10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

Commission file number 333-86453

UNITED BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Ohio

(State or other jurisdiction of incorporation or organization)

105 Progressive Drive, Columbus Grove, Ohio

(Address of principal executive offices)

34-1516518

(I.R.S. Employer Identification Number)

45830

(Zip Code)

(419) 659-2141

(Registrant’s telephone number, including area code)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of Each Exchange
Common Stock, No Par Value	UBOH	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller Reporting Company ☒
Emerging growth company ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of March 31, 2020: 3,270,399.

This document contains 44 pages. The Exhibit Index is on page 37 immediately preceding the filed exhibits.

UNITED BANCSHARES, INC.

Table of Contents

		Page
Part I – Financial Information
	Item 1 – Financial Statements	3
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk	34
	Item 4 – Controls and Procedures	35
Part II – Other Information
	Item 1 – Legal Proceedings	36
	Item 1A – Risk Factors	36
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3 – Defaults Upon Senior Securities	36
	Item 4 – Mine Safety Disclosures	37
	Item 5 – Other Information	37
	Item 6 – Exhibits	37

2

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

United Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

 March 31, 2020 (unaudited) and December 31, 2019

	(in thousands except share data)
	March 31,			December 31,
	2020			2019
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks	$	11,485		$	9,167
Interest-bearing deposits in other banks		33,287			17,245
Total cash and cash equivalents		44,772			26,412
SECURITIES, available-for-sale		187,700			183,611
FEDERAL HOME LOAN BANK STOCK, at cost		5,598			5,302
LOANS HELD FOR SALE		19,613			15,301
LOANS AND LEASES		573,981			576,424
Less allowance for loan and lease losses		4,687			4,131
Net loans and leases		569,294			572,293
PREMISES AND EQUIPMENT, net		18,638			18,789
GOODWILL		28,616			28,616
CORE DEPOSIT INTANGIBLE ASSETS, net		756			794
CASH SURRENDER VALUE OF LIFE INSURANCE		18,709			18,613
OTHER ASSETS, including accrued interest receivable		8,761			10,283
TOTAL ASSETS	$	902,457		$	880,014
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest-bearing	$	120,469		$	116,360
Interest-bearing		604,667			590,774
Total deposits		725,136			707,134
Other borrowings		58,500			58,750
Junior subordinated deferrable interest debentures		12,916			12,908
Other liabilities		7,423			6,441
Total liabilities		803,975			785,233
SHAREHOLDERS’ EQUITY
Common stock, stated value $1.00, authorized 10,000,000 shares; issued 3,760,557 shares		3,761			3,761
Surplus		15,337			15,251
Retained earnings		81,259			80,629
Accumulated other comprehensive income		5,821			2,872
Treasury stock, at cost, 490,158 shares at March 31, 2020 and 492,462 shares at December 31, 2019		(7,696	)		(7,732	)
Total shareholders’ equity		98,482			94,781
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	902,457		$	880,014

The accompanying notes are an integral part of the consolidated financial statements.

3

United Bancshares, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

Three months ended March 31, 2020 and 2019 (unaudited)

	(in thousands except share data)
	2020		2019
INTEREST INCOME
Loans and leases, including fees	$	7,945	$	7,783
Securities:
Taxable		612		662
Tax-exempt		498		413
Other		177		128
Total interest income		9,232		8,986
INTEREST EXPENSE
Deposits		1,535		1,410
Other borrowings		573		641
Total interest expense		2,108		2,051
Net interest income		7,124		6,935
PROVISION FOR LOAN AND LEASE LOSSES		550		100
Net interest income after provision for loan and lease losses		6,574		6,835
NON-INTEREST INCOME
Gain on sale of loans		2,583		1,438
Other non-interest income		251		1,070
Total non-interest income		2,834		2,508
NON-INTEREST EXPENSES		8,210		7,222
INCOME BEFORE INCOME TAXES		1,198		2,121
PROVISION FOR INCOME TAXES		110		307
NET INCOME	$	1,088	$	1,814
NET INCOME PER SHARE (basic and diluted)	$	0.33	$	0.55
Weighted average common shares outstanding (basic)		3,270,066		3,270,408
Weighted average common shares outstanding (diluted)		3,270,066		3,277,717

The accompanying notes are an integral part of the consolidated financial statements.

4

United Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three months ended March 31, 2020 and 2019 (unaudited)

	(in thousands)
	2020		2019
NET INCOME	$	1,088	$	1,814
OTHER COMPREHENSIVE INCOME
Unrealized gain on securities:
Unrealized holding gains during period		3,733		2,552
Reclassification adjustments for gains included in net income		-		-
Other comprehensive income, before income taxes		3,733		2,552
Income tax expense related to items of other comprehensive income		784		536
Other comprehensive income		2,949		2,016
COMPREHENSIVE INCOME	$	4,037	$	3,830

The accompanying notes are an integral part of the consolidated financial statements.

5

United Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(in thousands except share data)

Three months ended March 31, 2020 and 2019 (unaudited)

	Common stock		Surplus		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total
BALANCE AT DECEMBER 31, 2019	$	3,761	$	15,251	$	80,629		$	2,872		$	(7,732	)	$	94,781
Comprehensive income:
Net income		-		-		1,088			-			-			1,088
Other comprehensive income		-		-		-			2,949			-			2,949
2,304 shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		-		26		-			-			36			62
Stock option expense		-		60		-			-			-			60
Cash dividends declared, $0.14 per share		-		-		(458	)		-			-			(458	)
BALANCE AT MARCH 31, 2020	$	3,761	$	15,337	$	81,259		$	5,821		$	(7,696	)	$	98,482
BALANCE AT DECEMBER 31, 2018	$	3,761	$	14,960	$	71,670		$	(1,764	)	$	(7,683	)	$	80,944
Comprehensive income:
Net income		-		-		1,814			-			-			1,814
Other comprehensive income		-		-		-			2,016			-			2,016
1,277 shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		-		10		-			-			20			30
Stock option expense		-		55		-			-			-			55
Cash dividends declared, $0.13 per share		-		-		(426	)		-			-			(426	)
BALANCE AT MARCH 31, 2019	$	3,761	$	15,025	$	73,058		$	252		$	(7,663	)	$	84,433

The accompanying notes are an integral part of the consolidated financial statements.

6

United Bancshares, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows

Three months ended March 31, 2020 and 2019 (unaudited)

	(in thousands)
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES	$	(1,474	)	$	(1,818	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, calls and maturities of available-for-sale securities		6,908			3,788
Purchases of available-for-sale securities		(7,494	)		(3,575	)
Purchases of FHLB stock		(296	)		-
Net increase in loans and leases		3,385			(4,222	)
Purchases of premises and equipment		(14	)		(83	)
Net cash provided by (used in) investing activities		2,489			(4,092	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		17,991			23,040
Repayments of other borrowings		(250	)		(5,943	)
Proceeds from sale of treasury shares		62			30
Cash dividends paid		(458	)		(426	)
Net cash provided by financing activities		17,345			16,701
NET INCREASE IN CASH AND CASH EQUIVALENTS		18,360			10,791
CASH AND CASH EQUIVALENTS
At beginning of period		26,412			16,475
At end of period	$	44,772		$	27,266
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest	$	2,153		$	2,012
Federal income taxes	$	-		$	-
Non-cash investing activities:
Change in net unrealized gain on available-for-sale securities	$	3,733		$	2,552

The accompanying notes are an integral part of the consolidated financial statements.

7

United Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020

NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of United Bancshares, Inc. and subsidiaries (the “Corporation”) have been prepared without audit and in the opinion of management reflect all adjustments (which include normal recurring adjustments) necessary to present fairly such information for the periods and dates indicated. Since the unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q, they do not contain all information and footnotes typically included in financial statements prepared in conformity with generally accepted accounting principles. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The balance sheet as of December 31, 2019 is derived from completed audited consolidated financial statements with footnotes, which are included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Union Bank Company (the “Bank”). The Bank has formed a wholly-owned subsidiary, UBC Investments, Inc. (“UBC”), to hold and manage its securities portfolio. The operations of UBC are located in Wilmington, Delaware. The Bank has also formed a wholly-owned subsidiary, UBC Property, Inc. (“UBC Property”), to hold and manage certain property. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Corporation conform to generally accepted practices within the banking industry. The Corporation considers all of its principal activities to be banking related.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Management has developed four different models for calculating the allowance for loan losses under the requirements of ASU 2016-13 and has been running them parallel to the Bank’s existing methodology.  Management has not yet determined the expected impact the adoption of ASU 2016-13 will have on the consolidated financial statements.  For public companies, this update was to be effective for interim and annual periods beginning after December 15, 2019. On July 17, 2019, the FASB voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU 2016-13.  On October 16, 2019, the FASB extended the implementation deadline until the fiscal year and interim periods beginning after December 15, 2022.  

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates the Step 2 from the goodwill impairment test. For public companies, this update is effective for interim and annual periods beginning after December 15, 2019. The Corporation adopted ASU 2017-04 effective January 1, 2020 but the new guidance did not have any impact on the March 31, 2020 consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.  This ASU eliminates, adds, and modifies certain disclosure requirements for estimated fair value measurements.  Among the changes, entities will no longer be required to disclose the amount of and reasons for transfer between Level 1 and Level 2 of the estimated fair value hierarchy, but will be required to disclose the range and weighted-average used to develop significant unobservable inputs for Level 3 estimated fair value measurements.  ASU 2018-13 is effective for all entities for interim and annual reporting periods beginning after December 15, 2019.  The Corporation adopted ASU 2018-13 effective January 1, 2020.  The revised disclosure requirements did not have a significant impact on the Corporation's March 31, 2020 consolidated financial statements.

In April, 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is not expected to have a significant impact on the Corporation's consolidated financial statements.

In December, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.  The amendments also improve consistent application of and simplify GAAP for the areas of Topic 740 by clarifying and amending existing guidance.  This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2020.  Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued.  Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis.  The Corporation is currently reviewing the provisions of this new pronouncement, but does not expect adoption of this guidance to have a material impact on its consolidated financial statements.

In January, 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.  The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.  The amendments clarify that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options.  The amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.  Early adoption is permitted, including early adoption in an interim period for which financial statements have not yet been issued.  This update is not expected to have a significant impact on the Corporation's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments.  This update affects a wide variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is not expected to have a significant impact on the Corporation's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting.  The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  The amendments are effective for all entities as of March 12, 2020 through December 31, 2022.  The Corporation is currently reviewing the amendments in this Update, but does not expect this guidance to have a material impact on its consolidated financial statements.

 

8

NOTE 3 - SECURITIES

The amortized cost, unrealized gains and losses, and fair value of available-for-sale securities as of March 31, 2020 and December 31, 2019 are as follows:

	(in thousands)
March 31, 2020	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	72,019	$	3,289	$	44	$	75,264
Mortgage-backed		107,289		4,117		-		111,406
Other		1,023		7		-		1,030
Total	$	180,331	$	7,413	$	44	$	187,700

	(in thousands)
December 31, 2019	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	70,043	$	2,593	$	82	$	72,554
Mortgage-backed		108,907		1,292		158		110,041
Other		1,025		-		9		1,016
Total	$	179,975	$	3,885	$	249	$	183,611

9

NOTE 4 – LOANS AND LEASES

The following tables present the activity in the allowance for loan and lease losses by portfolio segment for the three month periods ended March 31, 2020 and 2019:

	(in thousands)
	Residential 1 – 4 family real estate			Commercial and multi-family real estate		Commercial			Consumer			Total
Balance at December 31, 2019	$	592		$	2,536	$	939		$	64		$	4,131
Provision charged to expenses		109			422		9			10			550
Losses charged off		-			-		(4	)		(5	)		(9	)
Recoveries		3			3		9			-			15
Balance at March 31, 2020	$	704		$	2,961	$	953		$	69		$	4,687
Balance at December 31, 2018	$	576		$	2,355	$	534		$	62		$	3,527
Provision charged to expenses		33			59		5			3			100
Losses charged off		(25	)		-		-			(3	)		(28	)
Recoveries		3			6		36			-			45
Balance at March 31, 2019	$	587		$	2,420	$	575		$	62		$	3,644

10

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019:

	(in thousands)
March 31, 2020	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	89	$	311	$	-	$	400
Collectively evaluated for impairment		704		2,872		642		69		4,287
Total allowance for loan and lease losses	$	704	$	2,961	$	953	$	69	$	4,687
Loans and leases:
Individually evaluated for impairment	$	-	$	1,644	$	1,276	$	-	$	2,920
Acquired with deteriorated credit quality		60		104				-		164
Collectively evaluated for impairment		120,266		371,598		71,057		7,976		570,897
Total ending loans and leases balance	$	120,326	$	373,346	$	72,333	$	7,976	$	573,981

December 31, 2019	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	93	$	342	$	-	$	435
Collectively evaluated for impairment		592		2,443		597		64		3,696
Total allowance for loan and lease losses	$	592	$	2,536	$	939	$	64	$	4,131
Loans and leases:
Individually evaluated for impairment	$	-	$	1,499	$	1,279	$	-	$	2,778
Acquired with deteriorated credit quality		61		127		-		-		188
Collectively evaluated for impairment		122,844		365,988		76,379		8,247		573,458
Total ending loans and leases balance	$	122,905	$	367,614	$	77,658	$	8,247	$	576,424

11

The average recorded investment in impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) for the three month period ended March 31, 2020 was $2,847,000 compared to $1,307,000 for the three month period ended March 31, 2019. There was $400,000 of allowance for loan and lease losses specifically reserved as of March 31, 2020 for impaired loans compared to $100,000 as of March 31, 2019. Additionally, there was approximately $12,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the three month period ended March 31, 2020 and $24,000 for the three month period ended March 31, 2019.

The following table presents the recorded investment in nonaccrual loans and leases, loans and leases past due over 90 days still on accrual and troubled debt restructurings by class of loans as of March 31, 2020 and December 31, 2019. Nonaccrual loans primarily consist of smaller dollar homogenous loans that are collectively evaluated for impairment.

	(in thousands)
March 31, 2020	Nonaccrual		Loans and leases past due over 90 days still accruing		Accruing Troubled Debt Restructurings
Residential 1-4 family real estate	$	503	$	97	$	218
Commercial and multi family real estate		1,294		-		600
Agricultural real estate		4		-		-
Commercial		-		-		771
Agriculture		-		-		-
Consumer		-		-		-
Total	$	1,801	$	97	$	1,589
December 31, 2019
Residential 1-4 family real estate	$	414	$	138	$	223
Commercial and multi family real estate		545		-		623
Agricultural real estate		4		-		-
Commercial		-		-		772
Agriculture		-		-		-
Consumer		-		-		-
Total	$	963	$	138	$	1,618

12

The following table presents the aging of the recorded investment in past due loans and leases as of March 31, 2020 and December 31, 2019 by class of loans and leases:

	(in thousands)
March 31, 2020	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
Residential 1-4 family real estate	$	1,072	$	473	$	281	$	1,826	$	118,500	$	120,326
Commercial and multi family real estate		245		30		606		881		334,309		335,190
Agricultural real estate		16		-		-		16		38,140		38,156
Commercial		27		27		1		55		61,367		61,422
Agriculture		81		-		-		81		10,830		10,911
Consumer		2		-		-		2		7,974		7,976
Total	$	1,443	$	530	$	888	$	2,861	$	571,120	$	573,981
December 31, 2019
Residential 1-4 family real estate	$	2,709	$	99	$	322	$	3,130	$	119,775	$	122,905
Commercial and multi family real estate		177		302		15		494		332,161		332,655
Agricultural real estate		-		-		-		-		34,959		34,959
Commercial		-		57		5		62		67,826		67,888
Agriculture		-		-		-		-		9,770		9,770
Consumer		2		-		-		2		8,245		8,247
Total	$	2,888	$	458	$	342	$	3,688	$	572,736	$	576,424

13

Credit Quality Indicators:

The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt, such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Corporation analyzes loans and leases individually by classifying the loans and leases as to the credit risk.  This analysis generally includes non-homogenous loans and leases, such as commercial and commercial real estate loans and leases. The Corporation uses the following definitions for risk ratings:

● Pass: Loans and leases not meeting the previous criteria that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

● Special Mention: Loans and leases which possess some credit deficiency or potential weakness which deserves close attention, but which do not yet warrant substandard classification. Such loans and leases pose unwarranted financial risk that, if not corrected, could weaken the loan or lease and increase risk in the future. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered "potential", versus "defined", impairments to the primary source of loan repayment.

● Substandard: These loans and leases are inadequately protected by the current sound net worth and paying ability of the borrower. Loans and leases of this type will generally display negative financial trends such as poor or negative net worth, earnings or cash flow. These loans and leases may also have historic and/or severe delinquency problems, and Corporation management may depend on secondary repayment sources to liquidate these loans and leases. The Corporation could sustain some degree of loss in these loans and leases if the weaknesses remain uncorrected.

● Doubtful: Loans and leases in this category display a high degree of loss, although the amount of actual loss at the time of classification is undeterminable. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification.

The following table provides a summary of the loan portfolio risk grades, as applicable, based on the most recent analysis performed, as of March 31, 2020 and December 31, 2019. The Corporation risk rates all commercial and commercial real estate loans.

As of March 31, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans and leases is as follows:

	(in thousands)
March 31, 2020	Pass		Special Mention		Substandard		Doubtful		Not rated
Residential 1 - 4 family	$	8,512	$	-	$	-	$	-	$	111,814
Commercial and multi- family real estate		361,947		1,762		3,432		-		6,205
Commercial		69,807		863		1,662		-		1
Consumer		40		-		-		-		7,936
Total	$	440,306	$	2,625	$	5,094	$	-	$	125,956
December 31, 2019
Residential 1 - 4 family	$	9,219	$	-	$	-	$	-	$	113,686
Commercial and multi- family real estate		362,519		1,797		3,258		-		40
Commercial		75,559		410		1,688		-		1
Consumer		45		-		-		-		8,202
Total	$	447,342	$	2,207	$	4,946	$	-	$	121,929

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The Corporation considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. For all loan classes that are not rated, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Generally, all loans and leases not rated that are 90 days past due or are classified as nonaccrual and collectively evaluated for impairment, are considered nonperforming. The following table presents the recorded investment in all loans and leases that are not risk rated, based on payment activity as of March 31, 2020 and December 31, 2019:

	(in thousands)
March 31, 2020	Residential 1-4 family		Commercial and multi-family real estate		Commercial		Consumer		Total
Performing	$	111,533	$	6,190	$	-	$	7,936	$	125,659
Nonperforming		281		15		1		-		297
Total	$	111,814	$	6,205	$	1	$	7,936	$	125,956
December 31, 2019
Performing	$	113,364	$	24	$	-	$	8,202	$	121,590
Nonperforming		322		16		1		-		339
Total	$	113,686	$	40	$	1	$	8,202	$	121,929

Modifications:

The Corporation’s loan and lease portfolio also includes certain loans and leases that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. All TDRs are also classified as impaired loans and leases.

