10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007 OR

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

UNITED BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

0-25976

Commission File Number

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

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

(215) 351-4600

(Registrant's telephone number, including area code)

N/A

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

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

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

Large accelerated filer_____    Accelerated filer_______     Non-accelerated filer___X___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes_____ No_X__

1

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

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

Applicable only to corporate issuers:

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

United Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of capital stock authorized - 2,000,000 shares of $.01 par value Common Stock and a Series Preferred Stock (Series A Preferred Stock).

The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998.  This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights.  Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock.  There is no market for the Common Stock.  As of August 1, 2007 the aggregate number of the shares of the Registrant’s Common Stock outstanding was 1,068,588 (including 191,667 Class B non-voting).  There are 33,500 shares of Common Stock held in treasury stock at August 1, 2007.

The Series A Non-Voting Preferred Stock consists of 500,000 authorized shares of stock of which 136,842 shares are issued and outstanding and 6,308 shares are held in treasury stock as of August 1, 2007.

2

FORM 10-Q

Index

         Item No. Page 

PART I-FINANCIAL INFORMATION

1.	Financial Statements	4
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
3.	Quantitative and Qualitative Disclosures about Market Risk	18
4.	Controls and Procedures	18

PART II-OTHER INFORMATION

1.	Legal Proceedings	18
1A.	Risk Factors	19
2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
3.	Defaults upon Senior Securities	19
4	Submission of Matters to a Vote of Security Holders	19
5.	Other Information	19
6.	Exhibits	20

3

Item1. Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets

                                                                                         Unaudited

	June 30,			December 31,
	2007			2006
Assets
Cash and due from banks		2,757,860			3,179,239
Interest bearing deposits with banks		285,478			281,920
Federal funds sold		7,434,000			9,158,000
Cash & cash equivalents		10,477,338			12,619,159
Investment securities:
Held-to-maturity, at amortized cost(fair value of $ 12,139,393		12,362,809			12,804,351
and $12,683,809 at June 30, 2007 and December 31, 2006, respectively)
Available-for-sale, at market value		3,541,519			3,349,606
Loans , net of unearned discount		45,002,100			42,518,151
Less: allowance for loan losses		(595,280	)		(561,409	)
Net loans		44,406,820			41,956,742
Bank premises & equipment, net		1,054,151			1,099,524
Accrued interest receivable		407,856			422,216
Core deposit intangible		1,115,163			1,204,202
Prepaid expenses and other assets		456,750			479,959
Total Assets		73,822,406			73,935,759
Liabilities & Shareholders' Equity
Demand deposits, non-interest bearing		12,957,844			14,082,940
Demand deposits, interest bearing		10,640,791			10,585,080
Savings deposits		19,607,626			18,056,849
Time deposits, $100,000 and over		12,827,068			13,313,571
Time deposits		8,699,448			8,885,199
		64,732,777			64,923,639
Accrued interest payable		180,688			132,785
Accrued expenses and other liabilities		240,936			254,907
Total Liabilities		65,154,400			65,311,331
Shareholders' equity:
Preferred Stock, Series A, non-cum., 6%, $.01 par value,		1,432			1,432
500,000 shares authorized., 136,842 issued and 6,308 held in treasury
Common stock, $.01 par value; 2,000,000 shares authorized;
876,921 shares issued		8,769			8,769
Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value;
191,667 shares issued and outstanding		1,917			1,917
Treasury Stock, 33,500 shares,  at cost
Additional-paid-in-capital		14,739,201			14,749,788
Accumulated deficit		(6,049,827	)		(6,118,868	)
Net unrealized loss on available-for-sale securities		(33,487	)		(18,610	)
Total Shareholders' equity		8,668,005			8,624,428
		73,822,406			73,935,759

