of tax
(in (000’s)	Amount		Taxes			Amount
Unrealized gain on securities:
Unrealized holding gain arising during period	$	163	$	(54	)	$	109
Less: reclassification adjustment for gains (losses)
realized in net loss		-		-			-
Other comprehensive income, net	$	163	$	(54	)	$	109

	Nine Months Ended September 30, 2015
	Before tax					Net of tax
(in (000’s)	Amount		Taxes			Amount
Unrealized gain on securities:
Unrealized holding gain arising during period	$	66	$	(23	)	$	43
Less: reclassification adjustment for gains (losses)
realized in net loss		-		-			-
Other comprehensive income, net	$	66	$	(23	)	$	43

	Nine Months Ended September 30, 2014
	Before tax					Net of tax
(in (000’s)	Amount		Taxes			Amount
Unrealized gain on securities:
Unrealized holding gain arising during period	$	359	$	(118	)	$	241
Less: reclassification adjustment for gains (losses)
realized in net loss		-		-			-
Other comprehensive income, net	$	359	$	(118	)	$	241

4. New Authoritative Accounting Guidance

ASU 2014-04, Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (a) the creditor obtaining legal title to residential real estate property upon completion of a foreclosure or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan though completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments require interim and annual disclosure of both the amount of the foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this amendment had no impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

INDEX

5. Investment Securities

The following is a summary of the Company's investment portfolio:

(In 000’s)	September 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale:
U.S. Government agency securities	$	3,097	$	2	$	(9	)	$	3,090
Government Sponsored Enterprises residential mortgage-backed securities		3,893		63		(12	)		3,944
Investments in money market funds		130		-		-			130
	$	7,120	$	65	$	( 21	)	$	7,164

	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale:
U.S. Government agency securities	$	4,097	$	-	$	(61	)	$	4,036
Government Sponsored Enterprises residential mortgage-backed securities		4,333		60		(20	)		4,374
Investments in money market funds		130		-		-			130
	$	8,560	$	60	$	(81	)	$	8,540

The amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity as of September 30, 2015, are as follows:

(In 000’s)	Amortized Cost		Fair Value
Due in one year	$	-	$	-
Due after one year through five years		-		-
Due after five years through ten years		3,097		3,090
Government Sponsored Enterprises residential mortgage-backed securities		3,893		3,944
Total debt securities		6,990		7,034
Investments in money market funds		130		130
	$	7,120	$	7,164

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

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at September 30, 2015:

	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		6	$	248	$	(8	)	$	1,491	$	(1	)	$	1,739	$	(9	)

Government Sponsored Enterprises residential mortgage-backed securities		4		231		(4	)		755		(8	)		986		(12	)

Total temporarily impaired investment Securities		10	$	479	$	(12	)	$	2,246	$	(9	)	$	2,725	$	(21	)

INDEX

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2014:

	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		13	$	246	$	(4	)	$	3,290	$	(57	)	$	3,536	$	(61	)

Government Sponsored Enterprises residentialortgage-backed securities		6		-		-			1,440		(20	)		1,440	$	(20	)

Total temporarily impaired investment Securities		19	$	246	$	(4	)	$	4,730	$	(77	)	$	4,976	$	(81	)

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

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

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

6. Loans and Allowance for Loan Losses

The composition of the Bank’s loan portfolio is as follows:

(Dollars in thousands)	September 30, 2015		December 31, 2014
Commercial and industrial	$	3,351	$	4,635
Commercial real estate		27,010		31,556
Consumer real estate		2,926		3,297
Consumer loans other		1,268		1,373
Total loans	$	34,555	$	40,861

INDEX

The determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance is the accumulation of three components that are calculated based on various independent methodologies that are based on management’s estimates. The three components are as follows:

Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans.

Historical Charge-Off Component – Applies an annualized eight-quarter rolling historical charge-off rate to all pools of non-classified loans.

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

All of these factors may be susceptible to significant change. During the nine months ended September 30, 2015, the Bank reduced several of its qualitative factors in the commercial real estate segment of the loan portfolio for which it has never experienced losses or charge-offs. In addition, the average historical loss factors increased for the commercial and industrial segment of the portfolio as a result of $212,000 charge-offs during the quarter. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

The following table presents an analysis of the allowance for loan losses.