When the Corporation modifies a loan or lease, management evaluates any possible concession based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, except when the sole (remaining) source of repayment for the loan or lease is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan or lease is less than the recorded investment in the loan or lease (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), an impairment is recognized through a specific reserve in the allowance or a direct write down of the loan or lease balance if collection is not expected.

There were no modifications for TDR loans and leases for which there was a payment default during the three month period ended March 31, 2020. 

The Corporation acquired The Ohio State Bank (“OSB”) in November 2014 and Benchmark Bank in September 2017. As a result of these acquisitions, the Corporation has loans and leases, for which there was at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition, that all contractually required payments would not be collected.

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The following is information related to loans and leases acquired in these transactions, including purchased impaired loans:

	The Ohio State Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	13,047		$	(430	)	$	12,617
Change due to payments received		(657	)		27			(630	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	12,390		$	(403	)	$	11,987
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	160		$	(134	)	$	26
Change due to payments received		(9	)		2			(7	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	151		$	(132	)	$	19

	Benchmark Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	58,953		$	(1,177	)	$	57,776
Change due to payments received		(5,132	)		117			(5,015	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	53,821		$	(1,060	)	$	52,761
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	354		$	(192	)	$	162
Change due to payments received		(36	)		19			(17	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	318		$	(173	)	$	145

There was no provision for loan and lease losses recognized during the three month periods ended March 31, 2020 and 2019 related to the acquired loans as there was no significant change to the credit quality of the loans during the period.

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NOTE 5 – OTHER BORROWINGS

Other borrowings consists of the following at March 31, 2020 and December 31, 2019: 

	(in thousands)
	March 31,		December 31,
	2020		2019
Federal Home Loan Bank borrowings:
Secured note, with interest at 1.72%, due September, 2020	$	6,000	$	6,000
Secured note, with interest at 2.90%, due June, 2021		8,000		8,000
Secured note, with variable interest, at 1.55% at March 31, 2020 and 2.13% at December 31, 2019, due September, 2021		7,000		7,000
Secured note, with interest at 1.86%, due September, 2021		6,000		6,000
Secured note, with interest at 2.94%, due December, 2021		8,000		8,000
Secured note, with interest at 2.98%, due June, 2022		9,000		9,000
Secured note, with interest at 1.97%, due September, 2022		6,000		6,000
United Bankers Bank
Note payable, with interest at 4.875% and $250,000 principal payments payable quarterly with any remaining unpaid principal, due September 1, 2022. All Union Bank stock is held as collateral.		8,500		8,750
Total other borrowings	$	58,500	$	58,750

Federal Home Loan Bank borrowings are secured by Federal Home Loan Bank stock and eligible mortgage loans approximating $163,896,000 and $186,076,000 at March 31, 2020 and December 31, 2019 respectively.

Future maturities of other borrowings are as follows: 2020: $6,750,000; 2021, $30,000,000; and 2022, $21,750,000.

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NOTE 6 – 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 payable quarterly at a floating rate adjustable quarterly and equal to 315 basis points over the 3-month LIBOR, amounting to 4.38% at March 31, 2020 and 5.10% at December 31, 2019. 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 through 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 carrying value as of March 31, 2020 and December 31, 2019 was $2,616,000 and $2,608,000, respectively. 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 4.66% at March 31, 2020 and 4.78% at December 31, 2019.

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, under Federal Reserve Board guidelines, the securities cannot be used to constitute more than 25% of the Corporation’s core Tier I capital inclusive of these securities.

Interest expense on the debentures amounted to $161,000 and $191,000 for the three month periods ended March 31, 2020 and 2019, respectively, and is included in other borrowings interest expense in the accompanying consolidated statements of income.  

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NOTE 7 - FAIR VALUE MEASUREMENTS

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Corporation’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Corporation’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

Financial assets (there were no financial liabilities) measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 include available-for-sale securities, which are valued using Level 1 and Level 2 inputs, as well as mortgage servicing rights, amounting to $825,000 at March 31, 2020 and $1,061,000 at December 31, 2019, which are valued using Level 3 inputs. Financial assets measured at fair value on a nonrecurring basis at March 31, 2020 include loans classified as impaired totaling $1,732,000 compared to $1,495,000 at December 31, 2019. 

There were no financial instruments measured at fair value that moved to a lower level in the fair value hierarchy during the period ended March 31, 2020, due to the lack of observable quotes in inactive markets for those instruments at March 31, 2020.

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The tables below present a reconciliation and income statement classification of gains and losses for mortgage servicing rights, which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month period ended March 31, 2020 and for the year ended December 31, 2019:

	(in thousands)
	March 31,			December 31,
	2020			2019
Mortgage Servicing Rights
Balance at beginning of period	$	1,061		$	1,313
Gains or losses, including realized and unrealized:
Purchases, issuances, and settlements		53			192
Disposals - amortization based on loan payments and payoffs		(46	)		(186	)
Changes in fair value		(243	)		(258	)
Balance at end of period	$	825		$	1,061

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, and disclosure of unobservable inputs follows.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Corporation’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Corporation’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would typically include government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include U.S. Government and agencies securities, municipal bonds, mortgage-backed securities, and asset-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

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Impaired Loans

The Corporation does not record impaired loans at fair value on a recurring basis. However, periodically, a loan is considered impaired and is reported at the fair value of the underlying collateral less estimated cost to sell, if repayment is expected solely from collateral. Collateral values are estimated using Level 2 inputs, including recent appraisals or evaluations as well as Level 3 inputs based on customized discounting criteria such as additional appraisal adjustments to consider deterioration of value subsequent to appraisal date and estimated cost to sell. Additional appraisal adjustments range between 15% and 35% of appraised value, and estimated selling cost ranges between 10% and 20% of the adjusted appraised value.  Due to the significance of the Level 3 inputs, impaired loans fair values have been classified as Level 3.

Mortgage Servicing Rights

The Corporation records mortgage servicing rights at estimated fair value based on a discounted cash flow model which includes discount rates between 11% and 13%, in addition to prepayment, internal rate of return, servicing costs, inflation rate of servicing costs and earnings rate assumptions that are considered to be unobservable inputs. Due to the significance of the Level 3 inputs, mortgage servicing rights have been classified as Level 3.

Other Real Estate Owned

The Corporation values other real estate owned at the estimated fair value of the underlying collateral less appraisal adjustments typically between 10% and 30% of appraised value, and expected selling costs between 10% and 20% of adjusted appraised value. Such values are estimated primarily using appraisals or evaluations utilizing a market value approach. Due to the significance of the Level 3 inputs, other real estate owned is classified as Level 3.

Certain other financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. Financial assets and financial liabilities, excluding impaired loans and other real estate owned, measured at fair value on a nonrecurring basis were not significant at March 31, 2020 and December 31, 2019.

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NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of recognized financial instruments at March 31, 2020 and December 31, 2019 were as follows:

	(in thousands)
	March 31, 2020				December 31, 2019
	Carrying amount		Estimated value		Carrying amount		Estimated value		Input Level
FINANCIAL ASSETS
Cash and cash equivalents	$	44,772	$	44,772	$	26,412	$	26,412		1
Securities, including FHLB stock		193,298		193,298		188,913		188,913		2,3
Loans held for sale		19,613		19,613		15,301		15,301		3
Net loans and leases		569,294		570,267		572,293		572,936		3
Mortgage servicing rights		825		825		1,061		1,061		3
Hedging assets		1,960		1,960		970		970		3
Total Financial Assets	$	829,762	$	830,735	$	804,950	$	805,593
FINANCIAL LIABILITIES
Deposits
Maturity	$	183,971	$	185,705	$	197,391	$	197,428		3
Non-maturity		541,165		541,165		509,743		509,743		1
Other borrowings		58,500		58,427		58,750		58,692		3
Junior subordinated deferrable interest debentures		12,916		6,307		12,908		11,067		3
Hedging liabilities		1,123		1,123		27		27		3
Total Financial Liabilities	$	797,675	$	792,727	$	778,819	$	776,957

The above summary does not include accrued interest receivable or cash surrender value of life insurance, which are also considered financial instruments. The estimated fair value of such items is considered to be their carrying amounts.

There are also unrecognized financial instruments at March 31, 2020 and December 31, 2019 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments amounted to $141,005,000 at March 31, 2020 and $133,220,000 at December 31, 2019. Such amounts are also considered to be the estimated fair values.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments shown above:

Cash and cash equivalents:

Fair value is determined to be the carrying amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or less, and do not represent unanticipated credit concerns.

Securities:

The fair value of securities is determined based on quoted market prices of the individual securities; if not available, estimated fair value is obtained by comparison to other known securities with similar risk and maturity characteristics. Such value does not consider possible tax ramifications or estimated transaction costs.

Loans held for sale:

The fair value of loans held for sale is determined based on the sales price of similar loans. Loan held for sale are typically held for 60 days or less.

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Loans and leases:

Fair value for loans and leases was estimated for portfolios of loans and leases with similar financial characteristics. For adjustable rate loans, which re-price at least annually and generally possess low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair value. For fixed rate loans, the fair value is estimated based on a discounted cash flow analysis, considering weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk inherent in the loans. Fair value for nonperforming loans is based on recent appraisals or estimated discounted cash flows.

Mortgage servicing rights:

The fair value for mortgage servicing rights is determined based on an analysis of the portfolio by an independent third party.

Deposit liabilities:

The fair value of core deposits, including demand deposits, savings accounts, and certain money market deposits, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated using the rates offered at quarter end for deposits of similar remaining maturities. The estimated fair value does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the marketplace.

Other borrowings and junior subordinated deferrable interest debentures:

The fair value of other borrowings and junior subordinated deferrable interest debentures are determined using the net present value of discounted cash flows based on current borrowing rates for similar types of borrowing arrangements, and are obtained from an independent third party.

Other financial instruments:

The fair value of commitments to extend credit and letters of credit is determined to be the contract amount, since these financial instruments generally represent commitments at existing rates. The fair value of other borrowings is determined based on a discounted cash flow analysis using current interest rates. The fair value of other liabilities is generally considered to be carrying value except for the deferred compensation agreement. The fair value of the contract is determined based on a discounted cash flow analysis using a current interest rate for a similar instrument.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument over the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

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NOTE 9 – STOCK OPTIONS

The United Bancshares, Inc. 2016 Stock Option Plan (the “Plan”) permits the Corporation to award non-qualified stock options to eligible participants. A total of 250,000 shares are available for issuance pursuant to the Plan.

The Corporation has issued 30,151 options during 2017 at an exercise price of $21.70, 31,267 options during 2018 at an exercise price of $23.30, and 33,853 options during 2019 at an exercise price of $22.97 under the Plan. Following is a summary of activity for stock options for the three month periods ended March 31, 2020 and March 31, 2019: 

	March 31,		March 31,
	2020		2019
Outstanding, beginning of period		117,647		93,069
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding, end of period		117,647		93,069
Weighted average exercise price at end of quarter	$	21.81	$	21.39

The options vest over a three-year period on the anniversary of the date of grant. At March 31, 2020, 57,033 options were vested compared to 31,718 options vested at March 31, 2019 and outstanding options had a weighted average remaining contractual term of 7.9 years.

The fair value of options granted is estimated at the date of grant using the Black Scholes option pricing model. Following are assumptions used in calculating the fair value of the options granted that are still vesting:

	2019			2018			2017
Weighted-average fair value of options granted	$	7.77		$	7.87		$	7.35
Average dividend yield		2.26	%		2.18	%		2.23	%
Expected volatility		40.00	%		40.00	%		40.00	%
Risk-free interest rate		1.93	%		2.81	%		2.06	%
Expected term (years)		7			7			7

Total compensation expense related to the stock options granted in 2017, net of forfeitures, is expected to be $192,000 and is being recognized ratably over the 36 month period beginning August 1, 2017. Total compensation expense related to the stock options granted in 2018, net of forfeitures, is expected to be $213,000 and is being recognized ratably over the 36 month period beginning September 1, 2018. Total compensation expense related to the stock options granted in 2019 is expected to be $263,000 and is being recognized ratably over the 36 month period beginning July 1, 2019. Stock option expense for outstanding awards amounted to $60,000 for the three months ended March 31, 2020 and $55,000 for the three months ended March 31, 2019

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 NOTE 10 – NON-INTEREST INCOME

The Corporation’s revenue from contracts with customers within the scope of ASC 606 is recognized in noninterest income.  The material groups of noninterest income are defined as follows:

Service charges on deposit accounts: 

Service charges on deposit accounts primarily consist of account analysis fees, monthly maintenance fees, overdraft fees, and other deposit account related fees.  Overdraft fees and certain service charges are fixed and the performance obligation is typically satisfied at the time of the related transaction.  The consideration for analysis fees and monthly maintenance fees are variable as the fee can be reduced if the customer meets certain qualifying metrics.  The Company’s performance obligations are satisfied at the time of the transaction or over the course of a month.

Interchange fee income: 

The Company earns interchange fees from debit and credit cardholder transactions conducted through the MasterCard payment network.  Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrently with the transaction processing services provided to the cardholder.

Wealth management income: 

The Company earns wealth management and investment brokerage fees from its services with customers to manage assets for investment, to provide advisory services, and for account transactions.  Fees are based on the market value of the assets under management and are recognized monthly as the Company’s performance obligations are met.  Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed.  Other related services are based on a fixed fee schedule and the revenue is recognized when the services are rendered, which is when the Company has satisfied its performance obligation. 

The following table presents the Company’s non-interest income for the three months ended March 31, 2020 and 2019.  Items outside the scope of ASC 606 are noted as such.

	Three Months ended March 31,
	2020			2019
Service charges on deposit accounts	$	350		$	346
Gain on sale of mortgage and government loans (1)		2,583			1,438
Change in fair value of mortgage servicing rights (1)		(243	)		(111	)
Increase in cash surrender value of life insurance (1)		96			98
Other
Credit and debit card interchange fees		332			321
Wealth management		85			78
Net loan servicing fees (1)		85			95
Other non-interest income (1)		(454	)		243
Total non-interest income	$	2,834		$	2,508

(1) Not within the scope of ASC 606

NOTE 11 – SUBSEQUENT EVENTS 

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after March 31, 2020 but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at March 31, 2020 have been recognized in the consolidated financial statements for the period ended March 31, 2020. Events or transactions that provided evidence about conditions that did not exist at March 31, 2020 but arose before the financial statements were issued have not been recognized in the consolidated financial statements for the period ended March 31, 2020.

On April 2, 2020, the U.S. Small Business Administration (“SBA”) issued an interim final rule (“the Initial Rule”) announcing the implementation of sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act or the Act”). Section 1102 of the Act temporarily adds a new program, titled the “Paycheck Protection Program” (“PPP”), to the SBA’s 7(a) Loan Program. Section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program. The PPP and loan forgiveness are intended to provide economic relief to small business nationwide adversely impacted by the Coronavirus Disease 2019 (“COVID-19”).

As an SBA-Certified Preferred lender we are delegated the authority as part of the CARES Act to make Paycheck Protection Program SBA-guaranteed financing available to eligible borrowers. The SBA will pay a processing fee based on the balance of the financing outstanding at the time of final disbursement. The processing fees is as follows: 5% for loans of not more than $350,000, 3% for loans of more than $350,000 and less than $2 million, and 1% for loans of at least $2 million. As of April 28, 2020, we are assisting over 1,100 clients to secure approximately $106 million of PPP financing, which is being issued by the SBA on a first come first served basis.

On April 7, 2020, the Board of Governors of the Federal Reserve System (“FRB”) authorized each of the Federal Reserve Banks to establish the Payment Protection Program Lending Facility (“PPPL Facility”), pursuant to section 13(3) of the Federal Reserve Act. Under the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund loans guaranteed by the SBA under the PPP established by the CARES Act.

On April 28, 2020, the Corporation's Board of Directors approved a cash dividend of $0.07 per common share payable June 15, 2020 to shareholders of record at the close of business on May 29, 2020.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

SELECTED FINANCIAL DATA

The following data should be read in conjunction with the unaudited consolidated financial statements and management’s discussion and analysis that follows:

	As of or for the three months ended March 31,
	2020			2019
SIGNIFICANT RATIOS (Unaudited)
Net income to:
Average assets (a)		0.49	%		0.87	%
Average tangible shareholders’ equity (non-GAAP) (a)		6.41	%		13.86	%
Net interest margin (a)		3.61	%		3.81	%
Efficiency ratio (b)		81.14	%		74.76	%
Average shareholders’ equity to average assets		10.98	%		9.83	%
Loans to deposits (end of period) (c)		81.86	%		83.63	%
Allowance for loan losses to loans (end of period)		0.82	%		0.63	%
Book value per share	$	30.11		$	25.82

(a) Net income to average assets, net income to average tangible shareholders’ equity and net interest margin are presented on an annualized basis. Net interest margin is calculated using fully-tax equivalent net interest income as a percentage of average interest earning assets.

(b) Efficiency ratio is a ratio of non-interest expense as a percentage of fully tax equivalent net interest income plus non-interest income.

(c) Includes loans held for sale

Reconciliation of common shareholders' equity to tangible common equity
	March 31, 2020		March 31, 2019
Shareholders' equity	$	98,482	$	84,433
Less goodwill and other intangibles		29,372		29,529
Tangible common equity	$	69,110	$	54,904
Average shareholders' equity	$	97,336	$	81,900
Less average goodwill and other intangibles		29,386		29,546
Average tangible common equity	$	67,950	$	52,354

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Introduction

United Bancshares, Inc. (the “Corporation”), an Ohio corporation, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Corporation was incorporated and organized in 1985. The executive offices of the Corporation are located at 105 Progressive Drive, Columbus Grove, Ohio 45830. The Corporation is a one-bank holding company, as that term is defined by the Federal Reserve Board.

The Union Bank Company (the “Bank”), a wholly-owned subsidiary of the Corporation, is a full service community bank offering a full range of commercial and consumer banking services. The Bank is an Ohio state-chartered bank, which serves Allen, Delaware, Franklin, Hancock, Huron, Marion, Putnam, Sandusky, Van Wert and Wood counties in Ohio, with office locations in Bowling Green, Columbus Grove, Delaware, Delphos, Findlay, Gahanna, Gibsonburg, Kalida, Leipsic, Lima, Marion, Ottawa, Pemberville, Plymouth, Westerville and Worthington, Ohio.