See Accompanying Notes to Consolidated Financial Statements

4

Consolidated Statements of Operations
(unaudited)< font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman;">
	Quarter ended		Quarter ended		Six months ended		Six months ended
	June 30,		June 30,		June 30,		June 30,
	2007		2006		2007		2006
Interest Income:
Interest and fees on loans		866,828		916,670		1,715,195		1,837,294
Interest on investment securities		195,730		134,825		381,772		271,701
Interest on Federal Funds sold		155,181		71,841		287,672		126,964
Interest on time deposits with other banks		3,955		790		7,885		1,501
Total interest income		1,221,694		1,124,126		2,392,524		2,237,460
Interest Expense:
Interest on time deposits		191,495		170,995		381,640		323,587
Interest on demand deposits		41,761		23,618		75,394		47,487
Interest on savings deposits		78,808		29,168		134,585		47,761
Total interest expense		312,064		223,781		591,619		418,835
Net interest income		909,630		900,345		1,800,905		1,818,625
Provision for loan losses		50,000		35,000		60,000		75,000
Net interest income less provision for
loan losses		859,630		865,345		1,740,905		1,743,625
Noninterest income:
Customer service fees		134,874		148,887		275,992		297,035
ATM activity fees		121,269		140,973		237,265		280,505
Loan Syndication Fees		70,000		50,000		70,000		70,000
Other income		70,195		17,834		93,831		55,292
Total noninterest income		396,338		357,694		677,088		702,832
Non-interest expense
Salaries, wages, and employee benefits		404,721		452,463		812,284		852,223
Occupancy and equipment		238,126		249,998		489,379		497,681
Office operations and supplies		83,811		73,288		155,631		151,283
Marketing and public relations		51,923		40,109		72,982		60,039
Professional services		73,450		66,255		133,624		146,066
Data processing		112,365		105,580		225,142		207,832
Deposit insurance assessments		38,104		27,788		74,197		55,869
Other noninterest expense		210,734		201,516		385,713		398,556
Total non-interest expense		1,213,234		1,216,997		2,348,952		2,369,549
Net income	$	42,734	$	6,042	$	69,041	$	76,908
Earnings per share-basic	$	0.04	$	0.01	$	0.06	$	0.07
Earnings  per share-diluted	$	0.04	$	0.01	$	0.06	$	0.07
Weighted average number of shares		1,098,588		1,098,588		1,098,588		1,098,588

See Accompanying Notes to Consolidated Financial Statements

5

Consolidated Statements of Cash Flows

(unaudited)

	Six Months ended			Six Months ended
	June 30,			June 30,
	2007			2006
Cash flows from operating activities
Net income	$	69,041		$	76,908
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		60,000			75,000
Depreciation and amortization		235,010			221,007
Decrease (Increase) in accrued interest receivable and other assets		37,569			(89,257	)
Increase (Decrease) in accrued interest payable and other liabilites		33,932			(67,662	)
Net cash provided by operating activities		435,551			215,996
Cash flows from investing activities
Purchase of investments-Available-for-Sale		(504,359	)		0
Purchase of investments-Held-to-Maturity		(3,275,751	)		0
Proceeds from maturity & principal reductions of investments-Available-for-Sale		254,146			243,439
Proceeds from maturity & principal reductions of investments-Held-to-Maturity		3,716,346			1,357,632
Net increase in loans		(672,017	)		(156,716	)
Purchase of  loans		(1,718,061	)		0
Purchase of premises and equipment		(186,814	)		(110,390	)
Net cash (used in) provided by investing activities		(2,386,510	)		1,333,966
Cash flows from financing activities
Net decrease in deposits		(190,862	)		(1,140,028	)
Net cash used in financing activities		(190,862	)		(1,140,028	)
(Decrease)Increase in cash and cash equivalents		(2,141,821	)		409,934
Cash and cash equivalents at beginning of period		12,619,159			9,239,793
Cash and cash equivalents at end of period	$	10,477,338		$	9,649,727
Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	639,522		$	409,600

See Accompanying Notes to Consolidate Financial Statements

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

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

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission.  Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2006 when reviewing this Form 10-Q.  Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of June 30, 2007 and December 31, 2006 and the consolidated results of its operations for the six month periods ended June 30, 2007 and 2006, and its consolidated cash flows for the six month periods ended June 30, 2007 and 2006.