(in 000's)	For the Three months ended September 30, 2015
	Commercial and industrial			Commercial real estate			Consumer real estate			Consumer loans Other			Total
Beginning balance	$	320		$	236		$	23		$	17		$	596
Provision (credit) for loan losses		100			(9	)		(4	)		(4	)		83

Charge-offs		(212	)		-			-			(2	)	$	(214	)
Recoveries		2			-			1			1			4
Net (charge-offs) recoveries		(210	)		-			1			(1	)		(210	)

Ending balance	$	210		$	227		$	20		$	12		$	469

(in 000's)	For the Three months ended September 30, 2014
	Commercial and industrial		Commercial real estate		Consumer real estate			Consumer loans Other			Total
Beginning balance	$	297	$	295	$	52		$	13		$	657
Provision (credit) for loan losses		74		5		(18	)		1			62

Charge-offs		-		-		(19	)		(7	)		(26	)
Recoveries		1		-		3			5			9
Net recoveries		1		-		(16	)		(2	)		(17	)

Ending balance	$	372	$	300	$	18		$	12		$	702

(in 000's)	For the Nine months ended September 30, 2015
	Commercial and industrial			Commercial real estate			Consumer real estate			Consumer loans Other			Total
Beginning balance	$	403		$	300		$	20		$	12		$	735
Provision (credit) for loan losses		63			(73	)		(4	)		(3	)		(17	)

Charge-offs		(259	)		-			-			(15	)		(274	)
Recoveries		3			-			4			18			25
Net (charge-offs) recoveries		(256	)		-			4			3			(249	)

Ending balance	$	210		$	227		$	20		$	12		$	469

INDEX

(in 000's)	For the Nine months ended September 30, 2014
	Commercial and industrial			Commercial real estate		Consumer real estate			Consumer loans other			Total
Beginning balance	$	483		$	280	$	59		$	17		$	839
Provision (credit) for loan losses		139			20		(28	)		1			132

Charge-offs		(253	)		-		(19	)		(25	)		(297	)
Recoveries		3			-		6			19			28
Net (charge-offs)recoveries		(250	)		-		(13	)		(6	)		(269	)

Ending balance	$	372		$	300	$	18		$	12		$	702

(in 000's)	September 30, 2015
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total

Period-end amount allocated to:

Loans individually evaluated for impairment	$	9	$	47	$	-	$	-	$	56
Loans collectively evaluated for impairment		201		180		20		12		413
	$	210	$	227	$	20	$	12	$	469

Loans, ending balance:
Loans individually evaluated for impairment	$	196	$	1,491	$	-	$	-	$	1,687
Loans collectively evaluated for impairment		3,155		25,519		2,926		1,268		32,868
Total	$	3,351	$	27,010	$	2,926	$	1,268	$	34,555

	December 31, 2014
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total

Period-end amount allocated to:

Loans individually evaluated for impairment	$	247	$	27	$	-	$	-	$	274
Loans collectively evaluated for impairment		156		273		20		12		461
	$	403	$	300	$	20	$	12	$	735

Loans, ending balance:
Loans individually evaluated for impairment	$	382	$	1,623	$	-	$	-	$	2,005
Loans collectively evaluated for impairment		4,253		29,933		3,297		1,373		38,856
Total	$	4,635	$	31,566	$	3,297	$	1,373	$	40,861

INDEX

Nonperforming and Nonaccrual and Past Due Loans

An age analysis of past due loans, segregated by class of loans, as of September 30, 2015 is as follows:

			Accruing
	Loans		Loans 90 or
(In 000's)	30-89 Days		More Days				Total Past		Current
	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	-	$	-	$	110	$	110	$	1,532	$	1,642
SBA loans		-		-		-		-		151		151
Asset-based		-		-		-		-		1,558		1,558
Total Commercial and industrial		-		-		110		110		3,241		3,351

Commercial real estate:
Commercial mortgages		606		54		969		1,629		11,770		13,399
SBA loans		-		-		109		109		564		673
Construction		-		-		-		-		2,529		2,529
Religious organizations		-		-		488		488		9,921		10,409
Total Commercial real estate		606		54		1,566		2,226		24,784		27,010

Consumer real estate:
Home equity loans		83		126		359		568		381		949
Home equity lines of credit		-		-		-		-		21		21
1-4 family residential mortgages		55		-		75		130		1,826		1,956
Total consumer real estate		138		126		434		698		2,228		2,926

Total real estate		744		180		2,000		2,924		27,012		29,936

Consumer and other:
Consumer installment		-		-		-		-		-		-
Student loans		55		91		-		146		995		1,141
Other		-		-		-		-		127		127
Total consumer and other		55		91		-		146		1,122		1,268

Total loans	$	799	$	271	$	2,110	$	3,180	$	31,376	$	34,555

An age analysis of past due loans, segregated by class of loans, as of December 31, 2014 is as follows:

			Accruing
	Loans		Loans 90 or
	30-89 Days		More Days				Total Past		Current
(In 000's)	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	-	$	-	$	248	$	248	$	2,315	$	2,563
SBA loans		-		-		48		48		120		168
Asset-based		-		-		-		-		1,904		1,904
Total Commercial and industrial		-		-		296		296		4,339		4,635

Commercial real estate:
Commercial mortgages		17		83		985		1,085		14,385		15,470
SBA loans		-		-		118		118		407		525
Construction		-		-		-		-		3,423		3,423
Religious organizations		-		-		520		520		11,618		12,138
Total Commercial real estate		17		83		1,623		1,723		29,833		31,556

Consumer real estate:

UNITED BANCSHARES INC /PA - FORM 10-Q - November 20, 2015

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