Deposit services include checking accounts, savings and money market accounts; certificates of deposit and individual retirement accounts. Additional supportive services include online banking, bill pay, mobile banking, Zelle payment service, ATM’s and safe deposit box rentals.  Treasury management and remote deposit capture products are also available to commercial deposit customers.  Deposits of Union Bank are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the FDIC.

Loan products offered include commercial and residential real estate loans, agricultural loans, commercial and industrial loans, home equity loans, various types of consumer loans and small business administration loans. Union Bank’s residential loan activities consist primarily of loans for purchasing or refinancing personal residences.  The majority of these loans are sold to the secondary market.

Wealth management services are offered by Union Bank through an arrangement with LPL Financial LLC, a registered broker/dealer.  Licensed representatives offer a full range of investment services and products, including financial needs analysis, mutual funds, securities trading, annuities and life insurance.

Union Bank has two subsidiaries: UBC Investments, Inc. (“UBC”), an entity formed to hold its securities portfolio, and UBC Property, Inc. (“UBC Property”), an entity formed to hold and manage certain property that is acquired in lieu of foreclosure.

When or if used in the Corporation’s Securities and Exchange Commission filings or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases: “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “is estimated,” “is projected,” or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any such statements are subject to the risks and uncertainties that include but are not limited to: changes in economic conditions in the Corporation’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Corporation’s market area, and competition. All or some of these factors could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

The Corporation cautions readers not to place undue reliance on any such forward looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in the levels of market interest rates, credit and other risks associated with lending and investing activities, and competitive and regulatory factors could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

The Corporation is registered as a Securities Exchange Act of 1934 reporting company.

The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of the financial results.

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Recent Developments

The progression of the COVID-19 pandemic in the United States began to have an adverse impact on our financial condition and results of operations as of and for the three months ended March 31, 2020, and is expected to have a complex and significant adverse impact on the economy, the banking industry and our Corporation in future fiscal periods, all subject to a high degree of uncertainty.

Our primary banking market area is Northwestern and Central Ohio.  In Ohio, the Governor recently ordered individuals to stay at home and non-essential businesses to cease all activities, in each case subject to limited exceptions. This order went into effect on March 15, 2020, and is currently effective through May 1, 2020. In response to this order, the Bank has been serving its customers through its drive-up windows at various branch locations and through online and mobile banking. The Bank is also permitting certain visits to its branches on a limited basis and by appointment only.

Like most states, Ohio has experienced a dramatic and sudden increase in unemployment levels as a result of the curtailment of business activities, rising from an average of 4.1% in January 2020 to an average of 5.5% in March 2020, according to the U.S. Bureau of Labor Statistics, which expects levels to rise further. To date, many of the public health and economic effects of COVID-19 have been concentrated in the largest U.S. cities, such as New York, but it is possible that similar effects will occur on a more delayed basis in smaller cities and communities, where many our banking operations are focused.

Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

● The Federal Reserve decreased the range for the Federal Funds Target Rate by 0.50% on March 3, 2020, and by another 1.0% on March 16, 2020, reaching a current range of 0.0 – 0.25%.

● On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (SBA), referred to as the paycheck protection program, or PPP program. Under the PPP program, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP program. As of this writing, a second round of funding under the PPP has become available and the Bank is working with small business customers to submit applications.  In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.

● On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.

● On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and midsized business, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and midsized businesses: (1) the Main Street New Loan Facility, or MSNLF, and (2) the Main Street Expanded Loan Facility, or MSELF. MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program will be up to $600 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. To obtain a loan, borrowers must confirm that they are seeking financial support because of COVID-19 and that they will not use proceeds from the loan to pay off debt. The Federal Reserve also stated that it would provide additional funding to banks offering PPP loans to struggling small businesses. Lenders participating in the PPP will be able to exclude loans financed by the facility from their leverage ratio. In addition, the Federal Reserve created a Municipal Liquidity Facility to support state and local governments with up to $500 billion in lending, with the Treasury Department backing $35 billion for the facility using funds appropriated by the CARES Act. The facility will make short-term financing available to cities with a population of more than one million or counties with a population of greater than two million. The Federal Reserve expanded both the size and scope of its Primary and Secondary Market Corporate Credit Facilities to support up to $750 billion in credit to corporate debt issuers. This will allow companies that were investment grade before the onset of COVID-19 but then subsequently downgraded after March 22, 2020

We currently expect that the COVID-19 pandemic and the specific developments referred to above will have a significant impact on our business.  In particular, we anticipate that a significant portion of the Bank’s borrowers in the retail, restaurants, and hospitality industries will continue to endure significant economic distress, which will cause them to draw on their existing lines of credit and could adversely affect their ability and willingness to repay existing indebtedness, and is expected to adversely impact the value of collateral.  These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, our consumer loan business and loan portfolio, and the value of certain collateral securing our loans. In addition, we expect to see a decrease in mortgage loan originations. As a result, we anticipate that our financial condition, capital levels and results of operations will be significantly adversely affected, as described in further detail below.

We have taken numerous steps in response to the COVID-19 pandemic, including the following:

● We are offering payment deferrals and interest only payment options for consumer, small business, and commercial customers for up to 90 days.  We are offering payment extensions for mortgage customers for up to 90 days.

● The Business Continuity Planning COVID-19 Response team meets regularly to manage the Corporation’s response to the pandemic and the effect on our business.  In addition, cross functional task force teams meet as needed to address specific issues such as employee and client communications, facilities, and branch services and to discuss the effect on our business.

● We are participating in the SBA’s Paycheck Protection Program.  As of April 28, 2020, we have secured funding for over 1,100 customers for approximately $106 million and have continued participation as a result of additional funding for the program which was made available April 27, 2020.

● In response to the outbreak and business disruption, first and foremost, we have prioritized the safety, health and well-being of our employees, customers, and communities. We have implemented a work from home policy, we have restricted lobby access at our branches and we continue to serve clients through our drive-up locations and digital platforms.

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RESULTS OF OPERATIONS

Overview of the Income Statement

For the quarter ended March 31, 2020, the Corporation reported net income of $1,088,000, or $0.33 basic earnings per share. This compares to the first quarter of 2019 net income of $1,814,000, or $0.55 basic earnings per share. The decrease in operating results for the first quarter of 2020 as compared to the same period in 2019 was primarily attributable to increases in the provision for loan losses of $450,000 and non-interest expense of $988,000, offset by increases in net interest income of $189,000, non-interest income of $326,000, and a decrease in the provision for income taxes of $197,000.

Net Interest Income

Net interest income is the amount by which income from interest-earning assets exceeds interest incurred on interest-bearing liabilities. Interest-earning assets consist principally of loans and investment securities while interest-bearing liabilities include interest-bearing deposit accounts and borrowed funds. Net interest income remains the primary source of revenue for the Corporation. Changes in market interest rates, as well as changes in the mix and volume of interest-bearing assets and interest-bearing liabilities impact net interest income. Net interest income was $7,124,000 for the first quarter of 2020, compared to $6,935,000 for the same period of 2019, an increase of $189,000 (2.7%). 

The increase in net interest income for the three months ended March 31, 2020 was attributable to an increase in interest income of $246,000, offset by a $57,000 increase in interest expense. This increase in loan interest was attributable to moderate loan growth from March 2019 to March 2020, which more than offset the slight decline in rates. The average loan balance was $585.2 million for the three months ended March 31, 2020 compared to $571.1 million for the same period of 2019. The yield on average earning assets was 4.66% for three months ended March 31, 2020 compared to 4.91% for the same period of 2019. 

In response to the COVID-19 pandemic, the Federal Reserve decreased the targeted federal funds rate by a total of 150 basis points in March 2020. This decrease impacts the comparability of net interest income between 2019 and 2020. We anticipate that our interest income will be significantly adversely affected in future periods as a result of the COVID-19 pandemic, including the impact  of decreases in the size of our loan portfolio and the effects of lower interest rates.

The increase in interest expense for the period was attributable to a $61.7 million increase in interest bearing deposits which more than offset the reduction in deposit rates for the comparable periods.  The cost of funds on average interest bearing liabilities was 1.25% for the three months ended March 31, 2020 compared to 1.37% for the same period of 2019.

Net interest margin is calculated by dividing net interest income (adjusted to reflect tax-exempt interest income on a taxable equivalent basis) by average interest-earning assets. The resulting percentage serves as a measurement for the Corporation in comparing its results with those of past periods as well as those of peer institutions. For the three months ended March 31, 2020 the net interest margin (on a taxable equivalent basis) was 3.61% compared with 3.81% for the same period in 2019. Loans and leases comprised 72.6% of interest-earning assets at March 31, 2020 compared to 76.0% of interest-earning assets at March 31, 2020. Interest-bearing deposits comprised 89.4% of average interest-bearing liabilities for the three months ended March 31, 2020, compared to 89.3% for the same period in 2019.

As a result of the recent reductions in the target federal funds interest rate, as well as the impact of the COVID-19 pandemic and related future loan charge-offs that we expect to incur, we expect that our net interest income and net interest margin will decrease in future periods. These decreases will be offset to some degree by the processing fees received from PPP financing but we cannot determine at this time what the scope of such losses or offsets might be. The processing fees will be deferred and recognized as an adjustment to interest income over the life of the loans.

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Provision for Loan and Lease Losses

The Corporation’s provision for loan and lease losses is determined based upon management’s calculation of the allowance for loan and lease losses and is reflective of management’s assessment of the quality of the portfolio and overall management of the inherent credit risk of the loan and lease portfolio. Changes in the provision for loan and lease losses are dependent, among other things, on loan and lease delinquencies, collateral position, portfolio risks and general economic conditions in the Corporation’s lending markets. In assessing the adequacy of the allowance, management considers the size and quality of the loan portfolio measured against prevailing economic conditions, regulatory guidelines, and historical loan loss experience. However, there is no assurance that loan credit losses will not exceed the allowance, and any growth in the loan portfolio and the uncertainty of the general economy may require additional provisions in future periods.

A $550,000 provision for loan and lease losses was recognized during the three month period ended March 31, 2020 compared to a $100,000 provision during the three month period ended March 31, 2019 due to the economic uncertainty related to COVID-19. 

We are preparing for the possibility that the provision for loan losses will increase in future periods based on our belief that the credit quality of our loan portfolio will decline and loan defaults will increase as a result of economic conditions created by the COVID-19 pandemic. See “Allowance for Loan and Lease Losses” under Financial Condition for further discussion relating to the provision for loan and lease losses.

Non-Interest Income

The Corporation’s non-interest income is largely generated from activities related to the origination, servicing and gain on sales of fixed rate mortgage loans; customer deposit account fees; earnings on life insurance policies; income arising from sales of investment products to customers; and occasional security sale transactions. Income related to customer deposit accounts and life insurance policies provides a relatively steady flow of income while the other sources are more volume or transaction related and consequently can vary from quarter to quarter.

For the quarter ended March 31, 2020, non-interest income was $2,834,000, compared to $2,508,000 for the first quarter of 2019, a $326,000 (13.0%) increase, which was attributable to increases in gain on sales of loans of $1,145,000 (79.6%), offset by decreases in other non-interest income of $819,000 (76.5%). 

The significant increase in gain on sale of loans was attributable to increased loan origination and sales activities within the residential mortgage and governmental lending operations.  Loan sales for the first quarter of 2020 approximated $63.1 million compared to $41.0 million for the first quarter of 2019, resulting in gains on sale of loans of $2,583,000 for the quarter ended March 31, 2020, compared to $1,438,000 for the first quarter of 2019. 

The decrease in other non-interest income resulted from a $799,000 decrease in mortgage banking hedging income and a $132,000 decrease in the fair value of mortgage servicing rights, offset by increases in other non-interest income. The decrease in mortgage banking hedging activity resulted from a decrease in rates in the Bank’s hedged portfolio due to market volatility. The Company recognized a $670,000 loss in hedging for the first three months of 2020 compared to a $129,000 gain in the comparable period of 2019.

We anticipate that our non-interest income may be adversely affected in future periods as a result of the COVID-19 pandemic.  Increased unemployment and recessionary concerns may adversely affect mortgage originations and mortgage banking revenue in future periods.

Non-Interest Expenses

For the quarter ended March 31, 2020, non-interest expenses were $8,210,000, compared to $7,222,000 for the first quarter of 2019, a $988,000 (13.7%) increase.  The significant quarter-over-quarter increases included salaries and benefits expense of $651,000 (15.6%), expenses related to premises and equipment of $56,000, loan fees of $95,000 (43.2%), and advertising expense of $68,000 (15.2%). The increase in salaries and benefits expense included the impact of normal inflationary wage increases coupled with a 3.9% increase in full-time equivalent employees.

Maintaining acceptable levels of non-interest expenses and operating efficiency are key performance indicators for the Corporation in its strategic initiatives. The financial services industry uses the efficiency ratio (total non-interest expense as a percentage of the aggregate of fully-tax equivalent net interest income and non-interest income) as a key indicator of performance. For the quarter ended March 31, 2020, the Corporation’s efficiency ratio was 81.14%, compared to 74.76% for the same period of 2019. 

Provision for Income Taxes

The provision for income taxes for the quarter ended March 31, 2020 was $110,000 (effective rate of 9.2%), compared to $307,000 (effective rate of 14.5%) for the comparable 2019 period. The decrease in the effective tax rate was largely due to tax-exempt securities interest comprising 41.6% of pre-tax income for the three-month period ended March 31, 2020 compared to 19.5% for the comparable period in 2019.

30

FINANCIAL CONDITION

Overview of Balance Sheet

Total assets amounted to $902.5 million at March 31, 2020, compared to $880.0 million at December 31, 2019, an increase of $22.5 million (2.5%). The increase in total assets was primarily the result of increases of $18.4 million in cash and cash equivalents due to deposit growth, $4.3 million (28.2%) in loans held for sale, and $4.1 million (2.2%) in securities available-for-sale, offset by a $3.0 million decrease in net loans, and a $1.5 million (14.8%) decrease in other assets (including accrued interest receivable). Deposits during this same period increased $18.0 million (2.5%).

Shareholders’ equity increased from $94.8 million at December 31, 2019 to $98.5 million at March 31, 2020. This increase was primarily the result of net income during the quarter ended March 31, 2020 of $1,088,000 and an increase in unrealized securities gains, net of tax of $2,949,000, offset by dividends paid of $458,000. The increase in unrealized securities gains during the quarter ended March 31, 2020, was the expected result of the recent Federal Reserve lowering the federal funds rate by 150 basis points, as well as other economic reactions to the COVID-19 pandemic.  Net unrealized gains and losses on securities are reported as accumulated other comprehensive income (loss) in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents totaled $44.8 million at March 31, 2020 and $26.4 million at December 31, 2019, including interest-bearing deposits in other banks of $33.3 million at March 31, 2020 and $17.2 million at December 31, 2019. Management believes the current level of cash and cash equivalents is sufficient to meet the Corporation’s present liquidity and performance needs especially considering the availability of other funding sources, as described below. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and corresponding liquidity sources and uses. Management believes the Corporation’s liquidity needs in the near term will be satisfied by the current level of cash and cash equivalents, readily available access to traditional and non-traditional funding sources, and the portions of the investment and loan portfolios that will mature within one year. These sources of funds should enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due. In addition, the Corporation has access to various sources of additional borrowings by virtue of long-term assets that can be used as collateral for such borrowings.

Securities

Management monitors the earnings performance and liquidity of the securities portfolio on a regular basis through Asset/Liability Committee (ALCO) meetings. As a result, all securities, except FHLB stock, have been designated as available-for-sale and may be sold if needed for liquidity, asset-liability management or other reasons. Such securities are reported at fair value, with any net unrealized gains or losses reported as a separate component of shareholders’ equity, net of related incomes taxes.

The amortized cost and fair value of available-for-sale securities as of March 31, 2020 totaled $180.3 million and $187.7 million, respectively, resulting in net unrealized gain before tax of $7.4 million and a corresponding after-tax increase in shareholders’ equity of $5.9 million.

Loans and Leases

The Corporation’s primary lending areas are Northwestern, West Central, and Central Ohio. Gross loans and leases totaled $574.0 million at March 31, 2020, compared to $576.4 million at December 31, 2019, a decrease of $2.4 million (0.4%). As compared to December 31, 2019, commercial and multi-family real estate loans increased $5.7 million.  All other loan categories experienced decreases aggregating $8.1 million with the largest decrease of $4.3 million coming from the commercial loan portfolio.

There are also unrecognized financial instruments at March 31, 2020 and December 31, 2019 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments approximated $141.0 million at March 31, 2020 and $133.2 million at December 31, 2019.

It's likely that loan demand will decline for the remainder of the 2020 fiscal year and into 2021 as a result of COVID-19 and the related decline in economic conditions in our market areas, leading to reductions in the growth of for our commercial and industrial loan, commercial real estate loan, residential real estate loan and consumer loan portfolios.  We are also anticipating that we could see increased line of credit utilization and a reduction in our unused commitments.

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Allowance for Loan and Lease Losses

The following table presents a summary of activity in the allowance for loan and lease losses for the three month periods ended March 31, 2020 and 2019:

	(in thousands)
	Three months ended March 31,
	2020			2019
Balance, beginning of period	$	4,131		$	3,527
Provision for loan and lease losses		550			100
Charge offs		(9	)		(28	)
Recoveries		15			45
Net recoveries		6			17
Balance, end of period	$	4,687		$	3,644

The allowance for loan and lease losses as a percentage of gross loans and leases was 0.82% at March 31, 2020, 0.72% at December 31, 2019, and 0.63% at March 31, 2019. Based on current economic indicators, the Corporation increased the economic factors within the allowance for loan losses evaluation. We expect that the allowance for loan losses as a percent of total loans may increase in future periods based on our belief that the credit quality of our loan portfolio may decline, and loan defaults may increase as a result of COVID-19.

Regular provisions are made in amounts sufficient to maintain the balance in the allowance for loan and lease losses at a level considered by management to be adequate for losses within the portfolio. Even though management uses all available information to assess possible loan and lease losses, future additions or reductions to the allowance may be required as changes occur in economic conditions and specific borrower circumstances. The regulatory agencies that periodically review the Corporation’s allowance for loan and lease losses may also require additions to the allowance or the charge-off of specific loans and leases based upon the information available to them at the time of their examinations.