2.  Share Based Payment

In 1998, the Company adopted a Stock Option Plan.  The Stock Option Plan provides for the granting of options at the fair market value of the Company’s common stock at the time the options are granted.  Each option granted under the Stock Option Plan may be exercised within a period of ten years from the date of grant.  However, no option may be exercised within one year from the date of grant.  In 1998, options to purchase 29,694 shares of the Company’s common stock at a price of $8.54 per share were awarded to the former chief executive officer.

As of January 1, 2006, the Bank transitioned to fair value based accounting for stock-based compensation using a modified version of prospective application in accordance with Statement of Financial Accounting Standards No. 123R, (“FAS 123R”), Share-Based Payment. There was no compensation cost charged against income for the Plan for the six months ended June 30, 2007 and 2006 as no options were granted under the Plan during these periods.  All options were fully vested at December 31, 2006 and remain outstanding at June 30, 2007.

A summary of the status of the Bank’s stock options as of June 30, 2007 and 2006 and the changes during the three months ended on those dates is as presented below:

	2007				2006
	# Shares of  Underlying Options		Exercise Price		# Shares of Underlying Options		Exercise Price
Outstanding at the beginning of the period		29,694	$	8.54		29,694	$	8.54
Granted		-		-		-		-
Forfeited		-		-		-		-
Expired		-		-		-		-
Outstanding at the end of the period		29,694	$	8.54		29,694	$	8.54
Exercisable at the end of the period		29,694	$	8.54		29,694	$	8.54

7

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998: no dividends declared; expected volatility of 20%; a risk-free interest rate of 4.7%, and expected life of 10 years.

3.  Comprehensive Income

Total comprehensive income includes net income and other comprehensive income or loss that is comprised of unrealized gains and losses on investment securities available for sale, net of taxes.  The Company’s total comprehensive income for the three months ended June 30, 2007 and 2006 was $            and $       , respectively and for the six months ended June 30, 2007 and 2006 was $54,164 and $48,182, respectively.  The difference between the Company’s net income and total comprehensive income for these periods relates to the change in net unrealized gains and losses on investment securities available for sale during the applicable period of time.

4.   Net Income Per Share

 The calculation of net income per share follows:

Six Months Ended  June 30,

	2007		2006
Basic:
Net income available to shareholders	$	69,041	$	76,908
Average common shares outstanding-basic		1,098,588		1,098,588
Net income per share-basic	$	0.06	$	0.07
Fully Diluted:
Average common shares-fully diluted		1,098,588		1,098,588
Net income per share-fully diluted	$	0.06	$	0.07

Options to purchase 29,694 shares of common stock are not included in the computation of diluted EPS noting that such inclusion would be anti-dilutive. The preferred stock is non cumulative and the Company is restricted from paying dividends.  Therefore, no effect of the preferred stock is included in the earnings per share calculations.

5.   New Accounting Pronouncements

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.  FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Interpretation applies to all tax positions accounted for in accordance with SFAS No. 109. FIN No. 48 was effective for the Company as of January 1, 2007. The Company’s adoption of FIN No. 48 did not have a material impact on its financial position, results of operations and cash flows.

8

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years.  The Company is currently evaluating the impact of SFAS No. 157 on its financial statements.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company is currently evaluating the impact that the adoption of this Statement will have on its financial position, results of operation and cash flows.

6. Critical Accounting Policies

Allowance for Loan Losses

The Bank considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies.   The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses.   All of these factors may be susceptible to significant change.   To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. The following table presents an analysis of the allowance for loan losses.

