UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 110-K

(Mark One)

For the fiscal year ended December 31, 2016

2018

OR

for the transition period fromto

Commission file number: 0-25976

For the transition period from:                    to

Commission file number: 0-25976

UNITED BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

(215) 351-4600

Registrant's[Registrant’s telephone number, including area code:  (215)351-4600code]

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

 Common Stock, $0.01 Par Value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

 Yes ☐     No ☒

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ☐     No ☒

Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]☐     No [ ]

☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitionsdefinition of “large“accelerated filer and large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check markcheckmark whether the registrantRegistrant is a shell company (as defined inby Rule 12b-2126-2 of the Exchange Act).:

Yes [ ]☐     No [X]☒

Indicate the numberThe aggregate market value of shares outstanding of each of the issuer's classes of common stock asheld by non-affiliates of Registrant (including fiduciary accounts administered by affiliates) was [not applicable ] on July 18, 2022. Not applicable, the latest practicable date.Registrant shares are not publicly traded.

AsUnited Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of February 10, 2020, the aggregate number of thecapital stock authorized. 2,000,000 shares of the Registrant’s$0.01 par value Common Stock issued was 826,921.

and 500,000 shares of $0.01 par value Series Preferred Stock. The Series 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 7,0001,100 as Series C for which there were 99,342, 1,850, and 1,100 shares are outstanding, respectively as of July 18, 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 as SeriesClass B Preferred stock of which 99,342 and 1,350 shares, respectively, are issued as of February 10, 2020.  

EXPLANATORY NOTE

The sole purpose of this amendment to our Annual Report on Form 10-KCommon Stock. There is no market for the fiscal year ended December 31, 2016, originally filed with the Securities and Exchange Commission on December 23, 2019 is to furnish Exhibit 101 to the Form 10-K which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes included in Part 1, Item 1Common Stock. None of the Form 10-K. As permitted by Rule 405(a)(2)(ii) of Regulation S-T, Exhibit 101 was required to be furnished with the original filing.

No changes have been made to the Form 10-K other than the furnishing of Exhibit 101 described above. This amendment does not reflect subsequent events occurring after the original filing dateshares of the Form 10-K or modify or update in any way disclosures made inRegistrant’s stock was sold within 60 days of the filing of this Form 10-K.

Pursuant to Rule 406TAs of Regulation S-T,July 18, 2022 the Interactive Data Fileaggregate number of the shares of the Registrant’s Common Stock outstanding was 843,050.

DOCUMENTS INCORPORATED BY REFERENCE:

The exhibit index is on Exhibit 101 heretopages 53 through 54. There are deemed not filed or part99 pages in this report.

FORM 10-K

United Bancshares, Inc.

Index

PART I

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of a registration statement or prospectusthe statements contained in this report and the documents incorporated by reference herein may constitute forward-looking statements for the purposes of Section 11 or 12 of the Securities Act of 1933, as amended are deemed not filed for purposes of Section 18 ofand the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of United Bancshares, Inc. (“UBS”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to UBS’ financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words The words “may”, “would”, “could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “plan”, “forecast”, “project” and “believe” and similar expressions are intended to identify such forward-looking statements. UBS’ actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:

All written or oral forward-looking statements attributed to UBS are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Report and the documents incorporated by reference herein are based upon UBS’ beliefs and assumptions as of the date of this Report. UBS assumes no obligation to update any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

PART I

ITEM 1 — BUSINESS

United Bancshares, Inc.

United Bancshares, Inc. (“Registrant” or “UBS”) is a holding company for United Bank of Philadelphia (the “Bank”). UBS was incorporated under the laws of the Commonwealth of Pennsylvania on April 8, 1993. The Registrant became the bank holding company of the Bank, pursuant to the Bank Holding Company Act of 1956, as amended, on October 14, 1994.

The Bank commenced operations on March 23, 1992. UBS provides banking services through the Bank. The principal executive offices of UBS and the Bank are located at The Graham Building, 30 S 15^th Street, Suite 1200, Philadelphia, Pennsylvania 19102. The Registrant’s telephone number is (215) 351-4600.

As of July 18, 2022, UBS and the Bank had a total of 17 employees.

United Bank of Philadelphia

United Bancshares, Inc. is an African American controlled and managed bank holding company for United Bank of Philadelphia (the “Bank”), a commercial bank chartered in 1992 by the Commonwealth of Pennsylvania, Department of Banking. The deposits held by the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides full service community banking in Philadelphia neighborhoods that are rich in diversity providing a market opportunity that includes men, women, families, small business owners, skilled laborers, professionals and many more who need banking services to help make their dreams come true.

The Bank conducts all its banking activities through its two offices located as follows: (i) Center City 30S 15^th Street, Philadelphia, Pennsylvania, and (ii) Progress Plaza Branch 1501 North Broad Street, Philadelphia, Pennsylvania. Through its locations, the Bank offers a broad range of commercial and consumer banking services. At December 31, 2018, the Bank had total deposits aggregating approximately $48 million and had total net loans outstanding of approximately $36 million, including $10.1 million held for sale. Although the Bank’s primary service area for Community Reinvestment Act purposes is Philadelphia County, it also services, generally, the Delaware Valley, which consists of portions of Montgomery, Bucks, Chester, and Delaware Counties in Pennsylvania; New Castle County in Delaware; and Camden, Burlington, and Gloucester Counties in New Jersey.

The city of Philadelphia is comprised of 381 census tracts and, based census data, 250 or 65% of these are designated as low to moderate-income tracts while 105 or 27.3% are characterized both as low to moderate-income and minority tracts. The Bank’s primary service area consists of a population of 1,584,064, which includes a minority population of 874,403.

United Bank of Philadelphia, while state chartered as a commercial bank, is uniquely structured to provide retail services to its urban communities, while maintaining and establishing a solid portfolio of commercial relationships that include small businesses, churches and corporations. The Bank has leveraged its CDFI (community development financial institution) designation as established by the United States Department of Treasury to attract deposits from universities and corporations in the region seeking Community Reinvestment Act (the “CRA Act”) credit. The Bank may also be eligible to receive grants from the U.S. Treasury CDFI Bank Enterprise Award Fund for its qualified small business lending activity. Management may pursue CDFI funding in the future for which the Bank is eligible.

The Bank seeks to strengthen communities in the Philadelphia region with innovative products and services including remote deposit capture and other electronic banking services. The Bank primarily engages in commercial banking business with a particular focus on, and sensitivity to, groups that have been traditionally under-served, including Blacks, Hispanics and women. The Bank offers a wide range of deposit products (both retail and commercial), including checking accounts, interest-bearing NOW accounts, money market accounts, certificates of deposit, savings accounts and Individual Retirement Accounts.

A broad range of credit products is offered to the businesses in the Bank’s service area, including commercial and industrial and commercial real estate loans. Although the Bank’s internal Loan Policy limit is $500,000 per borrower, its maximum legal lending limit was approximately $284,000 per borrower based on 15% of its current capital level at December 31, 2018.