Loans and leases on non-accrual status amounted to $1.8 million and $1.0 million at March 31, 2020 and December 31, 2019, respectively. Non-accrual loans and leases as a percentage of outstanding loans amounted to 0.31% at March 31, 2020 and 0.17% at December 31, 2019.

The Corporation considers a loan or lease to be impaired when it becomes probable that the Corporation will be unable to collect under the contractual terms of the loan or lease, as the case may be, based on current information and events. The Corporation had impaired loans totaling $2.1 million with $400,000 of specific reserves at March 31, 2020 and impaired loans of $1.9 million with $435,000 of specific reserves as of December 31, 2019.  The Corporation had $788,000 and $848,000, respectively, of impaired loans without specific reserves at March 31, 2020 and December 31, 2019.

The Corporation had other potential problem credits, consisting of loans graded substandard or special mention, as well as loans over 90 days past due, loans on non-accrual, and TDR loans, amounting to of $5.3 million at March 31, 2020 and $4.9 million at December 31, 2019. The Corporation’s credit administration department continues to closely monitor these credits.

The Corporation provides pooled reserves for potential problem loans and leases using loss rates calculated considering historic net loan charge-off experience, as well as other environmental and qualitative factors. The Corporation experienced $9,000 of loan charge-offs during the first three months of 2020 compared to $28,000 during the first three months of 2019 with the charge-offs coming from the commercial and consumer loan portfolios. The Corporation also provides general reserves for the remaining portion of its loan portfolio not considered to be problem or potential problem loans. These general reserves are also calculated considering, among other things, the historic net charge-off experience for the relative loan type.

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Funding Sources

The Corporation considers a number of alternatives, including but not limited to, deposits, as well as short-term and long-term borrowings when evaluating funding sources. Deposits, including customer deposits, brokered certificates of deposit, and public funds deposits continue to be the most significant source of funds for the Corporation, totaling $725.1 million, or 90.2% of the Corporation’s outstanding funding sources at March 31, 2020.

Non-interest bearing deposits remain a smaller portion of the funding source for the Corporation than for most of its peers. Non-interest bearing deposits comprised 16.6% of total deposits at March 31, 2020, compared to 16.5% at December 31, 2019. We expect that deposit levels will generally decrease in future periods as a result of the distressed economic conditions in our market areas relating to the COVID-19 pandemic.

In addition to traditional deposits, the Corporation maintains both short-term and long-term borrowing arrangements. Other borrowings consisted of FHLB borrowings totaling $50.0 million at March 31, 2020 and December 31, 2019, as well as $8,500,000 and $8,750,000 of term borrowings from the United Bankers’ Bank (UBB) at March 31, 2020 and December 31, 2019, respectively. The Corporation also has outstanding junior subordinated deferrable interest debentures of $12,916,000 and $12,908,000 at March 31, 2020 and December 31, 2019, respectively. Management plans to maintain access to various borrowing alternatives as an appropriate funding source.

Regulatory Capital

The Corporation and Bank met all regulatory capital requirements as of March 31, 2020, and the Bank is considered “well capitalized” under regulatory and industry standards of risk-based capital.

Cash Flow from Operations

As part of the Bank's hedging program, loans held for sale are now accumulated into larger blocks before being sold.  Depending on the timing of the sales of these blocks, there could be a positive or negative impact to net income and cash flow from operations.  As of March 31, 2020, loans held for sale amounted to $19,613,000 compared to $15,301,000 as of December 31, 2019 resulting in a negative impact to cash flow from operations for the three month period ended March 31, 2020 of $4,312,000.  Similarly, there was a negative impact on cash flow from operations for the three month period ended March 31, 2019 of $2,760,000 from the increase in loans held for sale. Excluding these changes in loans held for sale, cash flow from operations for the three months ended March 31, 2020 and 2019 would have been a positive $2,838,000 and $942,000, respectively.

Liquidity and Interest Rate Sensitivity

The objective of the Corporation’s asset/liability management function is to maintain consistent growth in net interest income through management of the Corporation’s balance sheet liquidity and interest rate exposure based on changes in economic conditions, interest rate levels, and customer preferences.

The Corporation manages interest rate risk to minimize the impact of fluctuating interest rates on earnings. The Corporation uses simulation techniques that attempt to measure the volatility of changes in the level of interest rates, basic banking interest rate spreads, the shape of the yield curve, and the impact of changing product growth patterns. The primary method of measuring the sensitivity of earnings of changing market interest rates is to simulate expected cash flows using varying assumed interest rates while also adjusting the timing and magnitude of non-contractual deposit re-pricing to more accurately reflect anticipated pricing behavior. These simulations include adjustments for the lag in prime loan re-pricing and the spread and volume elasticity of interest-bearing deposit accounts, regular savings and money market deposit accounts.

The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. The Corporation closely monitors the sensitivity of its assets and liabilities on an ongoing basis and projects the effect of various interest rate changes on its net interest margin. Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or re-price within a designated time frame.

Management believes the Corporation’s current mix of assets and liabilities provides a reasonable level of risk related to significant fluctuations in net interest income and the resulting volatility of the Corporation’s earning base. The Corporation’s management reviews interest rate risk in relation to its effect on net interest income, net interest margin, and the volatility of the earnings base of the Corporation.

Effects of Inflation on Financial Statements

All of the Corporation’s assets relate to commercial banking operations and are generally monetary in nature. Therefore, they are not impacted by inflation to the same degree as companies in capital-intensive industries in a replacement cost environment. During a period of rising prices, a net monetary asset position results in loss of purchasing power and conversely a net monetary liability position results in an increase in purchasing power. In the commercial banking industry, monetary assets typically exceed monetary liabilities. The Corporation has not experienced a significant level of inflation or deflation during the three month period ended March 31, 2020. However, because of the depressed national real estate market and sluggish local economy, the Corporation has experienced declines in the value of collateral securing commercial and non-commercial real estate loans. Management continues to closely monitor these trends in calculating the Corporation’s allowance for loan and lease losses.

33

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative information about market risk from the information provided in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

34

ITEM 4 -  CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures.

With the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")); as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on that evaluation, the Corporation's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2020.

Changes in Internal Control over Financial Reporting.

There were no significant changes during the period covered by this Quarterly Report on Form 10-Q in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35

PART II – Other Information

Item 1: Legal Proceedings.

There are no pending legal proceedings to which the Corporation or its subsidiaries are a party or to which any of their property is subject except routine legal proceedings to which the Corporation or its subsidiaries are a party incident to the banking business. None of such proceedings are considered by the Corporation to be material.

Item 1A: Risk Factors

In addition to the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 31, 2019, the following risk factor applies to the Corporation

The outbreak of Coronavirus Disease 2019 (“COVID-19”), or an outbreak of other highly infectious or contagious diseases, could adversely impact certain industries in which the Corporation’s customers operate and impair their ability to fulfill their obligations to the Corporation. Further, the spread of the outbreak could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which the Corporation operates and could potentially create widespread business continuity issues for the Corporation.

COVID-19 has caused severe disruptions in the U.S. economy at large, and for small businesses in particular, which has disrupted the Corporation’s operations. We are starting to see the impact from COVID-19 on our business, and we believe that it will be significant, adverse and potentially material. Currently, COVID-19 is spreading throughout the United States. The resulting concerns on the part of the U.S. have created a risk of a recession, reduced economic activity and caused a significant correction in the U.S. stock markets. We expect that we will experience significant disruption across our business due to these effects, leading to decreased earnings and significant slowdowns in our loan collections or loan defaults.  Increased unemployment and recessionary concerns will adversely affect mortgage originations and mortgage banking revenue in future periods.

COVID-19 may impact the financial ability of businesses and consumers to borrow money, which would negatively impact loan volumes. In addition, certain of our borrowers are in or have exposure to the retail, restaurants, and hospitality industries and/or are located in areas that are quarantined or under stay-at-home orders, and COVID-19 may also have an adverse effect on our commercial real estate and consumer loan portfolios. A prolonged quarantine or stay-at-home order would have a negative adverse impact on these borrowers and their revenue streams, which consequently impacts their ability to meet their financial obligations and could result in loan defaults. 

The Corporation relies upon its third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide the Corporation with these services, it could negatively impact the Corporation’s ability to serve its customers. Furthermore, the outbreak could negatively impact the ability of the Corporation’s employees and customers to engage in banking and other financial transactions in the geographic area in which the Corporation operates and could create widespread business continuity issues for the Corporation. The Corporation also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in our market area. Although the Corporation has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

We believe that the economic impact from COVID-19 will be severe and could have a material and adverse impact on our business and that it could result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital.

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

The Corporation has not sold any of its securities which were not registered under the Securities Act during the period covered by this report. The table below includes certain information regarding the Corporation’s purchase of United Bancshares, Inc. common stock during the quarterly period ended March 31, 2020:

Period	Total number of shares purchased		Weighted Average price paid per share		Total number of shares purchased as part of a publicly announced plan or program (a)		Maximum number of shares that may yet be purchased under the plan or program (a)
01/01/20 - 01/31/20		-	$	-		-		198,446
02/01/20 - 02/29/20		-	$	-		-		198,446
03/01/20 - 03/31/20		-	$	-		-		198,446

(a) A stock repurchase program (“Plan”) was adopted by the Corporation’s Board of Directors and originally announced on July 29, 2005.  The Plan, which was subsequently amended on December 23, 2005, March 20, 2007 and December 17, 2013, authorizes the Corporation to repurchase up to 600,000 of the Corporation’s common shares from time to time in a program of market purchases or in privately negotiated transactions as the securities laws and market conditions permit.

Item 3: Defaults upon Senior Securities.

None

36

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information.

None

Item 6: Exhibits

Exhibit Number	Description	Exhibit Location
3.1	Amended and Restated Articles of Incorporation	Incorporated herein by reference to the Corporation's Form 10Q for the quarter ended June 30, 2006.
3.2	Amended and Restated Code of Regulations	Incorporated herein by reference to the Corporation’s Form 10Q for the quarter ended June 30, 2007.
4	Description of Registrant's Common Stock	Incorporated herein by reference to the Corporation's Form 10K for the year ended December 31, 2019
31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO	Filed herewith
32.1	Section 1350 CEO’s Certification	Filed herewith
32.2	Section 1350 CFO’s Certification	Filed herewith
99.1	Safe Harbor under the Private Securities Litigation Reform Act of 1995	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition	Filed herewith
101.LAB	XBRL Taxonomy Extension Label	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation	Filed herewith

37

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNITED BANCSHARES, INC.
Date: May 8, 2020	By: /s/ Stacy A. Cox
	Stacy A. Cox
	Chief Financial Officer

38

EX-31.1

Exhibit 31.1

Rule 13a–14(a)/15d–14(a) CERTIFICATION

I, Brian D. Young, President and Chief Executive Officer of United Bancshares, Inc., certify, that:

(1) I have reviewed this Quarterly Report on Form 10-Q of United Bancshares, Inc.;

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Brian D. Young

Brian D. Young

President and Chief Executive Officer

May 8, 2020

EX-31.2

Exhibit 31.2

Rule 13a–14(a)/15d–14(a) CERTIFICATION

I, Stacy A. Cox, Chief Financial Officer of United Bancshares, Inc., certify, that:

(1) I have reviewed this Quarterly Report on Form 10-Q of United Bancshares, Inc.;

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Stacy A. Cox

Stacy A. Cox

Chief Financial Officer

May 8, 2020

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATION

In connection with the Quarterly Report of United Bancshares, Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brian D. Young, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brian D. Young

Brian D. Young

President and Chief Executive Officer

Date: May 8, 2020

*This certification is being furnished as required by Rule 13a –14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATION

In connection with the Quarterly Report of United Bancshares, Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stacy A. Cox, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stacy A. Cox

Stacy A. Cox

Chief Financial Officer

Date:  May 8, 2020

*This certification is being furnished as required by Rule 13a –14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

EX-99.1

Exhibit 99.1

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. United Bancshares, Inc. ("Corporation") desires to take advantage of the "safe harbor" provisions of the Act. Certain information, particularly information regarding future economic performance and finances and plans and objectives of management, contained or incorporated by reference in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, is forward-looking. In some cases, information regarding certain important factors that could cause actual results of operations or outcomes of other events to differ materially from any such forward-looking statement appears together with such statement. In addition, forward-looking statements are subject to other risks and uncertainties affecting the financial institutions industry, including, but not limited to, the following:

Interest Rate Risk

The Corporation’s operating results are dependent to a significant degree on its net interest income, which is the difference between interest income from loans, investments and other interest-earning assets and interest expense on deposits, borrowings and other interest-bearing liabilities. The interest income and interest expense of the Corporation changes as the interest rates on interest-earning assets and interest-bearing liabilities change. Interest rates may change because of general economic conditions, the policies of various regulatory authorities and other factors beyond the Corporation's control. In a rising interest rate environment, loans tend to prepay slowly and new loans at higher rates increase slowly, while interest paid on deposits increases rapidly because the terms to maturity of deposits tend to be shorter than the terms to maturity or prepayment of loans. Such differences in the adjustment of interest rates on assets and liabilities may negatively affect the Corporation's income.

Possible Inadequacy of the Allowance for Loan and Lease Losses

The Corporation maintains an allowance for loan and lease losses based upon a number of relevant factors, including, but not limited to, trends in the level of non-performing assets and classified loans and leases, current economic conditions in the primary lending area, past loss experience, possible losses arising from specific problem loans and leases and changes in the composition of the loan and lease portfolio. While the Board of Directors of the Corporation believe that it uses the best information available to determine the allowance for loan and lease losses, unforeseen market conditions could result in material adjustments, and net earnings could be significantly adversely affected if circumstances differ substantially from the assumptions used in making the final determination.

Loans and leases not secured by one to four family residential real estate are generally considered to involve greater risk of loss than loans secured by one to four family residential real estate due, in part, to the effects of general economic conditions. The repayment of multifamily residential, nonresidential real estate and commercial loans generally depends upon the cash flow from the operation of the property or business, which may be negatively affected by national and local economic conditions. Construction loans may also be negatively affected by such economic conditions, particularly loans made to developers who do not have a buyer for a property before the loan is made. The risk of default on consumer loans increases during periods of recession, high unemployment and other adverse economic conditions. When consumers have trouble paying their bills, they are more likely to pay mortgage loans than consumer loans. In addition, the collateral securing such loans and leases, if any, may decrease in value more rapidly than the outstanding balance of the loan or lease.

Competition

The Corporation competes for deposits with other savings associations, commercial banks and credit unions and issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, the Corporation competes with other commercial banks, savings associations, consumer finance companies, credit unions, leasing companies, mortgage companies and other lenders. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors that are not readily predictable. The size of financial institutions competing with the Corporation is likely to increase as a result of changes in statutes and regulations eliminating various restrictions on interstate and inter-industry branching and acquisitions. Such increased competition may have an adverse effect upon the Corporation.

Legislation and Regulation that may Adversely Affect the Corporation's Earnings

The Corporation is subject to extensive regulation by the State of Ohio, Division of Financial Institutions (the “ODFI”), the Federal Reserve Bank (the “FED”), and the Federal Deposit Insurance Corporation (the "FDIC") and is periodically examined by such regulatory agencies to test compliance with various regulatory requirements. Such supervision and regulation of the Corporation and the bank are intended primarily for the protection of depositors and not for the maximization of shareholder value and may affect the ability of the Corporation to engage in various business activities. The assessments, filing fees and other costs associated with reports, examinations and other regulatory matters are significant and may have an adverse effect on the Corporation's net earnings.

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
CASH AND CASH EQUIVALENTS
Cash and due from banks	$ 11,485	$ 9,167
Interest-bearing deposits in other banks	33,287	17,245
Total cash and cash equivalents	44,772	26,412
SECURITIES, available-for-sale	187,700	183,611
FEDERAL HOME LOAN BANK STOCK, at cost	5,598	5,302
LOANS HELD FOR SALE	19,613	15,301
LOANS AND LEASES	573,981	576,424
Less allowance for loan and lease losses	4,687	4,131
Net loans and leases	569,294	572,293
PREMISES AND EQUIPMENT, net	18,638	18,789
GOODWILL	28,616	28,616
CORE DEPOSIT INTANGIBLE ASSETS, net	756	794
CASH SURRENDER VALUE OF LIFE INSURANCE	18,709	18,613
OTHER ASSETS, including accrued interest receivable	8,761	10,283
TOTAL ASSETS	902,457	880,014
Deposits:
Non-interest-bearing	120,469	116,360
Interest-bearing	604,667	590,774
Total deposits	725,136	707,134
Other borrowings	58,500	58,750
Junior subordinated deferrable interest debentures	12,916	12,908
Other liabilities	7,423	6,441
Total liabilities	803,975	785,233
SHAREHOLDERS’ EQUITY
Common stock, stated value $1.00, authorized 10,000,000 shares; issued 3,760,557 shares	3,761	3,761
Surplus	15,337	15,251
Retained earnings	81,259	80,629
Accumulated other comprehensive income	5,821	2,872
Treasury stock, at cost, 490,158 shares at March 31, 2020 and 492,462 shares at December 31, 2019	(7,696)	(7,732)
Total shareholders’ equity	98,482	94,781
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 902,457	$ 880,014

XML

Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
BALANCE at Dec. 31, 2018	$ 3,761	$ 14,960	$ 71,670	$ (1,764)	$ (7,683)	$ 80,944
Net income			1,814			1,814
Other comprehensive income				2,016		2,016
Shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		10			20	30
Stock option expenses		55				55
Cash dividends declared			(426)			(426)
BALANCE at Mar. 31, 2019	3,761	15,025	73,058	252	(7,663)	84,433
BALANCE at Dec. 31, 2019	3,761	15,251	80,629	2,872	(7,732)	94,781
Net income			1,088			1,088
Other comprehensive income				2,949		2,949
Shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		26			36	62
Stock option expenses		60				60
Cash dividends declared			(458)			(458)
BALANCE at Mar. 31, 2020	$ 3,761	$ 15,337	$ 81,259	$ 5,821	$ (7,696)	$ 98,482

XML

Note 4 - Loans and Leases (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	(in thousands)
	Residential 1 – 4 family real estate			Commercial and multi-family real estate		Commercial			Consumer			Total
Balance at December 31, 2019	$	592		$	2,536	$	939		$	64		$	4,131
Provision charged to expenses		109			422		9			10			550
Losses charged off		-			-		(4	)		(5	)		(9	)
Recoveries		3			3		9			-			15
Balance at March 31, 2020	$	704		$	2,961	$	953		$	69		$	4,687
Balance at December 31, 2018	$	576		$	2,355	$	534		$	62		$	3,527
Provision charged to expenses		33			59		5			3			100
Losses charged off		(25	)		-		-			(3	)		(28	)
Recoveries		3			6		36			-			45
Balance at March 31, 2019	$	587		$	2,420	$	575		$	62		$	3,644