(Dollars in thousands)	Six months ended June 30, 2007			Six months ended June 30, 2006
Balance at January 1, 2007	$	561		$	472
Charge-offs:
Commercial loans		-			(62	)
Consumer loans		(113	)		(80	)
Total charge-offs		(113	)		(142	)
Recoveries		87			104
Net charge-offs		(26	)		(38	)
Additions charged to operations		60			75
Balance at June 30	$	595		$	509

9

Incomes Taxes

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

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

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of income.

Special Cautionary Notice Regarding Forward-looking Statements

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

10

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

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

All written or oral forward-looking statements attributed to UBS are expressly qualified in their entirety by use of the foregoing cautionary statements.  All forward-looking statements included in this document are based upon information presently available and UBS assumes no obligation to update any forward-looking statement.

Overview

The Bank had net income of $43 thousand ($0.04 per common share) for the quarter ended June 30, 2007 compared to net income of $6 thousand ($0.01 per common share) for the quarter ended June 30, 2006. The increase in net income is primarily attributable to modest growth in net interest income and an increase in noninterest income. In June 2007, the Bank was awarded a $50 thousand grant from the City of Philadelphia. The Bank’s revenue from its ATM network continues to decline as a result of competition in the region.  Management is seeking new high volume locations through alliances with retail outlets to increase activity.

The Bank experienced wide quarter-to-quarter fluctuations in its asset size ranging from $73 million at December 31, 2006 to $80 million at March 31, 2007 back to $73 million at June 30, 2007.  These fluctuations are primarily related to one deposit account with a construction contractor with major shifts in balance based on funding activity. These changes impact the Bank’s liquidity position including cash and short-term investments.  Management continues to seek growth in core deposits through increased advertising and product offerings.

Selected Financial Data

The following table sets forth selected financial data for each of the following periods:

(Thousands of dollars, except per share data)	Quarter ended June 30, 2007		Quarter ended June 30, 2006
Net interest income	$	910	$	900
Provision for loan losses		50		35
Noninterest income		396		358
Noninterest expense		1,213		1,217
Net income		43		6
Earnings per share-basic and diluted	$	0.04	$	0.01
Balance sheet totals:	June 30, 2007		December 31, 2006
Total assets	$	73,822	$	73,936
Loans, net	$	44,407	$	41,957
Investment securities	$	15,904	$	16,154
Deposits	$	64,733	$	64,924
Shareholders' equity	$	8,668	$	8,624

11

Ratios:	Quarter ended June 30, 2007			Quarter ended June 30, 2006
Return on assets		0.23	%		0.03	%
Return on equity		2.05	%		0.33	%
Tangible Equity to assets ratio		9.79	%		10.01	%

Financial Condition

Sources and Uses of Funds

The financial condition of the Bank can be evaluated in terms of trends in its sources and uses of funds.  The comparison of average balances in the following table indicates how the Bank has managed these elements.

Sources and Uses of Funds Trends

	June 30, 2007		Increase						March 31, 2007
(Thousands of Dollars, except percentages)	Average		(Decrease)						Average
	Balance		Amount			%			Balance
Funding uses:
Loans	$	42,670	$	875			2.09	%	$	41,795
Investment securities
Held-to-maturity		12,240		(170	)		(1.37	)		12,410
Available-for-sale		3,301		10			0.30			3,291
Federal funds sold		11,600		1,325			12.90			10,275
Balances with other banks		284		2			0.71			282
Total  uses	$	70,104	$	2,042			3.00	%	$	68,053
Funding sources:
Demand deposits
Noninterest-bearing	$	14,072	$	786			5.92	%	$	13,286
Interest-bearing		10,099		575			6.04			9,524
Savings deposits		20,081		826			4.29			19,255
Time deposits		21,826		(240	)		(1.09	)		22,066
Total sources	$	66,078	$	1,947			3.04	%	$	64,131