United Bank of Philadelphia has the flexibility to develop loan arrangements targeted at a customer’s objectives. Typically, these loans are term loans or revolving credit arrangements with interest rate, collateral and repayments terms, varying based upon the type of credit, and various factors used to evaluate risk. The Bank participates in the government-sponsored and other local agency credit enhancement programs including the Small Business Administration (“SBA”) and Philadelphia Industrial Development Corporation (“PIDC”) when deemed appropriate. These programs offer guarantees of up to 90% of the loan amount. These guarantees are intended to reduce the Bank’s exposure to loss in its commercial loan portfolio. Commercial loans are typically made on the basis of cash flow to support repayment with secondary reliance placed on the underlying collateral.

Other services the Bank offers include safe deposit boxes, travelers’ checks, money orders, direct deposit of payroll and Social Security checks, wire transfers, access to automated teller networks and remote deposit capture.

Segments

The Company has one reportable segment, “Community Banking.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the other. For example, commercial lending is dependent upon the ability of the Bank to fund it with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.

Access to the Bank’s Website and the United States Securities and Exchange Commission Website

Reports filed electronically by United Bancshares, Inc. with the Securities and Exchange Commission including proxy statements, reports on Form 10-K, reports on Form 10-Q, and current event reports on Form 8–K, as well as any amendment of those reports, and other information about UBS and the Bank are accessible at no cost on the Bank’s website at www.ubphila.com under the “investor information” section. These files are also accessible on the Commission’s website at www.sec.gov.

Competition

There is significant competition among financial institutions in the Bank’s service area. Money center banks have positioned new branches in once abandoned neighborhoods seeking to grow market share in minority communities. The Bank competes with local, regional and national commercial banks, as well as savings banks, credit unions and savings and loan associations. Many of these banks and financial institutions have an amount of capital that allows them to do more advertising and promotion and to provide a greater range of services to customers including cash management, investment and trust services. The Bank has attracted, and believes it will continue to attract its customers from the deposit base of such existing banks and financial institutions largely due to the Bank’s “uniqueness” in the marketplace and its mission to service groups of people who have traditionally been under-served and by its devotion to personalized customer service. The Bank’s branding message, “So Much More Than Banking” highlights the Bank’s community development focus.

The Bank focuses its efforts on the needs of individuals and small and medium-sized businesses. In the event that there are customers whose loan demands exceed the Bank’s lending limit; the Bank will seek to arrange for such loans on a participation basis with other financial institutions and intermediaries. In addition, major corporations with operations in the Philadelphia region will continue to be targeted for business including deposits and other banking services.

Supervision and Regulation

UBS, as a Pennsylvania business corporation, is subject to the jurisdiction of the Securities and Exchange Commission (the “SEC”) and certain state securities commissions concerning matters relating to the offering and sale of its securities. Accordingly, if UBS wishes to issue additional shares of its Common Stock, for example, to raise capital or to grant stock options, UBS must comply with the registration requirements of the Securities Act of 1933, as amended, and any applicable states securities laws, or use an applicable exemption from such registration, if available.

Capital Adequacy

Federal and state banking laws impose on financial institutions such as UBS and the Bank certain minimum requirements to be considered “well capitalized”. The Company and the Bank are each generally required to maintain a minimum ratio of common equity Tier I capital, Tier I Capital, and total capital to risk rated assets of 6.5%, 8% and 10%, respectively, to be “well capitalized” and 4.5%, 6% and 8%, respectively, to be “adequately capitalized”. At least half of the total capital must be composed of “Tier I Capital” which is defined as common equity, retained earnings and qualified perpetual preferred stock, less certain intangibles. The remainder may consist of “Tier II Capital” which is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of loan loss allowance. Common equity Tier I Capital is generally defined as common equity and retained earnings. Also, federal banking regulatory agencies have established minimum leverage capital requirements for banking organizations. Under these requirements, banking organizations must maintain a minimum of Tier I Capital to adjusted average quarterly assets equal to 3% to 5%, subject to bank regulatory evaluation of an organization’s overall safety and soundness. Under the federal banking regulations, a financial institution would be deemed “adequately capitalized” or better if it exceeds the minimum federal regulatory capital requirements described above. A financial institution would be deemed “undercapitalized” if it fails to meet the minimum capital requirements and significantly undercapitalized if it has a total risk-based capital ratio that is less than 6%, Tier I risk-based capital ratio is less than 3%, a leverage ratio that is less than 3% and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to less than 2%. If an institution is deemed to be critically undercapitalized for four quarters, with certain exceptions, that institution will be placed in receivership. As of December 31, 2018, UBS and the Bank were undercapitalized as discussed in Note 14 of the Consolidated Financial Statements. However, UBS and the Bank are “well capitalized” for regulatory capital purposes based upon the most recent notification under regulatory framework for prompt corrective action.

On January 31, 2012, the Bank entered into a Consent Order (“Order) with its primary regulators that requires the development of a written capital plan (“Capital Plan”) that details the manner in which the Bank will meet and maintain a Leverage Ratio of at least 8.50% and a Total Risk-Based Capital Ratio of at least 12.50%.

In an effort to restore the Bank to profitability and increased capital levels, its regulators, FDIC and Department of Banking amended and restated the prior Order on April 25, 2018. This amended Order serves as a prescriptive Restoration Plan providing benchmarks for capital, earnings and asset quality. The Board of Directors is optimistic about the Bank’s ability to achieve the requirements as stated. This Order represents a more tailored approach by regulators to strengthen and preserve minority-owned financial institutions like United Bank of Philadelphia. The priority for the Board of Directors and management is to promptly comply with the Order. Additional information can be found in Note 14 to the Consolidated Financial Statements.

Basel III

On June 7, 2012, the Federal Reserve approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to UBS and the Bank. The FDIC and the OCC subsequently approved these proposed rules on June 12, 2012. The proposed rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

In July 2014, the Federal Reserve, the OCC and the FDIC approved the final Basel III risk-based capital rule. This rule aims to improve the quality and quantity of capital for all banking organizations. The agencies, in response to comments on their June 2012 proposed capital rule, sought to minimize the potential burden on community organizations where consistent with applicable law and the establishment of a robust and comprehensive capital framework. Community banking organizations became subject to the final Basel III rule on January 1, 2015. Thereafter begins a phase-in period through January 1, 2019.

For community banking organizations like UBS and the Bank, the rule in final form provides some relief from the initial proposal in three important areas:

The final rule includes new risk-based capital and leverage ratios and refines the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to UBS and the Bank under the final rule would be:

The rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios beginning in 2019:

The new capital conservation buffer requirement is phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provides discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to consider the macro-financial environment and periods of excessive credit growth. However, the proposed rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes UBS and the Bank.

The federal bank regulatory agencies also approved revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions took effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “well capitalized:”

As of December 31, 2018, UBS and the Bank were “under-capitalized”; however, capital ratios were subsequently strengthened with new external capital as well as retained earnings. Refer to Note 14 of the Consolidated Financial Statements.

The Bank Holding Company Act

UBS, as a bank holding company, is subject to the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and supervision by the Federal Reserve Board. The BCH Act limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. UBS is subject to the supervision of and inspection by the Federal Reserve Board and is required to file with the Board an annual report and such additional information as the Board may require pursuant to the BHC Act and its implementing regulations. The Federal Reserve Board also conducts inspections of UBS.