Financing Receivable, Current, Allowance for Credit Loss [Table Text Block]

	(in thousands)
March 31, 2020	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	89	$	311	$	-	$	400
Collectively evaluated for impairment		704		2,872		642		69		4,287
Total allowance for loan and lease losses	$	704	$	2,961	$	953	$	69	$	4,687
Loans and leases:
Individually evaluated for impairment	$	-	$	1,644	$	1,276	$	-	$	2,920
Acquired with deteriorated credit quality		60		104				-		164
Collectively evaluated for impairment		120,266		371,598		71,057		7,976		570,897
Total ending loans and leases balance	$	120,326	$	373,346	$	72,333	$	7,976	$	573,981

December 31, 2019	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	93	$	342	$	-	$	435
Collectively evaluated for impairment		592		2,443		597		64		3,696
Total allowance for loan and lease losses	$	592	$	2,536	$	939	$	64	$	4,131
Loans and leases:
Individually evaluated for impairment	$	-	$	1,499	$	1,279	$	-	$	2,778
Acquired with deteriorated credit quality		61		127		-		-		188
Collectively evaluated for impairment		122,844		365,988		76,379		8,247		573,458
Total ending loans and leases balance	$	122,905	$	367,614	$	77,658	$	8,247	$	576,424

Financing Receivable, Nonaccrual [Table Text Block]

	(in thousands)
March 31, 2020	Nonaccrual		Loans and leases past due over 90 days still accruing		Accruing Troubled Debt Restructurings
Residential 1-4 family real estate	$	503	$	97	$	218
Commercial and multi family real estate		1,294		-		600
Agricultural real estate		4		-		-
Commercial		-		-		771
Agriculture		-		-		-
Consumer		-		-		-
Total	$	1,801	$	97	$	1,589
December 31, 2019
Residential 1-4 family real estate	$	414	$	138	$	223
Commercial and multi family real estate		545		-		623
Agricultural real estate		4		-		-
Commercial		-		-		772
Agriculture		-		-		-
Consumer		-		-		-
Total	$	963	$	138	$	1,618

Financing Receivable, Past Due [Table Text Block]

	(in thousands)
March 31, 2020	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
Residential 1-4 family real estate	$	1,072	$	473	$	281	$	1,826	$	118,500	$	120,326
Commercial and multi family real estate		245		30		606		881		334,309		335,190
Agricultural real estate		16		-		-		16		38,140		38,156
Commercial		27		27		1		55		61,367		61,422
Agriculture		81		-		-		81		10,830		10,911
Consumer		2		-		-		2		7,974		7,976
Total	$	1,443	$	530	$	888	$	2,861	$	571,120	$	573,981
December 31, 2019
Residential 1-4 family real estate	$	2,709	$	99	$	322	$	3,130	$	119,775	$	122,905
Commercial and multi family real estate		177		302		15		494		332,161		332,655
Agricultural real estate		-		-		-		-		34,959		34,959
Commercial		-		57		5		62		67,826		67,888
Agriculture		-		-		-		-		9,770		9,770
Consumer		2		-		-		2		8,245		8,247
Total	$	2,888	$	458	$	342	$	3,688	$	572,736	$	576,424

Financing Receivable Credit Quality Indicators [Table Text Block]

	(in thousands)
March 31, 2020	Pass		Special Mention		Substandard		Doubtful		Not rated
Residential 1 - 4 family	$	8,512	$	-	$	-	$	-	$	111,814
Commercial and multi- family real estate		361,947		1,762		3,432		-		6,205
Commercial		69,807		863		1,662		-		1
Consumer		40		-		-		-		7,936
Total	$	440,306	$	2,625	$	5,094	$	-	$	125,956
December 31, 2019
Residential 1 - 4 family	$	9,219	$	-	$	-	$	-	$	113,686
Commercial and multi- family real estate		362,519		1,797		3,258		-		40
Commercial		75,559		410		1,688		-		1
Consumer		45		-		-		-		8,202
Total	$	447,342	$	2,207	$	4,946	$	-	$	121,929

Schedule of the Performance of the Loan Portfolio [Table Text Block]

	(in thousands)
March 31, 2020	Residential 1-4 family		Commercial and multi-family real estate		Commercial		Consumer		Total
Performing	$	111,533	$	6,190	$	-	$	7,936	$	125,659
Nonperforming		281		15		1		-		297
Total	$	111,814	$	6,205	$	1	$	7,936	$	125,956
December 31, 2019
Performing	$	113,364	$	24	$	-	$	8,202	$	121,590
Nonperforming		322		16		1		-		339
Total	$	113,686	$	40	$	1	$	8,202	$	121,929

Schedule of Loans Acquired in Acquisition [Table Text Block]

	The Ohio State Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	13,047		$	(430	)	$	12,617
Change due to payments received		(657	)		27			(630	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	12,390		$	(403	)	$	11,987
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	160		$	(134	)	$	26
Change due to payments received		(9	)		2			(7	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	151		$	(132	)	$	19

	Benchmark Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	58,953		$	(1,177	)	$	57,776
Change due to payments received		(5,132	)		117			(5,015	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	53,821		$	(1,060	)	$	52,761
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	354		$	(192	)	$	162
Change due to payments received		(36	)		19			(17	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	318		$	(173	)	$	145

XML

Note 9 - Stock Options (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	March 31,		March 31,
	2020		2019
Outstanding, beginning of period		117,647		93,069
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding, end of period		117,647		93,069
Weighted average exercise price at end of quarter	$	21.81	$	21.39

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2019			2018			2017
Weighted-average fair value of options granted	$	7.77		$	7.87		$	7.35
Average dividend yield		2.26	%		2.18	%		2.23	%
Expected volatility		40.00	%		40.00	%		40.00	%
Risk-free interest rate		1.93	%		2.81	%		2.06	%
Expected term (years)		7			7			7

XML

Note 9 - Stock Options - Schedule of Assumptions Used In Calculating the Fair Value of Options Granted (Details) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Weighted-average fair value of options granted (in dollars per share)	$ 7.77	$ 7.87	$ 7.35
Average dividend yield	2.26%	2.18%	2.23%
Expected volatility	40.00%	40.00%	40.00%
Risk-free interest rate	1.93%	2.81%	2.06%
Expected term (years) (Year)	7 years	7 years	7 years

XML

Note 8 - Fair Value of Financial Instruments (Details Textual) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Commitments to Extend Credit [Member]
Other Commitment, Total	$ 141,005,000	$ 133,220,000

XML

Note 10 - Non-interest Income

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Other Income and Other Expense Disclosure [Text Block]

 

NOTE

10

 – NON-INTEREST INCOME

The Corporation’s revenue from contracts with customers within the scope of ASC

606

is recognized in noninterest income.  The material groups of noninterest income are defined as follows:

Service charges on deposit accounts

:

 

Service charges on deposit accounts primarily consist of account analysis fees, monthly maintenance fees, overdraft fees, and other deposit account related fees.  Overdraft fees and certain service charges are fixed and the performance obligation is typically satisfied at the time of the related transaction.  The consideration for analysis fees and monthly maintenance fees are variable as the fee can be reduced if the customer meets certain qualifying metrics.  The Company’s performance obligations are satisfied at the time of the transaction or over the course of a month.

Interchange fee income:

 

The Company earns interchange fees from debit and credit cardholder transactions conducted through the MasterCard payment network.  Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrently with the transaction processing services provided to the cardholder.

Wealth management income

: 

The Company earns wealth management and investment brokerage fees from its services with customers to manage assets for investment, to provide advisory services, and for account transactions.  Fees are based on the market value of the assets under management and are recognized monthly as the Company’s performance obligations are met.  Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed.  Other related services are based on a fixed fee schedule and the revenue is recognized when the services are rendered, which is when the Company has satisfied its performance obligation. 

The following table presents the Company’s non-interest income for the

three

months ended

March 31, 2020

and

2019.

  Items outside the scope of ASC

606

are noted as such.

	Three Months ended March 31,
	2020			2019
Service charges on deposit accounts	$	350		$	346
Gain on sale of mortgage and government loans (1)		2,583			1,438
Change in fair value of mortgage servicing rights (1)		(243	)		(111	)
Increase in cash surrender value of life insurance (1)		96			98
Other
Credit and debit card interchange fees		332			321
Wealth management		85			78
Net loan servicing fees (1)		85			95
Other non-interest income (1)		(454	)		243
Total non-interest income	$	2,834		$	2,508

(

1

)

Not

within the scope of ASC

606

XML

Note 2 - New Accounting Pronouncements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

NOTE

2

– NEW ACCOUNTING PRONOUNCEMENTS

In

June 2016,

the Financial Accounting Standards Board (FASB) issued ASU

2016

-

13,

Financial Instruments Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Management has developed

four

different models for calculating the allowance for loan losses under the requirements of ASU

2016

-

13

and has been running them parallel to the Bank’s existing methodology.  Management has

not

yet determined the expected impact the adoption of ASU

2016

-

13

will have on the consolidated financial statements.  For public companies, this update was to be effective for interim and annual periods beginning after

December 15, 2019.

On

July 17, 2019,

the FASB voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU

2016

-

13.

  On

October 16, 2019,

the FASB extended the implementation deadline until the fiscal year and interim periods beginning after

December 15, 2022.  

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates the Step

2

from the goodwill impairment test. For public companies, this update is effective for interim and annual periods beginning after

December 15, 2019.

The Corporation adopted ASU

2017

-

04

effective

January 1, 2020

but the new guidance did

not

have any impact on the

March 31, 2020

consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

13,

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.  This ASU eliminates, adds, and modifies certain disclosure requirements for estimated fair value measurements.  Among the changes, entities will

no

longer be required to disclose the amount of and reasons for transfer between Level

1

and Level

2

of the estimated fair value hierarchy, but will be required to disclose the range and weighted-average used to develop significant unobservable inputs for Level

3

estimated fair value measurements.  ASU

2018

-

13

is effective for all entities for interim and annual reporting periods beginning after

December 15, 2019. 

The Corporation adopted ASU

2018

-

13

effective

January 1, 2020. 

The revised disclosure requirements did

not

have a significant impact on the Corporation's

March 31, 2020

consolidated financial statements.

In

April, 2019,

the FASB issued ASU

2019

-

04,

Codification Improvements to Topic

326,

Financial Instruments - Credit Losses, Topic

815,

Derivatives and Hedging, and Topic

825,

Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

December, 2019,

the FASB issued ASU

2019

-

12,

Income Taxes (Topic

740

), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic

740.

  The amendments also improve consistent application of and simplify GAAP for the areas of Topic

740

by clarifying and amending existing guidance.  This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after

December 15, 2020. 

Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have

not

yet been issued.  Depending on the amendment, adoption

may

be applied on the retrospective, modified retrospective, or prospective basis.  The Corporation is currently reviewing the provisions of this new pronouncement, but does

not

expect adoption of this guidance to have a material impact on its consolidated financial statements.

In

January, 2020,

the FASB issued ASU

2020

-

01,

Investments - Equity Securities (Topic

321

), Investments - Equity Method and Joint Ventures (Topic

323

), and Derivatives and Hedging (Topic

815

), Clarifying the Interactions between Topic

321,

Topic

323,

and Topic

815.

  The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic

321

 immediately before applying or upon discontinuing the equity method.  The amendments clarify that for the purpose of applying paragraph

815

-

10

-

15

-

141

(a) an entity should

not

consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 

323

or the fair value option in accordance with the financial instruments guidance in Topic 

825.

An entity also would evaluate the remaining characteristics in paragraph

815

-

10

-

15

-

141

to determine the accounting for those forward contracts and purchased options.  The amendments in this Update are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years.  Early adoption is permitted, including early adoption in an interim period for which financial statements have

not

yet been issued.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

March 2020,

the FASB issued ASU

2020

-

03,

Codification Improvements to Financial Instruments.  This update affects a wide variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

March 2020,

the FASB issued ASU

2020

-

04,

Reference Rate Reform (Topic

848

), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting.  The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  The amendments are effective for all entities as of

March 12, 2020

through

December 31, 2022.  

The Corporation is currently reviewing the amendments in this Update, but does

not

expect this guidance to have a material impact on its consolidated financial statements.

XML

Note 6 - Junior Subordinated Deferrable Interest Debentures

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Subordinated Borrowings Disclosure [Text Block]

NOTE

6

– 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 payable quarterly at a floating rate adjustable quarterly and equal to

315

basis points over the

3

-month LIBOR,

amounting to

4.38%

at 

March 31, 2020

and

5.10%

at

December 31, 2019

. 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 through 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 carrying value as of 

March 31, 2020

and 

December 31, 2019

w

as

$2,616,000

and

$2,608,000,

respectively. 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

4.66%

at

March 31, 2020

and

4.78%

at

December 31, 2019

.

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, under Federal Reserve Board guidelines, the securities cannot be used to constitute more than

25%

of the Corporation’s core Tier I capital inclusive of these securities.

Interest expense on the debentures amounted to

$16

1,000

and

$191,000

for the

three

month periods ended

March 31, 2020

and

2019

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

XML

Note 5 - Other Borrowings (Details Textual) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Loans Pledged as Collateral	$ 163,896,000	$ 186,076,000
Other Borrowings, Maturities, Remainder of Fiscal Year	6,750,000
Other Borrowings, Maturities, Year Two	30,000,000
Other Borrowings, Maturities, Year Three	$ 21,750,000

XML

Note 4 - Loans and Leases - Aging of the Recorded Investment in Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Past due	$ 2,861	$ 3,688
Loans and leases not past due	571,120	572,736
Total loans and leases balance	573,981	576,424
Financial Asset, 30 to 59 Days Past Due [Member]
Past due	1,443	2,888
Financial Asset, 60 to 89 Days Past Due [Member]
Past due	530	458
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	888	342
Residential 1 - 4 Family Real Estate [Member]
Past due	1,826	3,130
Loans and leases not past due	118,500	119,775
Total loans and leases balance	120,326	122,905
Residential 1 - 4 Family Real Estate [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	1,072	2,709
Residential 1 - 4 Family Real Estate [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due	473	99
Residential 1 - 4 Family Real Estate [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	281	322
Commercial and Multi-Family Real Estate [Member]
Past due	881	494
Loans and leases not past due	334,309	332,161
Total loans and leases balance	335,190	332,655
Commercial and Multi-Family Real Estate [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	245	177
Commercial and Multi-Family Real Estate [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due	30	302
Commercial and Multi-Family Real Estate [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	606	15
Agriculture [Member]
Past due	81
Loans and leases not past due	10,830	9,770
Total loans and leases balance	10,911	9,770
Agriculture [Member] | Real Estate Loan [Member]
Past due	16
Loans and leases not past due	38,140	34,959
Total loans and leases balance	38,156	34,959
Agriculture [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	81
Agriculture [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Loan [Member]
Past due	16
Agriculture [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due
Agriculture [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Loan [Member]
Past due
Agriculture [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due
Agriculture [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Loan [Member]
Past due
Commercial Portfolio Segment [Member]
Past due	55	62
Loans and leases not past due	61,367	67,826
Total loans and leases balance	61,422	67,888
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	27
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due	27	57
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due	1	5
Consumer Portfolio Segment [Member]
Past due	2	2
Loans and leases not past due	7,974	8,245
Total loans and leases balance	7,976	8,247
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	2	2
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past due

XML

Note 3 - Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE

3

- SECURITIES

The amortized cost, unrealized gains and losses, and fair value of available-for-sale securities as of 

March 31, 2020

and 

December 31, 2019

are as follows:

	(in thousands)
March 31, 2020	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	72,019	$	3,289	$	44	$	75,264
Mortgage-backed		107,289		4,117		-		111,406
Other		1,023		7		-		1,030
Total	$	180,331	$	7,413	$	44	$	187,700

	(in thousands)
December 31, 2019	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	70,043	$	2,593	$	82	$	72,554
Mortgage-backed		108,907		1,292		158		110,041
Other		1,025		-		9		1,016
Total	$	179,975	$	3,885	$	249	$	183,611

XML

Note 7 - Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

7

- FAIR VALUE MEASUREMENTS

ASC

820

-

10

defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall

not

be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is

not

a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.

ASC

820

-

10

requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs

may

be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC

820

-

10

establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level

1

–

Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level

2

–

Inputs other than quoted prices included within Level

1

that are observable for the asset or liability, either directly or indirectly. Level

2

inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are

not

active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level

3

–

Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Corporation’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Corporation’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

Financial assets (there were

no

financial liabilities) measured at fair value on a recurring basis at 

March 31, 2020

and 

December 31, 2019

include available-for-sale securities, which are valued using Level

1

and Level 

2

inputs, as well as mortgage servicing rights, amounting to

$825,000

at 

March 31, 2020

and

$1,061,000

at

December 31, 2019

, which are valued using Level

3

inputs. Financial assets measured at fair value on a nonrecurring basis at 

March 31, 2020

include loans classified as impaired totaling 

$1,

732

,000

compared to

$1,495,000

at

December 31, 2019

. 

There were

no

financial instruments measured at fair value that moved to a lower level in the fair value hierarchy during the period ended 

March 31, 2020

, due to the lack of observable quotes in inactive markets for those instruments at 

March 31, 2020

.

The tables below present a reconciliation and income statement classification of gains and losses for mortgage servicing rights, which are measured at fair value on a recurring basis using significant unobservable inputs (Level

3

) for the 

three

month period ended

March 31, 2020

and for the year ended

December 31, 2019

:

	(in thousands)
	March 31,			December 31,
	2020			2019
Mortgage Servicing Rights
Balance at beginning of period	$	1,061		$	1,313
Gains or losses, including realized and unrealized:
Purchases, issuances, and settlements		53			192
Disposals - amortization based on loan payments and payoffs		(46	)		(186	)
Changes in fair value		(243	)		(258	)
Balance at end of period	$	825		$	1,061

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, and disclosure of unobservable inputs follows.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are

not

available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments

may

be made to ensure that financial instruments are recorded at fair value. These adjustments

may

include amounts to reflect counterparty credit quality, the Corporation’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Corporation’s valuation methodologies

may

produce a fair value calculation that

may

not

be indicative of net realizable value or reflective of future fair values. While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 

1

of the valuation hierarchy. Level

1

securities would typically include government bonds and exchange traded equities. If quoted market prices are

not

available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 

2

of the valuation hierarchy, include U.S. Government and agencies securities, municipal bonds, mortgage-backed securities, and asset-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 

3

of the valuation hierarchy.

