Note 10 - Junior Subordinated Deferrable Interest Debentures

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Subordinated Borrowings Disclosure [Text Block]

NOTE

10

- JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Corporation has formed and invested

$300,000

in a business trust, United (OH) Statutory Trust (United Trust) which is

not

consolidated by the Corporation. United Trust issued

$10,000,000

of trust preferred securities, which are guaranteed by the Corporation, and are subject to mandatory redemption upon payment of the debentures. United Trust used the proceeds from the issuance of the trust preferred securities, as well as the Corporation’s capital investment, to purchase

$10,300,000

of junior subordinated deferrable interest debentures issued by the Corporation. The debentures have a stated maturity date of

March 26, 2033.

As of

March 26, 2008,

and quarterly thereafter, the debentures

may

be shortened at the Corporation’s option. Interest is at a floating rate adjustable quarterly and equal to

315

basis points over the

3

-month LIBOR amounting

to

5

.10%

at

December 31, 2019

, 5

.97%

at

December 31, 2018

,

and

4.82%

at

December 31,

2017

,

with interest payable quarterly. The Corporation has the right, subject to events in default, to defer payments of interest on the debentures by extending the interest payment period for a period

not

exceeding

20

consecutive quarterly periods.

The Corporation assumed

$3,093,000

of trust preferred securities from the OSB acquisition with

$3,000,000

of the liability guaranteed by the Corporation, and the remaining

$93,000

secured by an investment in the trust preferred securities. The trust preferred securities have a carrying value of

$2,608,000

at

December 31, 2019

and

$2,574,000

at

December 31, 2018

.

The difference between the principal owed and the carrying value is due to the below-market interest rate on the debentures. The debentures have a stated maturity date of

April 23, 2034.

Interest is at a floating rate adjustable quarterly and equal to

285

basis points over the

3

-month LIBOR amounting to

4

.78%

at

December 31, 2019

and

5

.33%

at

December 31, 2018

.

Interest expense on the debentures amounted t

o

$728,000

in

2019

,

$697,000

in

2018

, and

$596,000

in

2017

, and is included in interest expense-borrowings in the accompanying consolidated statements of income.

Each issue of the trust preferred securities carries an interest rate identical to that of the related debenture. The securities have been structured to qualify as Tier I capital for regulatory purposes and the dividends paid on such are tax deductible. However, the securities cannot be used to constitute more than

25%

of the Corporation’s Tier I capital inclusive of these securities under Federal Reserve Board guidelines.