A bank holding company is prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities, unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks, as to be a proper incident thereto. In making this determination, the Board considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects.

The BHC Act requires UBS to secure the prior approval of the Federal Reserve Board before it owns or controls, directly or indirectly, more than 5% of the voting shares of any corporation, including another holding company or bank.

The BHC Act and the Federal Reserve Board’s regulations prohibit a bank holding company and its subsidiaries from engaging in certain tying arrangements in connection with any extension of credit or services. The “anti-tying” provisions prohibit a bank from extending credit, leasing, selling property or furnishing any service to a customer on the condition that the customer obtain additional credit or service from the bank, its bank holding company or any other subsidiary of its bank holding company, or on the condition that the customer not obtain other credit or services from a competitor of the bank, its bank holding company or any subsidiary of its bank holding company.

The Bank, as a subsidiary of UBS, is subject to certain restrictions imposed by the Federal Reserve Act, as amended, on any extensions of credit to UBS or its subsidiaries, on investments in the stock or other securities UBS or its subsidiaries, and on taking such stock or securities as collateral for loans.

The Federal Reserve Act and Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, that Act and those regulations may affect the terms upon which any person who becomes a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship.

Under Federal Reserve Board Policy, UBS is expected to serve as a source of financial strength to the Bank and to commit resources to support the Bank. Consistent with its “source of strength” policy, the Federal Reserve Board has stated that as a matter of prudent banking, the bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends and the perspective rate of earnings retention appears to be consistent with UBS’ capital needs, asset quality and overall financial condition.

Federal Law also grants to the federal banking agencies the power to issue cease and desist orders when a bank or bank holding company, or an officer or director thereof, is engaged in or is about to engage in unsafe and unsound practices.

Regulatory Restrictions on Dividends

The Consent Orders with the FDIC and the Pennsylvania Department of Banking prohibit the payment of dividends without the approval of both regulatory agencies.

Dividend payments by the Bank to UBS are subject to the Pennsylvania Banking Code and the FDIC Act. Under the Banking Code, no dividends may be paid except from “accumulated net earnings” (generally undivided profits). Under the FDIC, an insured bank may not pay dividends if the bank is in arrears and the payment of any insurance assessment due to the FDIC. See dividend restrictions under Item 5 below.

The Financial Services Act

The Financial Services Act (the “FSA”), sometimes referred to as the Gramm-Leach-Bliley Act, repealed the provisions of the Glass-Steagall Act, which prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.

The FSA authorizes the establishment of “financial holding companies” (“FHC”) to engage in new financial activities offering and banking, insurance, securities and other financial products to consumers. Bank holding companies may elect to become a FHC, if all of its subsidiary depository institutions are well capitalized and well managed. If those requirements are met, a bank holding company may file a certification to that effect with the Federal Reserve Board and declare that it elects to become a FHC. After the certification and declaration are filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such financial activity.

Under the FSA, the Bank, subject to various requirements, is permitted to engage through “financial subsidiaries” in certain financial activities permissible for affiliates of an FHC. However, to be able to engage in such activities the Bank must be well capitalized and well managed and receive at least a “satisfactory” rating in its most recent CRA examination. See “The Community Reinvestment Act” below.

Dodd Frank Act

On July 21, 2010, the Dodd Frank Act was signed into law. The Dodd Frank Act will likely result in dramatic changes across the financial regulatory system, some of which became effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd Frank Act will require many new rules to be issued by various federal regulatory agencies over the next several years. There will be a significant amount of uncertainty regarding the overall impact of this new law on the financial services industry until final rulemaking is complete. The ultimate impact of this law could have a material adverse impact on the financial services industry as a whole and on our business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd Frank Act also includes provisions that, among other things, either have been adopted or will be adopted:

As noted above, the Dodd Frank Act requires that the federal regulatory agencies draft many new regulations which will implement the foregoing provisions as well as other provisions contained in the Dodd Frank Act, the ultimate impact of which will not be known for some time.

The Sarbanes-Oxley Act of 2002 (The” SOX Act”)

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In accordance with the requirements of Section 404(a) of the Sarbanes-Oxley Act, management’s report on internal controls is included herein at Item 9. The Dodd-Frank Act permanently exempts non-accelerated filers from the auditor attestation requirement of the Act.

UBS, in compliance with the Sarbanes-Oxley Act of 2002, has made the determination that the Audit Committee of UBS has a “financial expert” on the committee. This “financial expert” is William B. Moore an independent director of the Bank, who is not associated with the daily management of UBS. Mr. Moore understands financial statements and generally accepted accounting principles.

The Bank has a Code of Ethics for the Chief Executive Officer and Chief Financial Officer of the Bank in compliance with the Sarbanes-Oxley Act.

The Bank is subject to supervision, regulation and examination by the Pennsylvania Department of Banking and the FDIC. In addition, the Bank is subject to a variety of local, state and federal laws that affect its operation. Those laws and regulations which have material impact on the operations and expenses of the Bank and thus UBS are summarized below.

Branch Banking

The Pennsylvania Banking Code of 1965, the (“Banking Code”), has been amended to harmonize Pennsylvania law with federal law to enable Pennsylvania banking institutions, such as the Bank, to participate fully in interstate banking and to remove obstacles to out of state banks engaging in banking in Pennsylvania.

FDIC Membership Regulations

The FDIC (i) is empowered to issue consent or civil money penalty orders against the Bank or its executive officers, directors and/or principal shareholders based on violations of law or unsafe and unsound banking practices; (ii) is authorized to remove executive officers who have participated in such violations or unsound practices; (iii) has restricted lending by the Bank to its executive officers, directors, principal shareholders or related interests thereof; (iv) has restricted management personnel of the Bank from serving as directors or in other management positions with certain depository institutions whose assets exceed a specified amount or which have an office within a specified geographic area. Additionally, the Bank Control Act provides that no person may acquire control of the Bank unless the FDIC has been given 60-days prior written notice and within that time has not disapproved of the acquisition or extended the period for disapproval.

Federal Law also grants to the federal banking agencies the power to issue consent orders when a bank or bank holding company, or an officer or director thereof, is engaged in or is about to engage in unsafe and unsound practices.

Regulatory Order

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

The Orders will remain in effect until modified or terminated by the FDIC and the Department and do not restrict the Bank from transacting its normal banking business. The Bank will continue to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions. Customer deposits remain fully insured to the highest limits set by the FDIC. The FDIC and the Department did not impose or recommend any monetary penalties in connection with the Consent Orders. The Board of Directors is optimistic about the Bank’s ability to achieve the requirements as stated. These Orders represent a more tailored approach by regulators to strengthen and preserve minority-owned financial institutions like United Bank of Philadelphia. The priority for the Board of Directors and management is to promptly comply with the Order.