Impaired Loans

The Corporation does

not

record impaired loans at fair value on a recurring basis. However, periodically, a loan is considered impaired and is reported at the fair value of the underlying collateral less estimated cost to sell, if repayment is expected solely from collateral. Collateral values are estimated using Level

2

inputs, including recent appraisals or evaluations as well as Level

3

inputs based on customized discounting criteria such as additional appraisal adjustments to consider deterioration of value subsequent to appraisal date and estimated cost to sell. Additional appraisal adjustments range between

15%

and

35%

of appraised value, and estimated selling cost ranges between

10%

and

20%

of the adjusted appraised value.  Due to the significance of the Level

3

inputs, impaired loans fair values have been classified as Level

3.

Mortgage Servicing Rights

The Corporation records mortgage servicing rights at estimated fair value based on a discounted cash flow model which includes discount rates between

11%

and

13%,

in addition to prepayment, internal rate of return, servicing costs, inflation rate of servicing costs and earnings rate assumptions that are considered to be unobservable inputs. Due to the significance of the Level

3

inputs, mortgage servicing rights have been classified as Level

3.

Other Real Estate Owned

The Corporation values other real estate owned at the estimated fair value of the underlying collateral less appraisal adjustments typically between

10%

and

30%

of appraised value, and expected selling costs between

10%

and

20%

of adjusted appraised value. Such values are estimated primarily using appraisals or evaluations utilizing a market value approach. Due to the significance of the Level

3

inputs, other real estate owned is classified as Level

3.

Certain other financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are

not

measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. Financial assets and financial liabilities, excluding impaired loans and other real estate owned, measured at fair value on a nonrecurring basis were

not

significant at 

March 31, 2020

and 

December 31, 2019

.

XML

Note 11 - Subsequent Events

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE

11

 – SUBSEQUENT EVENTS 

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after 

March 31, 2020

but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at 

March 31, 2020

have been recognized in the consolidated financial statements for the period ended 

March 31, 2020

. Events or transactions that provided evidence about conditions that did

not

exist at 

March 31, 2020

but arose before the financial statements were issued have

not

been recognized in the consolidated financial statements for the period ended 

March 31, 2020

.

On

April 2, 2020,

the U.S. Small Business Administration (“SBA”) issued an interim final rule (“the Initial Rule”) announcing the implementation of sections

1102

and

1106

of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act or the Act”). Section

1102

of the Act temporarily adds a new program, titled the “Paycheck Protection Program” (“PPP”), to the SBA’s

7

(a) Loan Program. Section

1106

of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program. The PPP and loan forgiveness are intended to provide economic relief to small business nationwide adversely impacted by the Coronavirus Disease

2019

(“COVID-

19”

).

As an SBA-Certified Preferred lender we are delegated the authority as part of the CARES Act to make Paycheck Protection Program SBA-guaranteed financing available to eligible borrowers. The SBA will pay a processing fee based on the balance of the financing outstanding at the time of final disbursement. The processing fees is as follows:

5%

for loans of

not

more than

$350,000,

3%

for loans of more than

$350,000

and less than

$2

million, and

1%

for loans of at least

$2

million. As of

April 28, 2020,

we are assisting over

1,100

clients to secure approximately

$106

million of PPP financing, which is being issued by the SBA on a

first

come

first

served basis.

On

April 7, 2020,

the Board of Governors of the Federal Reserve System (“FRB”) authorized each of the Federal Reserve Banks to establish the Payment Protection Program Lending Facility (“PPPL Facility”), pursuant to section

13

(

3

) of the Federal Reserve Act. Under the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund loans guaranteed by the SBA under the PPP established by the CARES Act.

On

 

April 

28,

2020,

the Corporation's Board of Directors approved a cash dividend of $

0.07

 per common share payable

June 15, 2020

 

to shareholders of record

at the close of business on

May 29, 2020

.

XML

Note 4 - Loans and Leases - Schedule of Loans Acquired in Acquisition (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Ohio State Bancshares Inc [Member] | Performing Financial Instruments [Member]
Contractual principal receivable, beginning balance	$ 13,047
Accretable difference, beginning balance	(430)
Carrying amount, beginning balance	12,617
Contractual principal receivable, change due to payments received	(657)
Accretable difference, change due to payments received	27
Carrying amount, change due to payments received	(630)
Contractual principal receivable, ending balance	12,390
Accretable difference, ending balance	(403)
Carrying amount, ending balance	11,987
Ohio State Bancshares Inc [Member] | Nonperforming Financial Instruments [Member]
Contractual principal receivable, beginning balance	160
Accretable difference, beginning balance	(134)
Carrying amount, beginning balance	26
Contractual principal receivable, change due to payments received	(9)
Accretable difference, change due to payments received	2
Carrying amount, change due to payments received	(7)
Contractual principal receivable, ending balance	151
Accretable difference, ending balance	(132)
Carrying amount, ending balance	19
Benchmark Bancorp, Inc. [Member] | Performing Financial Instruments [Member]
Contractual principal receivable, beginning balance	58,953
Accretable difference, beginning balance	(1,177)
Carrying amount, beginning balance	57,776
Contractual principal receivable, change due to payments received	(5,132)
Accretable difference, change due to payments received	117
Carrying amount, change due to payments received	(5,015)
Contractual principal receivable, ending balance	53,821
Accretable difference, ending balance	(1,060)
Carrying amount, ending balance	52,761
Benchmark Bancorp, Inc. [Member] | Nonperforming Financial Instruments [Member]
Contractual principal receivable, beginning balance	354
Accretable difference, beginning balance	(192)
Carrying amount, beginning balance	162
Contractual principal receivable, change due to payments received	(36)
Accretable difference, change due to payments received	19
Carrying amount, change due to payments received	(17)
Contractual principal receivable, ending balance	318
Accretable difference, ending balance	(173)
Carrying amount, ending balance	$ 145

XML

Note 4 - Loans and Leases - Summary of Nonaccrual Loans and Leases (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Recorded investment, nonaccrual	$ 1,801	$ 963
Loans and leases past due over 90 days still accruing	97	138
Troubled debt restructurings	1,589	1,618
Residential 1 - 4 Family Real Estate [Member]
Recorded investment, nonaccrual	503	414
Loans and leases past due over 90 days still accruing	97	138
Troubled debt restructurings	218	223
Commercial Real Estate Portfolio Segment [Member]
Recorded investment, nonaccrual	1,294	545
Loans and leases past due over 90 days still accruing
Troubled debt restructurings	600	623
Agricultural Real Estate [Member]
Recorded investment, nonaccrual	4	4
Loans and leases past due over 90 days still accruing
Troubled debt restructurings
Commercial Portfolio Segment [Member]
Recorded investment, nonaccrual
Loans and leases past due over 90 days still accruing
Troubled debt restructurings	771	772
Agriculture [Member]
Recorded investment, nonaccrual
Loans and leases past due over 90 days still accruing
Troubled debt restructurings
Consumer Portfolio Segment [Member]
Recorded investment, nonaccrual
Loans and leases past due over 90 days still accruing
Troubled debt restructurings

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Common stock, stated value (in dollars per share)	$ 1	$ 1
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	3,760,557	3,760,557
Treasury stock, shares (in shares)	490,158	492,462

XML

Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Stock issued during the period, shares, Employee Stock Purchase Plans (in shares)	2,304	1,277
Cash dividends declared per share (in dollars per share)	$ 0.14	$ 0.13

XML

Note 5 - Other Borrowings (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Debt [Table Text Block]

	(in thousands)
	March 31,		December 31,
	2020		2019
Federal Home Loan Bank borrowings:
Secured note, with interest at 1.72%, due September, 2020	$	6,000	$	6,000
Secured note, with interest at 2.90%, due June, 2021		8,000		8,000
Secured note, with variable interest, at 1.55% at March 31, 2020 and 2.13% at December 31, 2019, due September, 2021		7,000		7,000
Secured note, with interest at 1.86%, due September, 2021		6,000		6,000
Secured note, with interest at 2.94%, due December, 2021		8,000		8,000
Secured note, with interest at 2.98%, due June, 2022		9,000		9,000
Secured note, with interest at 1.97%, due September, 2022		6,000		6,000
United Bankers Bank
Note payable, with interest at 4.875% and $250,000 principal payments payable quarterly with any remaining unpaid principal, due September 1, 2022. All Union Bank stock is held as collateral.		8,500		8,750
Total other borrowings	$	58,500	$	58,750

XML

Note 10 - Non-interest Income (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Noninterest Income [Table Text Block]

	Three Months ended March 31,
	2020			2019
Service charges on deposit accounts	$	350		$	346
Gain on sale of mortgage and government loans (1)		2,583			1,438
Change in fair value of mortgage servicing rights (1)		(243	)		(111	)
Increase in cash surrender value of life insurance (1)		96			98
Other
Credit and debit card interchange fees		332			321
Wealth management		85			78
Net loan servicing fees (1)		85			95
Other non-interest income (1)		(454	)		243
Total non-interest income	$	2,834		$	2,508

XML

Note 9 - Stock Options - Summary of Activity for Stock Options (Details) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Outstanding, beginning of period (in shares)	117,647	93,069	93,069
Granted (in shares)
Exercised (in shares)
Forfeited (in shares)
Outstanding, end of period (in shares)	117,647	93,069	117,647
Weighted average exercise price at end of quarter (in dollars per share)	$ 21.81	$ 21.39

XML

Note 7 - Fair Value Measurements - Reconciliation and Income Statement Classification of Gains and Losses (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Balance at beginning of period	$ 1,061	$ 1,313
Purchases, issuances, and settlements	53	192
Disposals - amortization based on loan payments and payoffs	(46)	(186)
Changes in fair value	(243)	(258)
Balance at end of period	$ 825	$ 1,061

XML

Note 4 - Loans and Leases - Loans by Credit Quality Indicators (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans receivable	$ 573,981	$ 576,424
Pass [Member]
Loans receivable	440,306	447,342
Special Mention [Member]
Loans receivable	2,625	2,207
Substandard [Member]
Loans receivable	5,094	4,946
Doubtful [Member]
Loans receivable
Not Rated [Member]
Loans receivable	125,956	121,929
Residential 1 - 4 Family Real Estate [Member]
Loans receivable	120,326	122,905
Residential 1 - 4 Family Real Estate [Member] | Pass [Member]
Loans receivable	8,512	9,219
Residential 1 - 4 Family Real Estate [Member] | Special Mention [Member]
Loans receivable
Residential 1 - 4 Family Real Estate [Member] | Substandard [Member]
Loans receivable
Residential 1 - 4 Family Real Estate [Member] | Doubtful [Member]
Loans receivable
Residential 1 - 4 Family Real Estate [Member] | Not Rated [Member]
Loans receivable	111,814	113,686
Commercial and Agricultural Real Estate Portfolio Segment [Member]
Loans receivable	373,346	367,614
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Pass [Member]
Loans receivable	361,947
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Special Mention [Member]
Loans receivable	1,762
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Substandard [Member]
Loans receivable	3,432
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Doubtful [Member]
Loans receivable
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Not Rated [Member]
Loans receivable	6,205
Commercial and Agriculture Loans [Member] | Pass [Member]
Loans receivable	69,807
Commercial and Agriculture Loans [Member] | Special Mention [Member]
Loans receivable	863
Commercial and Agriculture Loans [Member] | Substandard [Member]
Loans receivable	1,662
Commercial and Agriculture Loans [Member] | Doubtful [Member]
Loans receivable
Commercial and Agriculture Loans [Member] | Not Rated [Member]
Loans receivable	1
Consumer Portfolio Segment [Member]
Loans receivable	7,976	8,247
Consumer Portfolio Segment [Member] | Pass [Member]
Loans receivable	40	45
Consumer Portfolio Segment [Member] | Special Mention [Member]
Loans receivable
Consumer Portfolio Segment [Member] | Substandard [Member]
Loans receivable
Consumer Portfolio Segment [Member] | Doubtful [Member]
Loans receivable
Consumer Portfolio Segment [Member] | Not Rated [Member]
Loans receivable	7,936	8,202
Commercial and Multi-Family Real Estate [Member]
Loans receivable	335,190	332,655
Commercial and Multi-Family Real Estate [Member] | Pass [Member]
Loans receivable		362,519
Commercial and Multi-Family Real Estate [Member] | Special Mention [Member]
Loans receivable		1,797
Commercial and Multi-Family Real Estate [Member] | Substandard [Member]
Loans receivable		3,258
Commercial and Multi-Family Real Estate [Member] | Doubtful [Member]
Loans receivable
Commercial and Multi-Family Real Estate [Member] | Not Rated [Member]
Loans receivable		40
Commercial Portfolio Segment [Member]
Loans receivable	$ 61,422	67,888
Commercial Portfolio Segment [Member] | Pass [Member]
Loans receivable		75,559
Commercial Portfolio Segment [Member] | Special Mention [Member]
Loans receivable		410
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans receivable		1,688
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans receivable
Commercial Portfolio Segment [Member] | Not Rated [Member]
Loans receivable		$ 1

XML

Note 4 - Loans and Leases - Activity in the Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Allowance for loan and lease losses beginning balance	$ 4,131	$ 3,527
Provision charged to expenses	550	100
Losses charged off	(9)	(28)
Recoveries	15	45
Allowance for loan and lease losses ending balance	4,687	3,644
Commercial and Agriculture Portfolio Segment [Member]
Allowance for loan and lease losses beginning balance	592	576
Provision charged to expenses	109	33
Losses charged off		(25)
Recoveries	3	3
Allowance for loan and lease losses ending balance	704	587
Commercial and Agricultural Real Estate Portfolio Segment [Member]
Allowance for loan and lease losses beginning balance	2,536	2,355
Provision charged to expenses	422	59
Losses charged off
Recoveries	3	6
Allowance for loan and lease losses ending balance	2,961	2,420
Residential 1 - 4 Family Real Estate [Member]
Allowance for loan and lease losses beginning balance	939	534
Provision charged to expenses	9	5
Losses charged off	(4)
Recoveries	9	36
Allowance for loan and lease losses ending balance	953	575
Consumer Portfolio Segment [Member]
Allowance for loan and lease losses beginning balance	64	62
Provision charged to expenses	10	3
Losses charged off	(5)	(3)
Recoveries
Allowance for loan and lease losses ending balance	$ 69	$ 62

XML

Note 5 - Other Borrowings - Composition of Other Borrowings (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Other Borrowings	$ 58,500	$ 58,750
Secured Notes With Interest At 1.72% [Member]
Federal Home Loan Bank	6,000	6,000
Secured Notes With Interest At 2.90% [Member]
Federal Home Loan Bank	8,000	8,000
Secured Note With Variable Interest [Member]
Federal Home Loan Bank	7,000	7,000
Secured Notes With Interest At 1.86% [Member]
Federal Home Loan Bank	6,000	6,000
Secured Notes With Interest At 2.94% [Member]
Federal Home Loan Bank	8,000	8,000
Secured Notes With Interest At 2.98% [Member]
Federal Home Loan Bank	9,000	9,000
Secured Notes With Interest At 1.97% [Member]
Federal Home Loan Bank	6,000	6,000
Note Payable With Interest At 4.875% [Member]
Other Borrowings	$ 8,500	$ 8,750

XML

Note 5 - Other Borrowings

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE

5

– OTHER BORROWINGS

Other borrowings consists of the following at 

March 31, 2020

and 

December 31, 2019

: 

	(in thousands)
	March 31,		December 31,
	2020		2019
Federal Home Loan Bank borrowings:
Secured note, with interest at 1.72%, due September, 2020	$	6,000	$	6,000
Secured note, with interest at 2.90%, due June, 2021		8,000		8,000
Secured note, with variable interest, at 1.55% at March 31, 2020 and 2.13% at December 31, 2019, due September, 2021		7,000		7,000
Secured note, with interest at 1.86%, due September, 2021		6,000		6,000
Secured note, with interest at 2.94%, due December, 2021		8,000		8,000
Secured note, with interest at 2.98%, due June, 2022		9,000		9,000
Secured note, with interest at 1.97%, due September, 2022		6,000		6,000
United Bankers Bank
Note payable, with interest at 4.875% and $250,000 principal payments payable quarterly with any remaining unpaid principal, due September 1, 2022. All Union Bank stock is held as collateral.		8,500		8,750
Total other borrowings	$	58,500	$	58,750

Federal Home Loan Bank borrowings are secured by Federal Home Loan Bank stock and eligible mortgage loans approxima

ting

$163,896,000

a

nd

$186,076,000

at

March 31, 2020

and 

December 31, 2019

respectively.

Future maturities of other borrowings are as follows:

2020:

$6,750,000;

2021,

$30,000,000;

and

2022,

$21,750,000.

XML

Note 9 - Stock Options

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

NOTE

9

– STOCK OPTIONS

The United Bancshares, Inc.

2016

Stock Option Plan (the “Plan”) permits the Corporation to award non-qualified stock options to eligible participants. A total of

250,000

shares are available for issuance pursuant to the Plan.

The Corporation has issued

30,151

options during

2017

 at an exercise price of

$21.70,

31,267

options during 

2018

at an exercise price of

$23.30,

and

33,853

options during

2019

at an exercise price of

$22.97

 under the Plan. Following is a summary of activity for stock options for the 

three

month periods ended 

March 31, 2020

and 

March 31, 2019

: 

	March 31,		March 31,
	2020		2019
Outstanding, beginning of period		117,647		93,069
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding, end of period		117,647		93,069
Weighted average exercise price at end of quarter	$	21.81	$	21.39

The options vest over a

three

-year period on the anniversary of the date of grant. At 

March 31, 2020

,

57,033

 options were vested compared to

31,718

 options vested at 

March 31, 2019

and outstanding options had a weighted average remaining contractual term

of

7.9

 years

.

The fair value of options granted is estimated at the date of grant using the Black Scholes option pricing model. Following are assumptions used in calculating the fair value of the options granted that are still vesting:

	2019			2018			2017
Weighted-average fair value of options granted	$	7.77		$	7.87		$	7.35
Average dividend yield		2.26	%		2.18	%		2.23	%
Expected volatility		40.00	%		40.00	%		40.00	%
Risk-free interest rate		1.93	%		2.81	%		2.06	%
Expected term (years)		7			7			7

Total compensation expense related to the stock options granted in 

2017

, net of forfeitures, is expected to be

$192,000

and is being recognized ratably over the

36

month period beginning

August 1, 2017.