At December 31, 2018 and 2017, the Bank’s tier one leverage capital ratio was 3.00% and 5.51%, respectively, and its total risk-based capital ratio was 6.34% and 10.11%, respectively. The tier one leverage ratio and the risk-based capital ratios decreased primarily because of the net loss recognized for the year ended December 31, 2018. Management developed a Capital Plan that focuses on curtailing losses to stop the erosion of capital and increasing capital from potential external equity investments. As discussed in Note 14 of the Consolidated Financial Statements, in 2021, the Bank’s capital ratios improved to meet the required provisions as a result of retained earnings.

Management continues its efforts to increase capital by focusing on the following:

As a result of the above actions, management believes that the Bank has and will continue to comply with the terms and conditions of the Orders and will continue to operate as an independent financial institution.

Federal Deposit Insurance Assessments

The Federal Deposit Insurance Corporation Act (the “FDIC Act”) includes several provisions that have a direct material impact on the Bank. The most significant of these provisions are discussed below.

The Bank is insured by the FDIC, which insures the Bank’s deposits up to applicable limits per insured depositor. For this protection, each insured bank pays a quarterly statutory insurance assessment and is subject to certain rules and regulations of the FDIC. The amount of FDIC assessments paid by individual insured depository institutions, such as the Bank, is based on their relative risk as measured by regulatory capital ratios and certain other factors. Under this system, in establishing the insurance premium assessment for each bank, the FDIC will take into consideration the probability that the deposit insurance fund will incur a loss with respect to an institution, and will charge an institution with perceived higher inherent risks a higher insurance premium. The FDIC will also consider the different categories and concentrations of assets and liabilities of the institution, the revenue needs of the deposit insurance fund, and any other factors the FDIC deems relevant. Increases in the assessment rate and additional special assessments with respect to insured deposits could have an adverse impact on the results of operations and capital levels of the Bank and/or UBS.

Under the FDIC’s risk-based assessment system, insured institutions are required to pay deposit insurance premiums based on the risk that each institution poses. An institution’s risk is measured by its regulatory capital levels, supervisory evaluations, and certain other factors. An institution’s assessment rate depends upon the risk category to which it is assigned. Pursuant to the Dodd Frank Act, the FDIC will calculate an institution’s assessment level based on its total average consolidated assets during the assessment period less average tangible equity (i.e. Tier 1 capital) as opposed to an institution’s deposit level which was the previous basis for calculating insurance assessments. Pursuant to the Dodd Frank Act, institutions will be placed into one of four risk categories for purposes of determining the institution’s actual assessment rate. The FDIC will determine the risk category based on the institution’s capital position (well capitalized, adequately capitalized, or undercapitalized) and supervisory condition (based on exam reports and related information provided by the institution’s primary federal regulator).

In connection with the Dodd Frank Act’s requirement that insurance assessments be based on assets, the FDIC issued the final rule that provides that assessments be based on an institution’s average consolidated assets (less average tangible equity) as opposed to its deposit level. The new assessment schedule, effective as of April 1, 2011, results in the collection of assessment revenue that is approximately revenue neutral compared to the prior method of calculating assessments. Pursuant to this new rule, the assessment base is larger than the prior assessment base, but the new rates are lower than prior rates, ranging from approximately 2.5 basis points to 45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC’s reserve ratio equals 1.15%. Once the FDIC’s reserve ratio equals or exceeds 1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points. There was no significant impact on the Company’s assessment as a result of this change in assessment base.

The FDIC insurance premiums are “risk-based.” Accordingly, higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. As a result, a decrease in the bank’s capital ratios, or a negative evaluation by the FDIC, the Bank’s primary federal banking regulator, may increase the Bank’s net funding cost and reduce its net income.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, rule, regulation, order, or condition imposed by the FDIC. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, will continue to be insured for a period of six months to two years, as determined by the FDIC. There are no pending proceedings to terminate the FDIC deposit insurance of the Bank, and the management of the Bank does not know of any practice, condition, or violation that might lead to termination of deposit insurance.

The Community Reinvestment Act

The Bank is required, by the Community Reinvestment Act (“CRA”) and its implementing regulations, to meet the credit needs of the community, including the low and moderate-income neighborhoods, which it serves. The Bank’s CRA record is considered by the regulatory authorities in their evaluation of any application made by the Bank for, among other things, approval of a branch or other deposit facility, branch office relocation, a merger or an acquisition. The CRA also requires the federal banking agencies to make public disclosure of their evaluation of a bank’s record of meeting the credit needs of its entire community, including low and moderate-income neighborhoods. After its most recent CRA examination the Bank was given an “outstanding” CRA rating.

The Bank Secrecy Act

Under the Bank Secrecy Act (“BSA”), the Bank and other financial institutions are required to report to the Internal Revenue Service currency transactions, of more than $10,000 or multiple transactions of which the Bank has knowledge exceed $10,000 in the aggregate. The BSA also requires the Bank to file suspicious activity reports for transactions that involve more than $5,000 and which the Bank knows, suspects or has reason to suspect, involves illegal fund is designed to evade the requirements of the BSA or has no lawful purpose.

Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information required by the BSA or for filing a false or fraudulent report.

Privacy of Consumer Financial Information

The FSA also contains provisions designed to protect the privacy of each consumer’s financial information held in a financial institution. The regulations (the “Regulations”) issued pursuant to the FSA are designed to prevent financial institutions, such as the Bank, from disclosing a consumer’s nonpublic personal information to third parties. However, financial institutions can share a consumer customer’s personal information or information about business with affiliated companies.

The FSA Regulations permit financial institutions to disclose nonpublic personal information to nonaffiliated third parties for marketing purposes but financial institutions must provide a description of their privacy policies to the consumers and give consumers an opportunity to opt-out of such disclosure and prevent disclosure by the financial institution of the consumer’s nonpublic personal information to nonaffiliated third parties. These privacy Regulations will affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

The Patriot Act

The Patriot Act of 2001 which was enacted in the wake of the September 11, 2001 attacks, include provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism. The Patriot Act, and the regulations, which implement it, contains many obligations, which must be satisfied by financial institutions, such as the Bank, which include appropriate policies and procedures and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers all of which involve additional expenses for the Bank. Failure to comply with the Patriot Act could have serious legal and reputational consequences for a financial institution.

ITEM 1A — RISK FACTORS

Below is a list of the significant risks that concern UBS, the Bank and the banking industry. The list should not be considered an all-inclusive list and has not been prepared in any certain order.

Failure to Comply with the FDIC and Pennsylvania Department of Banking Consent Orders

The Bank has entered into Consent Orders with the FDIC and the Department which, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.50% and its total risk-based capital ratio to 12.5%. As of December 31, 2018, the Bank’s tier one leverage capital ratio was 3.00% and its total risk-based capital ratio was 6.34%. See the Regulatory Orders section. The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory supervision and/or actions.

Changes in the economy, especially in the Philadelphia region, could have an adverse effect on the Company

The business and earnings of the Bank and UBS are directly affected by general conditions in the U.S. and in particular, economic conditions in the Philadelphia region. These conditions include legislative and regulatory changes, inflation, and changes in government and monetary and fiscal policies, increases in unemployment rates, and declines in real estate values, all of which are beyond the Bank’s control. Weakness in the economy could result in a decrease in products and service demand, decrease in deposits and deterioration of customer credit quality, an increase in loan delinquencies, non-accrual loans and increases in problem assets. Real estate pledged as collateral for loans made by the Bank may decline in value, reducing the value of assets and collateral associated with the Bank’s existing loans. Because of the Bank’s concentration in the Philadelphia region, it is less able to respond or diversify credit risk among multiple markets. These factors could result in an increase in the provision for loan losses, thus reducing net income.

Future loan losses may exceed the Bank’s allowance for loan losses

The Bank and UBS are subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to repay loans in accordance with their terms. The downturn in the economy and the real estate market in the Bank’s market area could have a negative effect on collateral values and borrowers’ ability to repay. This downturn in economic conditions could result in losses to UBS in excess of loan loss allowances. To the extent loans are not paid timely by borrowers, the loans are placed on non-accrual status, thereby reducing interest income. To the extent loan charge-offs exceed the Bank’s projections, increased amounts allocated to the provision for loan losses would reduce income.

Exposure to Credit Risk on Commercial Lending can Adversely Affect Earnings and Financial Condition

The Bank’s loan portfolio contains a significant number of commercial real estate and commercial and industrial loans. These loans may be viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of a default during an economic down-turn. A deterioration of these loans may cause a significant increase in non-performing loans. An increase in non-performing loans could cause an increase in loan charge offs and a corresponding increase in the provision for loan losses which could adversely impact the Bank’s earning and financial condition.

Our operations are subject to interest rate risk and variations in interest rates may negatively affect financial performance

In addition to other factors, our earnings and cash flows are dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and investment securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Changes in the general level of interest rates may have an adverse effect on our business, financial condition, and results of operations. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, influence the amount of interest income that we receive on loans and investment securities and the amount of interest that we pay on deposits and borrowed funds. Changes in monetary policy and interest rates also can adversely affect:

If the interest rates paid on deposits and other borrowed funds increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowed funds. Additionally, the fair value of the Bank’s loans held at fair value may be negatively impacted by changes in interest rates which could negatively impact earnings.

The fair value of loans held for sale and loans held at fair value may not be realizable

The Bank originates SBA loans for which the guaranteed portion is intended to be sold within a short period of time in the secondary market and the un-guaranteed portion is retain after that sale. The full amount of these loans is carried at fair value. For the guaranteed portion, valuation is determined using actual market bids for the specific loans held or for loan sales for similar assets in the marketplace that have occurred near the valuation date. Fair value of the unguaranteed portion is estimated based on the present value of future cash flows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries which is based primarily on the risk spread to LIBOR spot curve. Accordingly the fair value determinations of these loans could be negatively impacted by changes in interest rates as well as volatility in prepayments and occurrences of default.

The Dodd-Frank Wall Street Reform and Consumer Protection Act may adversely impact our business

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) which provides for a broad range of financial reform and will result in a number of new regulations which could significantly impact regulatory compliance costs and the operations of community banks and bank holding companies. The Dodd-Frank Act, among other things, broadens the base for FDIC insurance assessments which may increase our FDIC insurance premiums; repeals the prohibition on a bank’s payment of interest on demand deposit accounts of commercial clients beginning one year after the date of enactment; and contains provisions affecting corporate governance and executive compensation for publicly traded companies. The Dodd-Frank Act also creates a new Bureau of Consumer Financial Protection with broad authority to develop and implement rules regarding most consumer financial products. Although many of the details of the Dodd-Frank Act and the full impact it will have on our business will not be known for many months or years in part because many of the provisions require the adoption of implementing rules and regulations, we expect compliance with the new law and its rules and regulations to result in additional costs, including increased compliance costs. These changes may also require us to invest significant management attention and resources to make any necessary changes to our operations in order to comply. These changes may adversely affect our business, financial condition and results of operations.

Government regulation can result in limitations on operations

The Bank operates in a highly regulated environment and is subject to supervision and regulation by a number of governmental regulatory agencies. Regulations adopted by these agencies are generally intended to provide protection for depositors and customers rather than for the benefit of the shareholders. These regulations establish permissible activities for the Bank to engage in, require maintenance of adequate capital levels, and regulate other aspects of operations. The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effect of these changes on the Bank’s business and profitability. A return of recessionary conditions may create the potential for increased regulation, new federal or state laws and regulations regarding lending and funding practices and liquidity standards that could negatively impact the Bank’s operations by restricting the Bank’s business operations, increase the cost of compliance and adversely affect profitability. Losses from operations may result in deterioration of the Bank’s capital levels below required levels and could result in severe regulatory action.

The financial services industry is very competitive

The Bank faces competition in attracting and retaining deposits, making loans, and providing other financial services throughout the Bank’s market area. The Bank’s competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources, including access to capital markets, than the Bank and are able to expend greater funds for advertising and marketing. If the Bank is unable to compete effectively, the Bank will lose market share and income from deposits, loans, and other products may be reduced.

Higher FDIC assessments could negatively impact profitability

The FDIC insurance premiums are “risk-based.” Accordingly, higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. As a result, a decrease in the Bank’s capital ratios, or a negative evaluation by the FDIC, the Bank’s primary federal banking regulator, may increase the Bank’s net funding cost and reduce its earnings.

Inadequate liquidity

The Bank may not be able to meet the cash flow requirements of its customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. While the Bank actively manages its liquidity position and is required to maintain minimum levels of liquid assets, rapid loan growth or unexpected deposit attrition may negatively impact the Bank’s ability to meet its liquidity requirements. The inability to increase deposits to fund asset growth represents a potential liquidity risk. The Bank may need to reduce earning asset growth through the reduction of current production, sale of assets and/or the participating out of future and current loans. This might reduce future earnings of the Bank.

Ability to attract and retain management and key personnel may affect future growth and earnings

The success of UBS and the Bank will be influenced by its ability to attract and retain management experienced in banking and financial services and familiar with the communities in the Bank’s market areas. The Bank’s ability to retain executive officers, management team, and support staff is important to the successful implementation of the Bank’s strategic plan. It is critical, as the Bank grows, to be able to attract and retain qualified staff with the appropriate level of experience and knowledge in community banking. The unexpected loss of services of key personnel, or the inability to recruit and retain qualified personnel in the future could have an adverse effect on the Bank’s business, financial condition, and results of operations.

The ability to maintain adequate levels of capital to meet regulatory minimums and support growth

The Bank and UBS may not be able to maintain the requisite minimum regulatory capital levels to support asset growth. While management may seek additional capital through available government programs, unforeseen economic events may negatively impact the Bank’s and UBS’ profitability and result in erosion of capital. This might restrict growth and reduce future earnings of the Company.

The soundness of other financial services institutions may adversely affect UBS and the Bank.

Routine funding transactions may be adversely affected by the actions and soundness of other financial institutions. Financial service institutions are interrelated as a result of trading, clearing, lending, borrowing or other relationships. As a result, a rumor, default or failures within the financial services industry could lead to market wide liquidity problems which, in turn, could materially impact the financial condition of UBS and the Bank.