Total compensation expense related to the stock options granted in

2018

, net of forfeitures, is expected to be

$213,000

and is being recognized ratably over the

36

month period beginning

September 1, 2018.

Total compensation expense related to the stock options granted in 

2019

is expected to be

$263,000

and is being recognized ratably over the

36

month period beginning

July 1, 2019.

Stock option expense for outstanding awards amounted to

$60,000

for the

three

months ended

March 31, 2020

 and

 

$55,000

for

 the

three

months ended

March 31, 2019

XML

Note 4 - Loans and Leases (Details Textual) xbrli-pure in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)
Impaired Financing Receivable, Average Recorded Investment, Total	$ 2,847,000	$ 1,307,000
Impaired Financing Receivable, Related Allowance	400,000	100,000
Impaired Financing Receivable, Interest Income, Accrual Method, Total	$ 12,000	24,000
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0
Provision for Loan and Lease Losses, Total	$ 550,000	100,000
Ohio State Bancshares Inc [Member]
Provision for Loan and Lease Losses, Total	$ 0	$ 0

XML

Note 3 - Securities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	(in thousands)
March 31, 2020	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	72,019	$	3,289	$	44	$	75,264
Mortgage-backed		107,289		4,117		-		111,406
Other		1,023		7		-		1,030
Total	$	180,331	$	7,413	$	44	$	187,700

	(in thousands)
December 31, 2019	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	70,043	$	2,593	$	82	$	72,554
Mortgage-backed		108,907		1,292		158		110,041
Other		1,025		-		9		1,016
Total	$	179,975	$	3,885	$	249	$	183,611

XML

Note 8 - Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	(in thousands)
	March 31, 2020				December 31, 2019
	Carrying amount		Estimated value		Carrying amount		Estimated value		Input Level
FINANCIAL ASSETS
Cash and cash equivalents	$	44,772	$	44,772	$	26,412	$	26,412		1
Securities, including FHLB stock		193,298		193,298		188,913		188,913		2,3
Loans held for sale		19,613		19,613		15,301		15,301		3
Net loans and leases		569,294		570,267		572,293		572,936		3
Mortgage servicing rights		825		825		1,061		1,061		3
Hedging assets		1,960		1,960		970		970		3
Total Financial Assets	$	829,762	$	830,735	$	804,950	$	805,593
FINANCIAL LIABILITIES
Deposits
Maturity	$	183,971	$	185,705	$	197,391	$	197,428		3
Non-maturity		541,165		541,165		509,743		509,743		1
Other borrowings		58,500		58,427		58,750		58,692		3
Junior subordinated deferrable interest debentures		12,916		6,307		12,908		11,067		3
Hedging liabilities		1,123		1,123		27		27		3
Total Financial Liabilities	$	797,675	$	792,727	$	778,819	$	776,957

XML

Note 1 - Consolidated Financial Statements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

NOTE

1

– CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of United Bancshares, Inc. and subsidiaries (the “Corporation”) have been prepared without audit and in the opinion of management reflect all adjustments (which include normal recurring adjustments) necessary to present fairly such information for the periods and dates indicated. Since the unaudited financial statements have been prepared in accordance with the instructions to Form

10

-Q, they do

not

contain all information and footnotes typically included in financial statements prepared in conformity with generally accepted accounting principles. Operating results for the 

three

months ended

March 31, 2020

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2020

. The balance sheet as of

December 31, 2019

is derived from completed audited consolidated financial statements with footnotes, which are included in the Corporation’s Annual Report on Form

10

-K for the year ended

December 31, 2019

.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Union Bank Company (the “Bank”). The Bank has formed a wholly-owned subsidiary, UBC Investments, Inc. (“UBC”), to hold and manage its securities portfolio. The operations of UBC are located in Wilmington, Delaware. The Bank has also formed a wholly-owned subsidiary, UBC Property, Inc. (“UBC Property”), to hold and manage certain property. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Corporation conform to generally accepted practices within the banking industry. The Corporation considers all of its principal activities to be banking related.

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2020 shares
Document Information [Line Items]
Entity Registrant Name	UNITED BANCSHARES INC/OH
Entity Central Index Key	0001087456
Trading Symbol	uboh
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)	3,270,399
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock, No Par Value

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income	$ 1,088	$ 1,814
OTHER COMPREHENSIVE INCOME
Unrealized holding gains during period	3,733	2,552
Reclassification adjustments for gains included in net income
Other comprehensive income, before income taxes	3,733	2,552
Income tax expense related to items of other comprehensive income	784	536
Other comprehensive income	2,949	2,016
COMPREHENSIVE INCOME	$ 4,037	$ 3,830

XML

Note 8 - Fair Value of Financial Instruments - Carrying Amounts and Estimated Fair Values of Recognized Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Total Financial Assets	$ 830,735	$ 805,593
Total Financial Liabilities	792,727	776,957
Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	44,772	26,412
Fair Value, Inputs, Level 1 [Member] | Non-Maturity Deposits [Member]
Deposits	541,165	509,743
Fair Value, Inputs Level 2 and Level 3 [Member]
Securities, including FHLB stock	193,298	188,913
Fair Value, Inputs, Level 3 [Member]
Loans held for sale	19,613	15,301
Net loans and leases	570,267	572,936
Mortgage servicing rights	825	1,061	$ 1,313
Hedging assets	1,960	970
Other borrowings	58,427	58,692
Junior subordinated deferrable interest debentures	6,307	11,067
Hedging liabilities	1,123	27
Fair Value, Inputs, Level 3 [Member] | Maturity Deposits [Member]
Deposits	185,705	197,428
Reported Value Measurement [Member]
Total Financial Assets	829,762	804,950
Total Financial Liabilities	797,675	778,819
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	44,772	26,412
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member] | Non-Maturity Deposits [Member]
Deposits	541,165	509,743
Reported Value Measurement [Member] | Fair Value, Inputs Level 2 and Level 3 [Member]
Securities, including FHLB stock	193,298	188,913
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans held for sale	19,613	15,301
Net loans and leases	569,294	572,293
Mortgage servicing rights	825	1,061
Hedging assets	1,960	970
Other borrowings	58,500	58,750
Junior subordinated deferrable interest debentures	12,916	12,908
Hedging liabilities	1,123	27
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member] | Maturity Deposits [Member]
Deposits	$ 183,971	$ 197,391

XML

Note 6 - Junior Subordinated Deferrable Interest Debentures (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Investments in and Advances to Affiliates, Balance, Principal Amount	$ 300,000
Guarantor Obligations, Maximum Exposure, Undiscounted	10,000,000
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Total	$ 12,916,000		$ 12,908,000
Subordinated Borrowing, Interest Rate	4.38%		5.10%
Subordinated Debenture, Default, Interest Payment Deferment Quarterly Periods	20
Other Long-term Debt, Total	$ 2,616,000		$ 2,608,000
Interest Expense, Debt, Total	$ 161,000	$ 191,000
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	3.15%
Trust Preferred Securities [Member]
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Total	$ 10,300,000
Trust Preferred Securities [Member] | Ohio State Bancshares Inc [Member]
Subordinated Borrowing, Interest Rate	4.66%		4.78%
Business Combination, Consideration Transferred, Liabilities Incurred	$ 3,093,000
Trust Preferred Securities [Member] | London Interbank Offered Rate (LIBOR) [Member] | Ohio State Bancshares Inc [Member]
Debt Instrument, Basis Spread on Variable Rate	2.85%
Guaranteed Trust Preferred Securities [Member] | Ohio State Bancshares Inc [Member]
Business Combination, Consideration Transferred, Liabilities Incurred	$ 3,000,000
Trusted Preferred Securities Secured by an Investment [Member] | Ohio State Bancshares Inc [Member]
Business Combination, Consideration Transferred, Liabilities Incurred	$ 93,000

XML

Note 10 - Non-interest Income - Non-interest Income (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
Gain on sale of loans	[1]	$ 2,583	$ 1,438
Change in fair value of mortgage servicing rights	[1]	(243)	(111)
Increase in cash surrender value of life insurance	[1]	96	98
Wealth management		85	78
Net loan servicing fees	[1]	85	95
Other non-interest income	[1]	(454)	243
Total non-interest income		2,834	2,508
Deposit Account [Member]
Revenue from customers		350	346
Credit and Debit Card [Member]
Revenue from customers		$ 332	$ 321

[1] Not within the scope of ASC 606

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

In

June 2016,

the Financial Accounting Standards Board (FASB) issued ASU

2016

-

13,

Financial Instruments Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Management has developed

four

different models for calculating the allowance for loan losses under the requirements of ASU

2016

-

13

and has been running them parallel to the Bank’s existing methodology.  Management has

not

yet determined the expected impact the adoption of ASU

2016

-

13

will have on the consolidated financial statements.  For public companies, this update was to be effective for interim and annual periods beginning after

December 15, 2019.

On

July 17, 2019,

the FASB voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU

2016

-

13.

  On

October 16, 2019,

the FASB extended the implementation deadline until the fiscal year and interim periods beginning after

December 15, 2022.  

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates the Step

2

from the goodwill impairment test. For public companies, this update is effective for interim and annual periods beginning after

December 15, 2019.

The Corporation adopted ASU

2017

-

04

effective

January 1, 2020

but the new guidance did

not

have any impact on the

March 31, 2020

consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

13,

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.  This ASU eliminates, adds, and modifies certain disclosure requirements for estimated fair value measurements.  Among the changes, entities will

no

longer be required to disclose the amount of and reasons for transfer between Level

1

and Level

2

of the estimated fair value hierarchy, but will be required to disclose the range and weighted-average used to develop significant unobservable inputs for Level

3

estimated fair value measurements.  ASU

2018

-

13

is effective for all entities for interim and annual reporting periods beginning after

December 15, 2019. 

The Corporation adopted ASU

2018

-

13

effective

January 1, 2020. 

The revised disclosure requirements did

not

have a significant impact on the Corporation's

March 31, 2020

consolidated financial statements.

In

April, 2019,

the FASB issued ASU

2019

-

04,

Codification Improvements to Topic

326,

Financial Instruments - Credit Losses, Topic

815,

Derivatives and Hedging, and Topic

825,

Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

December, 2019,

the FASB issued ASU

2019

-

12,

Income Taxes (Topic

740

), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic

740.

  The amendments also improve consistent application of and simplify GAAP for the areas of Topic

740

by clarifying and amending existing guidance.  This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after

December 15, 2020. 

Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have

not

yet been issued.  Depending on the amendment, adoption

may

be applied on the retrospective, modified retrospective, or prospective basis.  The Corporation is currently reviewing the provisions of this new pronouncement, but does

not

expect adoption of this guidance to have a material impact on its consolidated financial statements.

In

January, 2020,

the FASB issued ASU

2020

-

01,

Investments - Equity Securities (Topic

321

), Investments - Equity Method and Joint Ventures (Topic

323

), and Derivatives and Hedging (Topic

815

), Clarifying the Interactions between Topic

321,

Topic

323,

and Topic

815.

  The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic

321

 immediately before applying or upon discontinuing the equity method.  The amendments clarify that for the purpose of applying paragraph

815

-

10

-

15

-

141

(a) an entity should

not

consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 

323

or the fair value option in accordance with the financial instruments guidance in Topic 

825.

An entity also would evaluate the remaining characteristics in paragraph

815

-

10

-

15

-

141

to determine the accounting for those forward contracts and purchased options.  The amendments in this Update are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years.  Early adoption is permitted, including early adoption in an interim period for which financial statements have

not

yet been issued.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

March 2020,

the FASB issued ASU

2020

-

03,

Codification Improvements to Financial Instruments.  This update affects a wide variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.  This update is

not

expected to have a significant impact on the Corporation's consolidated financial statements.

In

March 2020,

the FASB issued ASU

2020

-

04,

Reference Rate Reform (Topic

848

), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting.  The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  The amendments are effective for all entities as of

March 12, 2020

through

December 31, 2022.  

The Corporation is currently reviewing the amendments in this Update, but does

not

expect this guidance to have a material impact on its consolidated financial statements.

XML

Note 7 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	(in thousands)
	March 31,			December 31,
	2020			2019
Mortgage Servicing Rights
Balance at beginning of period	$	1,061		$	1,313
Gains or losses, including realized and unrealized:
Purchases, issuances, and settlements		53			192
Disposals - amortization based on loan payments and payoffs		(46	)		(186	)
Changes in fair value		(243	)		(258	)
Balance at end of period	$	825		$	1,061

XML

Note 3 - Securities - Amortized Cost and Fair Value of Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Available-for-sale securities, Amortized cost	$ 180,331	$ 179,975
Available-for-sale securities, Gross unrealized gains	7,413	3,885
Available-for-sale securities, Gross unrealized losses	44	249
Available-for-sale securities, Fair Value	187,700	183,611
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, Amortized cost	72,019	70,043
Available-for-sale securities, Gross unrealized gains	3,289	2,593
Available-for-sale securities, Gross unrealized losses	44	82
Available-for-sale securities, Fair Value	75,264	72,554
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale securities, Amortized cost	107,289	108,907
Available-for-sale securities, Gross unrealized gains	4,117	1,292
Available-for-sale securities, Gross unrealized losses		158
Available-for-sale securities, Fair Value	111,406	110,041
Other Debt Obligations [Member]
Available-for-sale securities, Amortized cost	1,023	1,025
Available-for-sale securities, Gross unrealized gains	7
Available-for-sale securities, Gross unrealized losses		9
Available-for-sale securities, Fair Value	$ 1,030	$ 1,016

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Mar. 31, 2019
INTEREST INCOME
Loans and leases, including fees		$ 7,945	$ 7,783
Securities:
Taxable		612	662
Tax-exempt		498	413
Other		177	128
Total interest income		9,232	8,986
INTEREST EXPENSE
Deposits		1,535	1,410
Other borrowings		573	641
Total interest expense		2,108	2,051
Net interest income		7,124	6,935
PROVISION FOR LOAN AND LEASE LOSSES		550	100
Net interest income after provision for loan and lease losses		6,574	6,835
NON-INTEREST INCOME
Gain on sale of loans	[1]	2,583	1,438
Other non-interest income		251	1,070
Total non-interest income		2,834	2,508
NON-INTEREST EXPENSES		8,210	7,222
INCOME BEFORE INCOME TAXES		1,198	2,121
PROVISION FOR INCOME TAXES		110	307
NET INCOME		$ 1,088	$ 1,814
NET INCOME PER SHARE (basic and diluted) (in dollars per share)		$ 0.33	$ 0.55
Weighted average common shares outstanding (basic) (in shares)		3,270,066	3,270,408
Weighted average common shares outstanding (diluted) (in shares)		3,270,066	3,277,717

[1] Not within the scope of ASC 606

XML

Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES	$ (1,474)	$ (1,818)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, calls and maturities of available-for-sale securities	6,908	3,788
Purchases of available-for-sale securities	(7,494)	(3,575)
Purchases of FHLB stock	(296)
Net increase in loans and leases	3,385	(4,222)
Purchases of premises and equipment	(14)	(83)
Net cash provided by (used in) investing activities	2,489	(4,092)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	17,991	23,040
Repayments of other borrowings	(250)	(5,943)
Proceeds from sale of treasury shares	62	30
Cash dividends paid	(458)	(426)
Net cash provided by financing activities	17,345	16,701
NET INCREASE IN CASH AND CASH EQUIVALENTS	18,360	10,791
CASH AND CASH EQUIVALENTS
At beginning of period	26,412	16,475
At end of period	44,772	27,266
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest	2,153	2,012
Federal income taxes
Non-cash investing activities:
Change in net unrealized gain on available-for-sale securities	$ 3,733	$ 2,552

XML

Note 11 - Subsequent Events (Details Textual) - Subsequent Event [Member] $ / shares in Units, $ in Millions		1 Months Ended
	Apr. 28, 2020 $ / shares	Apr. 28, 2020 USD ($) $ / shares
Number of Clients Assisted With PPP		1,100
Paycheck Protection Program Financing, Clients Assisted, Amount | $		$ 106
Dividends Payable, Amount Per Share (in dollars per share) | $ / shares	$ 0.07	$ 0.07
Dividends Payable, Date to be Paid	Jun. 15, 2020
Dividends Payable, Date of Record	May 29, 2020

XML

Note 9 - Stock Options (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)
Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)			33,853	31,267	30,151
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in dollars per share)			$ 22.97	$ 23.30	$ 21.70
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares (in shares)	57,033	31,718
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term (Year)	7 years 328 days
Share-based Payment Arrangement, Option [Member] | Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)	250,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)	3 years
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount	$ 263,000			$ 213,000	$ 192,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Month)	3 years			3 years	3 years
Share-based Payment Arrangement, Expense, after Tax	$ 60,000	$ 55,000

XML

Note 7 - Fair Value Measurements (Details Textual)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Financial Liabilities Fair Value Disclosure, Total	$ 792,727,000	$ 776,957,000
Assets, Fair Value Disclosure	$ 830,735,000	805,593,000
Measurement Input, Appraised Value [Member] | Minimum [Member]
Impaired Loans, Measurement Input	0.15
Other Real Estate Owned, Measurement Input	0.1
Measurement Input, Appraised Value [Member] | Maximum [Member]
Impaired Loans, Measurement Input	0.35
Other Real Estate Owned, Measurement Input	0.3
Measurement Input, Cost to Sell [Member] | Minimum [Member]
Impaired Loans, Measurement Input	0.1
Other Real Estate Owned, Measurement Input	0.1
Measurement Input, Cost to Sell [Member] | Maximum [Member]
Impaired Loans, Measurement Input	0.2
Other Real Estate Owned, Measurement Input	0.2
Measurement Input, Discount Rate [Member] | Minimum [Member]
Mortgage Servicing Rights, Measurement Input	0.11
Measurement Input, Discount Rate [Member] | Maximum [Member]
Mortgage Servicing Rights, Measurement Input	0.13
Fair Value, Inputs, Level 3 [Member]
Impaired Financing Receivable, Recorded Investment, Total	$ 1,732,000	1,495,000
Fair Value, Recurring [Member]
Financial Liabilities Fair Value Disclosure, Total	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage Servicing Rights [Member]
Assets, Fair Value Disclosure	$ 825,000	$ 1,061,000