Our information systems may experience an interruption or breach in security that could impact our operational capabilities.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in our client relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrences of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of client business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

Additional risk factors also include the following all of which may reduce revenues and/or increase expenses and/or pull the Bank’s management attention away from core banking operations which may ultimately reduce the Bank’s earnings

Investments in UBS common shares involve risk. There is no trading market for UBS’ common shares.

ITEM B — UNRESOLVED STAFF COMMENTS

There were no unresolved staff comments.

ITEM 2 — PROPERTIES

All of the Bank’s properties are in good operating condition and are adequate for the Bank’s present needs.

Corporate Headquarters

The Bank’s corporate office is located in The Graham Building, 30 S. 15^th Street, Suite 1200, Center City Philadelphia. The Graham building is located in the heart of the Philadelphia business district, directly across from City Hall. The Bank occupies approximately 10,000 square feet on the 12th Floor, including executive offices, operations, finance, human resource, and security and loss prevention functions. The average monthly lease rate over the term of the lease is $16,300.

Co-terminous with this lease, the Bank also leases retail space on the ground level of the Graham Building in which it operates a retail branch and an ATM. The Bank’s average aggregate gross monthly rental is approximately $7,300.

The retail branch and corporate office in the Graham building is located in Philadelphia’s central business district close to City government. There is significant development in and around the location of this building including the recently completed Dilworth Park at City Hall. Management believes that this presence in Center City Philadelphia is consistent with the Bank’s strategic focus on business banking. Beginning in April 2020, this branch was temporarily closed due to shut-downs resulting from the pandemic. A reopening date has not been determined.

Progress Plaza Branch

The Bank leases a branch facility located at 1501 North Broad Street, Philadelphia, Pennsylvania. The Progress Plaza branch is a very active branch with the largest number of customers seeking service on a daily basis. This area of North Philadelphia is an important area for the Bank and its mission. The facility is comprised of teller and customer service areas, lobby and vault. The average aggregate monthly rental for this facility is $6,180 per month. This branch remained open during the pandemic to service the Bank’s retail customers.

Mt. Airy Branch

The Bank leases a branch at 1620 Wadsworth Avenue, in the Mt. Airy section of Philadelphia. This facility is located in a densely populated residential neighborhood and in close proximity to small businesses/retail stores. In January 2010, this lease was renewed for ten (10) years. This facility, comprising a retail banking lobby, teller area, offices, and vault and storage space is currently leased at a monthly rental of approximately $6,700 plus real estate taxes and common area maintenance expenses. Effective October 19, 2018, the Bank closed this branch as a result of a decline in foot traffic and deposit levels over the past several years. Although closed, the Bank remained responsible for the monthly lease expense through expiration in December 2019.

ATM Network

To enhance its accessibility and generate fee income, United Bank of Philadelphia currently operates 13 automated teller machines (ATMs)—2 at branch locations and 12 in remote locations. ATM fees decreased during the year ended December 31, 2018 compared to the same period in 2017. The decrease in ATM fees is due to reduced usage as consumers continue to move to electronic payment methods utilizing debit and credit cards versus cash.

Management will continue to review the profitability of each machine in the network and relocate machines, when appropriate, to maximize profitability and to minimize service costs. Where appropriate, non-customer surcharge fees will be increased to enhance income. In addition, sites for placement of additional machines will be sought where there is high volume “captive audience” potential.

ITEM 3 — LEGAL PROCEEDINGS

From time to time, the Bank is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

UBS’ Common Stock is not traded on any national exchange or otherwise traded in any recognizable market. There is no established public trading market for UBS’ common stock. Prior to December 31, 1993, the Bank conducted a limited offering (the “Offering”) pursuant to a registration exemption provided in Section 3(a) (2) of the Securities Exchange Act of 1933. The price-per-share during the Offering was $12.00. Prior to the Offering, the Bank conducted an initial offering of the Common Stock (the “Initial Offering”) at $10.00 per share pursuant to the same registration exemption.

There were no common stock transactions during 2018.

As of July 18, 2022 there were 3,128 shareholders of record of UBS’ voting Common Stock.

Preferred Stock

During 2017, the Company sold 1,850 shares of Series B Preferred Stock at $500 per share, with a par value of $0.01 per share. There were no preferred stock transactions during 2018.

Subsequent Transactions

On May 21, 2021, the “Company”) issued 16,129 shares of the Company’s voting common stock (the “Common Stock”) and 1,100 shares of a new series of its preferred stock designated as Series C Perpetual Non-Cumulative Non-Convertible Preferred Stock with a stated value of $500 per share (the “Series C Preferred Stock”) to Citicorp Banking Corporation for an aggregate purchase price of $600,000. The issuance was completed in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933. No underwriters were involved in the transaction.

Dividend Restrictions

The Consent Orders with the FDIC and the Pennsylvania Department of Banking prohibit the payment of dividends without the approval of both regulatory agencies. UBS has never declared or paid any cash or stock dividends. The Pennsylvania Banking Code of 1965, as amended, provides that cash dividends may be declared and paid only from accumulated net earnings and that, prior to the declaration of any dividend, if the surplus of a bank is less than the amount of its capital, the bank shall, until surplus is equal to such amount, transfer to surplus an amount which is at least ten percent of the net earnings of the bank for the period since the end of the last fiscal year or any shorter period since the declaration of a dividend. If the surplus of the Bank is less than 50% of the amount of its capital, no dividend may be declared or paid by the Bank without the prior approval of the Pennsylvania Department of Banking.

Under the Federal Reserve Act, if a bank has sustained losses equal to or exceeding its undivided profits then on hand, no dividend shall be paid, and no dividends can ever be paid in an amount greater than such bank’s net profits less losses and bad debts. Cash dividends must be approved by the Federal Reserve Board if the total of all cash dividends declared by a bank in any calendar year, including the proposed cash dividend, exceeds the total of the Bank’s net profits for that year plus its retained net profits from the preceding two years less any required transfers to surplus or to a fund for the retirement of preferred stock. Under the Federal Reserve Act, the Federal Reserve Board has the power to prohibit the payment of cash dividends by a bank if it determines that such a payment would be an unsafe or unsound banking practice. As a result of these laws and regulations, the Bank, and therefore UBS, whose only source of income is dividends from the Bank, will be unable to pay any dividends while an accumulated deficit exists. UBS does not anticipate that dividends will be paid for the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

There were no equity compensation instruments outstanding at December 31, 2018.

The information below has been derived from UBS’ consolidated financial statements.

ITEM 6 — SELECTED FINANCIAL DATA

Selected Financial Data

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Because UBS is a bank holding company for the Bank, the financial statements in this report are prepared on a consolidated basis to include the accounts of UBS and the Bank. The purpose of this discussion is to focus on information about the Bank’s financial condition and results of operations, which is not otherwise apparent from the consolidated financial statements included in this annual report. This discussion and analysis should be read in conjunction with the financial statements presented elsewhere in this report.

Critical Accounting Policies

Allowance for Loan Losses

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

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

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

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures. (Refer to Note 1 and Note 4 of the Notes to the Consolidated Financial Statements.)

The Bank originates SBA loans for which the guaranteed portion is intended to be sold within a short period of time in the secondary market. These loans are carried at fair value based on a loan-by-loan valuation using actual market bids. Any change in the balance of the loan and its fair value is recorded as income or expense in each reporting period. When the guaranteed portion of the loan is sold, the gain on the sale is reduced by the income previously recognized as part of the fair value adjustment. (Refer to Note 1 and Note 11 of the Notes to the Consolidated Financial Statements.)

The Bank originates SBA loans for which the un-guaranteed portion is retained after the guaranteed portion is sold in the secondary market. Management has elected to carry these loans at fair value in accordance with the irrevocable option permitted under Accounting Standards Codification (“ASC”) 825-10-25 Financial Instruments. Fair value of these loans is estimated based on the present value of future cash flows for each asset based on their unique characteristics, market-based assumptions for prepayment speeds, discount rates, default and voluntary prepayments as well as assumptions for losses and recoveries. (Refer to Note 1 and Note 11 of the Notes to the Consolidated Financial Statements.)

Executive Brief

United Bank of Philadelphia is the only African American-owned and controlled community development financial institution headquartered in Philadelphia. Management continues to seek to maximize the Bank’s “community bank” competitive advantage by leveraging its strategic partnerships and relationships to increase market penetration and to help ensure that the communities it serves have full access to financial products and services.

The Company reported a net loss of approximately $1,486,000 ($1.80 per common share) for the year ended December 31, 2018 compared to a net loss of approximately $319,000 ($0.39 per common share) for the year ended December 31, 2017. In 2018, the increase in the net loss is primarily related to a decrease in the fair value of SBA loans, a decrease in gain on sale of loans and an increase in the provision for loan losses because of asset quality deterioration. Management remains committed to further improving the Company’s operating performance by continuing to implement its profit enhancement strategies that are centered on small business lending products and services and improvement in asset quality. The following actions are crucial to enhancing the Company’s future financial performance:

Increase Capital. The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood; however, capital declined as a result of operating losses. A concentrated effort will be made to stabilize and strengthen the Bank’s capital by the following:

In September 2020, the Bank received a grant totaling $3.4 million from the Pennsylvania CDFI Network to provide financial assistance related to potential losses related to the COVID-19 pandemic. Approximately $2.8 million of this grant was recorded as grant revenue and $617,000 was recorded as deferred revenue. The deferred revenue portion of the grant was allocated to be used to make principal and interest payments for up to six months for struggling small businesses in the Bank’s loan portfolio.

In July 2021, the Bank received a Rapid Response grant from the U.S. Department of Treasury totaling approximately $1.3 million to provide support related to the economic impact of the COVID-19 pandemic on the Bank and its small business customers.

Manage asset quality to minimize credit losses and reduce collection costs. There was deterioration in asset quality during 2018 that resulted in charge-offs and significant fair value write-downs related to defaulted SBA loans. Management will seek to make further progress by adhering to its underwriting standards as well as good customer relationship management practices. In addition, proactive monitoring of the loan portfolio is essential to the identification of emerging problem credits and is performed during Asset Quality Committee meetings. Forbearance, foreclosure and/or other appropriate collection methods will be used as necessary and may result in increased loan and collection expense.

Earnings enhancement plan. Management seeks to increase noninterest income and reduce noninterest expense to achieve core earnings. The primary strategy will continue to focus on increasing SBA loan originations and selling the guaranteed portion in the secondary market for a gain. Although noninterest income utilizing this strategy declined from approximately $387,000 during 2017 to $366,000 during 2018, management will continue to target SBA loans that can be fully funded at closing to avoid lengthy construction delays that extend the secondary market eligibility and recognition of income.

Total noninterest expense decreased slightly during 2018 compared to 2017. While expense reductions were achieved in personnel, occupancy, and office operations, expenses related to professional services and data processing increased. Management will seek additional expense reductions, where possible, including in professional services and data processing and other bank operating costs.

Another challenge to increased earnings is the restriction on asset growth because of the Bank’s capital levels; however, the Bank’s net interest margin has remained a significant strength at 4.78%. The low cost of funds was the primary contributing factor. Management will continue to balance asset growth with capital adequacy requirements.

Results of Operations

In 2018, the Company recorded a net loss of approximately $1,486,000 ($1.80 per share) compared to a net loss of approximately $319,000 ($0.39 per share) in 2017. A detailed explanation for each component of earnings is included in the sections below.

Table 1—Average Balances, Rates, and Interest Income and Expense Summary

For purposes of computing the average balance, loans are not reduced for nonperforming loans. Loan fee income is included in interest income on loans but is not considered material.

Net Interest Income

Net interest income is an effective measure of how well management has balanced the Bank’s interest rate-sensitive assets and liabilities. Net interest income, the difference between (a) interest and fees on interest-earning assets and (b) interest paid on interest-bearing liabilities, is a significant component of the Bank’s earnings. Changes in net interest income result primarily from increases or decreases in the average balances of interest-earning assets, the availability of particular sources of funds and changes in prevailing interest rates.

Net interest income totaled approximately $2,601,000 in 2018 and approximately $2,469,000 in 2017, an increase of approximately $132,000, or 5.4%.

Table 2—Rate-Volume Analysis of Changes in Net Interest Income

Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to volume variances due to the interest sensitivity of consolidated assets and liabilities.

During 2018, there was an increase in net interest income of approximately $132,000. This was comprised of an increase due to volume of approximately $26,000 and an increase of approximately $106,000 due to changes in rates. During 2017, there was a decrease in net interest income of approximately $52,000. This was comprised of a decrease due to volume of approximately $24,000 and a decrease of approximately $28,000 due to changes in rates.

Average interest earning assets were relatively unchanged for 2018 compared to 2017; however, the net interest margin of the Bank increased from 4.52% for 2017 to 4.78% for 2018. This increase is primarily related to an increase in the yields on all interest earning assets in 2018 when compared to 2017 due to the rising interest rate environment. In addition, the Bank shifted approximately $3 million from Federal Funds Sold to a higher yielding promontory account with another financial institution. The cost of interest-bearing liabilities was relatively unchanged at 23 basis points compared to 20 basis points as the Bank’s deposits are generally not rate-sensitive.

Provision for Loan Losses

The provision for loan losses is based on management’s estimate of the amount needed to maintain an adequate allowance for loan losses. This estimate is based on the review of the loan portfolio, the level of net loan losses, past loan loss experience, the general economic outlook and other factors management feels are appropriate.

The provision for loan losses in 2018 was $317,000 compared to a credit or negative provision for loan losses of $82,000 in 2017. The Bank’s provision is based on a review and analysis of the loan portfolio, and is therefore subject to fluctuation based on qualitative factors like delinquency trends, charge-offs, economic conditions, concentrations, etc. Management monitors its credit quality closely by working with borrowers in an effort to identify and control credit risk. Systematic provisions are made to the allowance for loan losses to cover incurred loan losses in the portfolio. During 2018, there was an increase in impaired loans for which specific reserves were required. The credit or negative provisions in 2017 was primarily related to lower loan originations, loan payoff activity as well as a reduction in net charge-offs and related historical loss factors. In addition, loans held for sale and held at fair value are excluded from the allowance calculation as credit risk is a component of the fair value calculation and related discount on the unguaranteed portion that is retained in the Bank’s loan portfolio. In general, provision requirements are based on credit losses inherent in the loan portfolio and the review and analysis of the loan portfolio in accordance with the Bank’s Allowance for Loan Loss policies and procedures.