XML

Note 5 - Other Borrowings - Composition of Other Borrowings (Details) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Secured Notes With Interest At 1.72% [Member]
Debt instrument, interest rate, stated percentage	1.72%	1.72%
Debt instrument, maturity date	Sep. 01, 2020	Sep. 01, 2020
Secured Notes With Interest At 2.90% [Member]
Debt instrument, interest rate, stated percentage	2.90%	2.90%
Debt instrument, maturity date	Jun. 01, 2021	Jun. 01, 2021
Secured Note With Variable Interest [Member]
Debt instrument, interest rate, stated percentage	1.55%	2.13%
Debt instrument, maturity date	Sep. 01, 2021	Sep. 01, 2021
Secured Notes With Interest At 1.86% [Member]
Debt instrument, interest rate, stated percentage	1.86%	1.86%
Debt instrument, maturity date	Sep. 01, 2021	Sep. 01, 2021
Secured Notes With Interest At 2.94% [Member]
Debt instrument, interest rate, stated percentage	2.94%	2.94%
Debt instrument, maturity date	Dec. 01, 2021	Dec. 01, 2021
Secured Notes With Interest At 2.98% [Member]
Debt instrument, interest rate, stated percentage	2.98%	2.98%
Debt instrument, maturity date	Jun. 01, 2022	Jun. 01, 2022
Secured Notes With Interest At 1.97% [Member]
Debt instrument, interest rate, stated percentage	1.97%	1.97%
Debt instrument, maturity date	Sep. 01, 2022	Sep. 01, 2022
Note Payable With Interest At 4.875% [Member]
Debt instrument, interest rate, stated percentage	4.875%	4.875%
Debt instrument, maturity date	Sep. 01, 2022	Sep. 01, 2022
Debt instrument, periodic principal payments	$ 250	$ 250

XML

Note 4 - Loans and Leases - Performance of Loan Portfolio (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans receivable	$ 125,956	$ 121,929
Residential Portfolio Segment [Member]
Loans receivable	111,814	113,686
Commercial and Multi-Family Real Estate [Member]
Loans receivable	6,205	40
Commercial Portfolio Segment [Member]
Loans receivable	1	1
Consumer Portfolio Segment [Member]
Loans receivable	7,936	8,202
Performing Financial Instruments [Member]
Loans receivable	125,659	121,590
Performing Financial Instruments [Member] | Residential Portfolio Segment [Member]
Loans receivable	111,533	113,364
Performing Financial Instruments [Member] | Commercial and Multi-Family Real Estate [Member]
Loans receivable	6,190	24
Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Loans receivable
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member]
Loans receivable	7,936	8,202
Nonperforming Financial Instruments [Member]
Loans receivable	297	339
Nonperforming Financial Instruments [Member] | Residential Portfolio Segment [Member]
Loans receivable	281	322
Nonperforming Financial Instruments [Member] | Commercial and Multi-Family Real Estate [Member]
Loans receivable	15	16
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Loans receivable	1	1
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member]
Loans receivable

XML

Note 4 - Loans and Leases - Activity in the Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Attributable to loans and leases individually evaluated for impairment	$ 400	$ 435
Collectively evaluated for impairment	4,287	3,696
Total allowance for loan and lease losses	4,687	4,131
Individually evaluated for impairment	2,920	2,778
Acquired with deteriorated credit quality	125,956	121,929
Collectively evaluated for impairment	570,897	573,458
Loans receivable	573,981	576,424
Financial Asset Acquired with Credit Deterioration [Member]
Acquired with deteriorated credit quality	164	188
Residential 1 - 4 Family Real Estate [Member]
Attributable to loans and leases individually evaluated for impairment
Collectively evaluated for impairment	704	592
Total allowance for loan and lease losses	704	592
Individually evaluated for impairment
Collectively evaluated for impairment	120,266	122,844
Loans receivable	120,326	122,905
Residential 1 - 4 Family Real Estate [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Acquired with deteriorated credit quality	60	61
Commercial and Agricultural Real Estate Portfolio Segment [Member]
Attributable to loans and leases individually evaluated for impairment	89	93
Collectively evaluated for impairment	2,872	2,443
Total allowance for loan and lease losses	2,961	2,536
Individually evaluated for impairment	1,644	1,499
Collectively evaluated for impairment	371,598	365,988
Loans receivable	373,346	367,614
Commercial and Agricultural Real Estate Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Acquired with deteriorated credit quality	104	127
Commercial and Agriculture Portfolio Segment [Member]
Attributable to loans and leases individually evaluated for impairment	311	342
Collectively evaluated for impairment	642	597
Total allowance for loan and lease losses	953	939
Individually evaluated for impairment	1,276	1,279
Collectively evaluated for impairment	71,057	76,379
Loans receivable	72,333	77,658
Commercial and Agriculture Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Acquired with deteriorated credit quality
Consumer Portfolio Segment [Member]
Attributable to loans and leases individually evaluated for impairment
Collectively evaluated for impairment	69	64
Total allowance for loan and lease losses	69	64
Individually evaluated for impairment
Acquired with deteriorated credit quality	7,936	8,202
Collectively evaluated for impairment	7,976	8,247
Loans receivable	7,976	8,247
Consumer Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Acquired with deteriorated credit quality

XML

Note 4 - Loans and Leases

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE

4

– LOANS AND LEASES

The following tables present the activity in the allowance for loan and lease losses by portfolio segment for the

three

month periods ended

March 31, 2020

and

2019

:

	(in thousands)
	Residential 1 – 4 family real estate			Commercial and multi-family real estate		Commercial			Consumer			Total
Balance at December 31, 2019	$	592		$	2,536	$	939		$	64		$	4,131
Provision charged to expenses		109			422		9			10			550
Losses charged off		-			-		(4	)		(5	)		(9	)
Recoveries		3			3		9			-			15
Balance at March 31, 2020	$	704		$	2,961	$	953		$	69		$	4,687
Balance at December 31, 2018	$	576		$	2,355	$	534		$	62		$	3,527
Provision charged to expenses		33			59		5			3			100
Losses charged off		(25	)		-		-			(3	)		(28	)
Recoveries		3			6		36			-			45
Balance at March 31, 2019	$	587		$	2,420	$	575		$	62		$	3,644

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment method as of 

March 31, 2020

and 

December 31, 2019

:

	(in thousands)
March 31, 2020	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	89	$	311	$	-	$	400
Collectively evaluated for impairment		704		2,872		642		69		4,287
Total allowance for loan and lease losses	$	704	$	2,961	$	953	$	69	$	4,687
Loans and leases:
Individually evaluated for impairment	$	-	$	1,644	$	1,276	$	-	$	2,920
Acquired with deteriorated credit quality		60		104				-		164
Collectively evaluated for impairment		120,266		371,598		71,057		7,976		570,897
Total ending loans and leases balance	$	120,326	$	373,346	$	72,333	$	7,976	$	573,981

December 31, 2019	Residential 1 – 4 family real estate		Commercial and multi-family real estate		Commercial		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	93	$	342	$	-	$	435
Collectively evaluated for impairment		592		2,443		597		64		3,696
Total allowance for loan and lease losses	$	592	$	2,536	$	939	$	64	$	4,131
Loans and leases:
Individually evaluated for impairment	$	-	$	1,499	$	1,279	$	-	$	2,778
Acquired with deteriorated credit quality		61		127		-		-		188
Collectively evaluated for impairment		122,844		365,988		76,379		8,247		573,458
Total ending loans and leases balance	$	122,905	$	367,614	$	77,658	$	8,247	$	576,424

The average recorded investment in impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) for the 

three

month period ended

March 31, 2020

was

$2,847,000

compared to

$1,307,000

for the 

three

month period ended

March 31, 2019.

 There

was

$400

,

000

of

allowance for loan and lease losses specifically reserved as of 

March 31, 2020

for impaired loans compared

to

$100,000

as

of

March 31, 2019

. Additionally, there was

approximately

$12,000

in

interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the 

three

month period ended

March 31, 2020

and

$24,000

for the

three

month period ended

March 31, 2019

.

The following table presents the recorded investment in nonaccrual loans and leases, loans and leases past due over

90

days still on accrual and troubled debt restructurings by class of loans as of 

March 31, 2020

and 

December 31, 2019

. Nonaccrual loans primarily consist of smaller dollar homogenous loans that are collectively evaluated for impairment.

	(in thousands)
March 31, 2020	Nonaccrual		Loans and leases past due over 90 days still accruing		Accruing Troubled Debt Restructurings
Residential 1-4 family real estate	$	503	$	97	$	218
Commercial and multi family real estate		1,294		-		600
Agricultural real estate		4		-		-
Commercial		-		-		771
Agriculture		-		-		-
Consumer		-		-		-
Total	$	1,801	$	97	$	1,589
December 31, 2019
Residential 1-4 family real estate	$	414	$	138	$	223
Commercial and multi family real estate		545		-		623
Agricultural real estate		4		-		-
Commercial		-		-		772
Agriculture		-		-		-
Consumer		-		-		-
Total	$	963	$	138	$	1,618

The following table presents the aging of the recorded investment in past due loans and leases as of 

March 31, 2020

and 

December 31, 2019

by class of loans and leases:

	(in thousands)
March 31, 2020	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
Residential 1-4 family real estate	$	1,072	$	473	$	281	$	1,826	$	118,500	$	120,326
Commercial and multi family real estate		245		30		606		881		334,309		335,190
Agricultural real estate		16		-		-		16		38,140		38,156
Commercial		27		27		1		55		61,367		61,422
Agriculture		81		-		-		81		10,830		10,911
Consumer		2		-		-		2		7,974		7,976
Total	$	1,443	$	530	$	888	$	2,861	$	571,120	$	573,981
December 31, 2019
Residential 1-4 family real estate	$	2,709	$	99	$	322	$	3,130	$	119,775	$	122,905
Commercial and multi family real estate		177		302		15		494		332,161		332,655
Agricultural real estate		-		-		-		-		34,959		34,959
Commercial		-		57		5		62		67,826		67,888
Agriculture		-		-		-		-		9,770		9,770
Consumer		2		-		-		2		8,245		8,247
Total	$	2,888	$	458	$	342	$	3,688	$	572,736	$	576,424

Credit Quality Indicators:

The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt, such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Corporation analyzes loans and leases individually by classifying the loans and leases as to the credit risk.  This analysis generally includes non-homogenous loans and leases, such as commercial and commercial real estate loans and leases. The Corporation uses the following definitions for risk ratings:

● Pa ss : Loans and leases not meeting the previous criteria that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

● Special Mention: Loans and leases which possess some credit deficiency or potential weakness which deserves close attention, but which do not yet warrant substandard classification. Such loans and leases pose unwarranted financial risk that, if not corrected, could weaken the loan or lease and increase risk in the future. The key distinctions of a Special Mention classification are that ( 1 ) it is indicative of an unwarranted level of risk, and ( 2 ) weaknesses are considered "potential", versus "defined", impairments to the primary source of loan repayment.

● Substandard: These loans and leases are inadequately protected by the current sound net worth and paying ability of the borrower. Loans and leases of this type will generally display negative financial trends such as poor or negative net worth, earnings or cash flow. These loans and leases may also have historic and/or severe delinquency problems, and Corporation management may depend on secondary repayment sources to liquidate these loans and leases. The Corporation could sustain some degree of loss in these loans and leases if the weaknesses remain uncorrected.

● Doubtful: Loans and leases in this category display a high degree of loss, although the amount of actual loss at the time of classification is undeterminable. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification.

The following table provides a summary of the loan portfolio risk grades, as applicable, based on the most recent analysis performed, as of 

March 31, 2020

and 

December 31, 2019

. The Corporation risk rates all commercial and commercial real estate loans.

As of 

March 31, 2020

and 

December 31, 2019

, and based on the most recent analysis performed, the risk category of loans by class of loans and leases is as follows:

	(in thousands)
March 31, 2020	Pass		Special Mention		Substandard		Doubtful		Not rated
Residential 1 - 4 family	$	8,512	$	-	$	-	$	-	$	111,814
Commercial and multi- family real estate		361,947		1,762		3,432		-		6,205
Commercial		69,807		863		1,662		-		1
Consumer		40		-		-		-		7,936
Total	$	440,306	$	2,625	$	5,094	$	-	$	125,956
December 31, 2019
Residential 1 - 4 family	$	9,219	$	-	$	-	$	-	$	113,686
Commercial and multi- family real estate		362,519		1,797		3,258		-		40
Commercial		75,559		410		1,688		-		1
Consumer		45		-		-		-		8,202
Total	$	447,342	$	2,207	$	4,946	$	-	$	121,929

The Corporation considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. For all loan classes that are

not

rated, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Generally, all loans and leases

not

rated that are

90

days past due or are classified as nonaccrual and collectively evaluated for impairment, are considered nonperforming. The following table presents the recorded investment in all loans and leases that are

not

risk rated, based on payment activity as of 

March 31, 2020

and 

December 31, 2019

:

	(in thousands)
March 31, 2020	Residential 1-4 family		Commercial and multi-family real estate		Commercial		Consumer		Total
Performing	$	111,533	$	6,190	$	-	$	7,936	$	125,659
Nonperforming		281		15		1		-		297
Total	$	111,814	$	6,205	$	1	$	7,936	$	125,956
December 31, 2019
Performing	$	113,364	$	24	$	-	$	8,202	$	121,590
Nonperforming		322		16		1		-		339
Total	$	113,686	$	40	$	1	$	8,202	$	121,929

Modifications:

The Corporation’s loan and lease portfolio also includes certain loans and leases that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. All TDRs are also classified as impaired loans and leases.

When the Corporation modifies a loan or lease, management evaluates any possible concession based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, except when the sole (remaining) source of repayment for the loan or lease is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan or lease is less than the recorded investment in the loan or lease (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), an impairment is recognized through a specific reserve in the allowance or a direct write down of the loan or lease balance if collection is

not

expected.

There were

no

 modifications for TDR loans and leases for which there was a payment default during the 

three

month period ended

March 31, 2020

. 

The Corporation acquired The Ohio State Bank (“OSB”) in

November 2014

and Benchmark Bank in

September 2017.

As a result of these acquisitions, the Corporation has loans and leases, for which there was at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition, that all contractually required payments would

not

be collected.

The following is information related to loans and leases acquired in these transactions, including purchased impaired loans:

	The Ohio State Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	13,047		$	(430	)	$	12,617
Change due to payments received		(657	)		27			(630	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	12,390		$	(403	)	$	11,987
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	160		$	(134	)	$	26
Change due to payments received		(9	)		2			(7	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	151		$	(132	)	$	19

	Benchmark Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2019	$	58,953		$	(1,177	)	$	57,776
Change due to payments received		(5,132	)		117			(5,015	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	53,821		$	(1,060	)	$	52,761
Purchased Impaired Loans and Leases
Balance at December 31, 2019	$	354		$	(192	)	$	162
Change due to payments received		(36	)		19			(17	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at March 31, 2020	$	318		$	(173	)	$	145

There

was

no

provision for loan and lease losses recognized during

the 

three

month periods ended

March 31, 2020

and

2019

related to the acquired loans as there was

no

significant change to the credit quality of the loans during the period.

XML

Note 8 - Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

NOTE

8

– FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of recognized financial instruments at 

March 31, 2020

and 

December 31, 2019

were as follows:

	(in thousands)
	March 31, 2020				December 31, 2019
	Carrying amount		Estimated value		Carrying amount		Estimated value		Input Level
FINANCIAL ASSETS
Cash and cash equivalents	$	44,772	$	44,772	$	26,412	$	26,412		1
Securities, including FHLB stock		193,298		193,298		188,913		188,913		2,3
Loans held for sale		19,613		19,613		15,301		15,301		3
Net loans and leases		569,294		570,267		572,293		572,936		3
Mortgage servicing rights		825		825		1,061		1,061		3
Hedging assets		1,960		1,960		970		970		3
Total Financial Assets	$	829,762	$	830,735	$	804,950	$	805,593
FINANCIAL LIABILITIES
Deposits
Maturity	$	183,971	$	185,705	$	197,391	$	197,428		3
Non-maturity		541,165		541,165		509,743		509,743		1
Other borrowings		58,500		58,427		58,750		58,692		3
Junior subordinated deferrable interest debentures		12,916		6,307		12,908		11,067		3
Hedging liabilities		1,123		1,123		27		27		3
Total Financial Liabilities	$	797,675	$	792,727	$	778,819	$	776,957

The above summary does

not

include accrued interest receivable or cash surrender value of life insurance, which are also considered financial instruments. The estimated fair value of such items is considered to be their carrying amounts.

There are also unrecognized financial instruments at 

March 31, 2020

and 

December 31, 2019

which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments amounted

to

$141,005,000

at

March 31, 2020

and

$133,220,000

at

December 31, 2019

. Such amounts are also considered to be the estimated fair values.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments shown above:

Cash and cash equivalents:

Fair value is determined to be the carrying amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in

90

days or less, and do

not

represent unanticipated credit concerns.

Securities:

The fair value of securities is determined based on quoted market prices of the individual securities; if

not

available, estimated fair value is obtained by comparison to other known securities with similar risk and maturity characteristics. Such value does

not

consider possible tax ramifications or estimated transaction costs.

Loans held for sale:

The fair value of loans held for sale is determined based on the sales price of similar loans. Loan held for sale are typically held for

60

days or less.

Loans and leases:

Fair value for loans and leases was estimated for portfolios of loans and leases with similar financial characteristics. For adjustable rate loans, which re-price at least annually and generally possess low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair value. For fixed rate loans, the fair value is estimated based on a discounted cash flow analysis, considering weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk inherent in the loans. Fair value for nonperforming loans is based on recent appraisals or estimated discounted cash flows.

Mortgage servicing rights:

The fair value for mortgage servicing rights is determined based on an analysis of the portfolio by an independent

third

party.

Deposit liabilities:

The fair value of core deposits, including demand deposits, savings accounts, and certain money market deposits, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated using the rates offered at quarter end for deposits of similar remaining maturities. The estimated fair value does

not

include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the marketplace.

Other borrowings and junior subordinated deferrable interest debentures:

The fair value of other borrowings and junior subordinated deferrable interest debentures are determined using the net present value of discounted cash flows based on current borrowing rates for similar types of borrowing arrangements, and are obtained from an independent

third

party.

Other financial instruments:

The fair value of commitments to extend credit and letters of credit is determined to be the contract amount, since these financial instruments generally represent commitments at existing rates. The fair value of other borrowings is determined based on a discounted cash flow analysis using current interest rates. The fair value of other liabilities is generally considered to be carrying value except for the deferred compensation agreement. The fair value of the contract is determined based on a discounted cash flow analysis using a current interest rate for a similar instrument.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. These estimates do

not

reflect any premium or discount that could result from offering for sale at

one

time the entire holdings of a particular financial instrument over the value of anticipated future business and the value of assets and liabilities that are

not

considered financial instruments. Since

no

ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.