Noninterest Income

Noninterest income decreased approximately $983,000, or 65.94%, compared to 2017. Of this total, approximately $975,000 is attributable to a decrease in the income recognized on the fair value of financial instruments for the year ended December 31, 2018 compared to the same period in 2017. This decline was primarily related to decreased SBA loan origination volume and fair value write-downs because of an increased level of SBA loan defaults. The amount of noninterest income generally reflects the volume of the transactional and other accounts handled by the Bank and includes such fees and charges as low balance account fees, overdrafts, account analysis, ATM fees, SBA loan-related income and other customer service fees.

In conjunction with its SBA loan origination strategy, the Bank recognized income of approximately $366,000 and $387,000, respectively, in 2018 and 2017, on the sale of the guaranteed portion of SBA loans and on SBA loans that were held-for-sale and accounted for at fair value under ASC 825, Financial Instruments. Management plans to develop growth strategies to increase its SBA loan volume and related income to enhance and stabilize earnings. In 2018, the gains realized on the sale of these loans were offset by fair value write-downs totaling approximately $637,000 related to defaulted SBA loans. In 2017, there were approximately $338,000 in fair value write-ups related to unsold SBA loans.

During 2018, surcharge income on the Bank’s ATM network decreased approximately $18,000, or 15.38%, compared to 2017. ATM usage has declined as consumers continue to move to electronic payment methods utilizing debit and credit cards versus cash. Management continues to seek to place machines in high volume locations where cash is required. The customer service fee component of noninterest income increased approximately $12,000, or 3.05%, compared to 2017 primarily as a result of an increase in overdraft fees.

Since 2002, the Bank has served as arranger/agent for loan syndications for two major corporations throughout the country. In this capacity, the Bank arranges back-up lines/letters of credit with other minority banks for which it receives agent/administrative fees. In 2018 and 2017, these fees totaled approximately $150,000 and $154,000, respectively. Fees on these facilities are received annually for the arranging and administration of the credit facilities.

Other income increased approximately $35,000, or 36.40%, in 2018 compared to 2017. The increase is primarily related to the recovery of prior period loan collection expenses on defaulted loans.

Noninterest Expense

Noninterest expense decreased approximately $84,000, or 1.92%, in 2018 compared to 2017. The decline was primarily concentrated in personnel, office operations, loan collection cost, other real estate owned expenses and occupancy expenses.

Salaries and benefits decreased approximately $43,000, or 2.73%, in 2018 compared to 2017 as a result of natural attrition including retirement and other turnover without replacement.

Occupancy and equipment expense decreased approximately $23,000, or 2.29%, in 2018 compared to 2017 as a result of the closure of the Bank’s Mount Airy branch in October 2018. While the Bank’s lease did not expire until December 2019, there were cost savings related to utilities, repairs and maintenance and other costs related to building occupancy.

Office operations and supplies expense decreased approximately $70,000, or 21.48%, in 2018 compared to 2017 primarily because of a reduction in stationary and supplies due to a concerted effort to reduce printing and copying by saving and sharing documents digitally. Also, during 2017, the Bank upgraded the branch teller platform which resulted in the need for fewer forms.

Marketing and public relations expense increased approximately $6,000, or 26.99%, in 2018 compared to 2017 due to marketing efforts made to increase the visibility of the Bank and its SBA loan products.

Professional services expense increased approximately $25,000, or 13.41%, in 2018 compared to 2017 because of the engagement of new external auditors in February 2018.

Data processing expenses are a result of management’s decision to outsource a majority of its data processing operations to third party processors. Such expenses are reflective of the high level of accounts being serviced for which the Bank is charged a per account charge by processors. The Bank experiences a higher level of data processing expenses relative to its peer group because of the nature of its deposit base--low average balance and high transaction volume. In addition, the Bank uses outside loan servicing companies to service its mortgage, credit card, and student loan portfolios. To better serve its customers, the Bank also has an ATM network larger than its peer group for which it pays processing fees. Data processing expenses increased approximately $14,000, or 3.48%, in 2018 compared to 2017 because of annual contractual price escalations related to the Bank’s core processor.

Loan and collection expenses increased approximately $2,000, or 1.03%, in 2018 compared to 2017 as a result of expenses related to non-performing loans.

Other real estate expense decreased approximately $32,000, or 40.13%, in 2018 compared to 2017 primarily as the result of lower balances carried in the other real estate portfolio, which declined by approximately $235,000 from approximately $626,000 at December 31, 2017 to approximately $392,000 at December 31, 2018 after the successful liquidation of several properties.

Federal deposit insurance premiums increased approximately $1,000, or 1.08%, in 2018 compared to 2017. Assessments are based on many factors including the Bank’s deposit size and composition and its current regulatory ratings.

All other expenses are reflective of the general cost to do business and compete in the current regulatory environment and maintain adequate insurance coverage.

FINANCIAL CONDITION

Sources and Uses of Funds

The Bank’s financial condition can be evaluated in terms of trends in its sources and uses of funds. The comparison of average balances in Table 3 below indicates how the Bank has managed these elements. Average funding uses were relatively unchanged at approximately $54,375,000 in 2018 compared to approximately $54,587,000 in 2017.

Table 3—Sources and Use of Funds Trends

Investment Securities and Other Short-Term Investments

The Bank’s investment portfolio is classified as available-for-sale. Investments classified as available-for-sale are those investments the Bank intends to hold for an indefinite amount of time, but not necessarily to maturity, and are carried at fair value, with the unrealized holding gains and losses reported as a component of shareholders’ equity on the balance sheet.

Average investment securities decreased approximately $426,000, or 7.82% in 2018 compared to 2017. The decrease is primarily related to monthly paydowns in the mortgage-backed security portfolio.

The yield on the investment portfolio improved to 2.40% for the year ended December 31, 2018 compared to 2.24% for the year ended December 31, 2017. As reflected in Table 4 below, the duration of the portfolio shortened to 5.00 years at December 31, 2018 compared to 5.39 years at December 31, 2017.

At December 31, 2018, 50% of the investment portfolio consisted of callable agency securities for which there was no call activity during the year because of the continued low interest rate environment. Approximately 50% of the portfolio consists of GSE mortgage-backed pass-through securities. The payments of principal and interest on these pools of GSE loans are guaranteed by these entities that bear the risk of default. The Bank’s risk is prepayment risk when defaults accelerate the repayment activity. These loans have longer-term contractual maturities but are sometimes paid off/down before maturity or have repricing characteristics that occur before final maturity. Management’s goal is to maintain a portfolio with a relatively short duration to allow for adequate cash flow to fund loan origination activity and to manage interest rate risk.

Table 4—Analysis of Investment Securities