Loans

Average loans increased $875 thousand, or 2.09%, during the quarter ended June 30, 2007 primarily as a result of the origination and funding of $2.8 million in commercial loans as well as the purchase of $1.7 million in residential mortgage loans during the quarter.  Prepayments of commercial loans totaled only $500 thousand during the quarter compared to $1.4 million in the quarter ending March 31, 2007. Prepayments are primarily related to loan participations with other financial institutions.  Because the Bank does not have a direct relationship with these loan customers, payoffs are sometimes unexpectedly received.  The Bank’s direct loan originations are increasing but participations with other financial institutions are utilized as a means to build the Bank’s earning assets while it continues to enhance its own business development capacity.  From time to time, the Bank also sells portions of its loans as participations to other financial institutions to diversify and reduce credit risk to individual borrowers.  At June 30, 2007, the commercial loan pipeline totaled $9 million compared to $7 million at March 31, 2007.  Approximately $3.5 million should be funded during the third quarter of 2007.

The Bank’s loan portfolio is heavily concentrated in commercial loans that comprise $32.9 million, or 74%, of total loans at June 30, 2007.   Approximately $19.3 million of these loans are secured by commercial real estate.  The Bank continues to have a strong niche in lending to religious organizations for which total loans now approximate 32% of the commercial portfolio.   Management actively monitors this concentration to minimize potential credit risk.

Allowance for Loan Losses

The allowance for loan losses reflects management’s continuing evaluation of the loan portfolio, the diversification and size of the portfolio, and adequacy of collateral.  The allowance for loan losses as a percentage of total loans was 1.32% at June 30, 2007 relatively unchanged from 1.31% at December 31, 2006. Provisions are made to the allowance for loan losses in accordance with a detailed periodic analysis.  This analysis includes specific reserves allocated to classified and impaired loans based on underlying recovery values as well as a general reserve for the portfolio based on many factors including charge-off history, migration analysis, economic conditions, concentrations of credit risk and other relevant data.

12

Management uses available information to recognize losses on loans; however, future additions may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses.  Such agencies may require the Bank to recognize additions to the allowance basedon their judgments of information available to them at the time of the examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)	June 30, 2007			March 31, 2007			December 31, 2006
Allowance for loan losses	$	595		$	581		$	561
Total classified loans	$	3,112		$	2,715		$	2,672
Allowance for loan losses as a percentage of:
Total Loans		1.32	%		1.41	%		1.31	%
Total  nonperforming loans		105	%		83	%		90	%
Net(charge-offs) recoveries as a percentage of average loans		(0.06	)%		0.02	%		(0.10	%)

The level of classified loans at June 30, 2007 increased to $3.1 million from $2.7 million at March 31, 2007 and December 31, 2006.  The increase is primarily related to one loan to a religious organization totaling $327 thousand that the Bank moved to an “impairment” status due to a deficiency in the cash flow of the organization to service the debt.  The loan is secured by strong collateral (The loan to value is less than 50%).  Approximately 41%, or $1.3 million, of the classified loans are categorized “Other Loans Especially Mentioned”.  Management is actively working with borrowers to prevent further decline in credit quality.

Nonperforming and Nonaccrual Loans

The Bank generally determines a loan to be "nonperforming" when interest or principal is past due 90 days or more.  If it otherwise appears doubtful that the loan will be repaid, management may consider the loan to be "nonperforming" before the lapse of 90 days.  The policy of the Bank is to charge-off unsecured loans after 90 days past due.  Interest on "nonperforming" loans ceases to accrue except for loans that are well collateralized and in the process of collection.  When a loan is placed on non-accrual, previously accrued and unpaid interest is generally reversed out of income unless adequate collateral from which to collect the principal and interest on the loan appears to be available.

(Dollars in thousands)	June 30, 2007		March 31, 2007		December 31, 2006
Nonperforming loans:
Commercial	$	382	$	514	$	403
Installment		--		--		--
Residential Real Estate		184		184		223
Total	$	566	$	698	$	626

At June 30, 2007 non-accrual loans decreased to $566 thousand from $698 thousand at March 31, 2007 and $626 thousand at December 31, 2006. During the quarter ended June 30, 2007, the Bank successfully rehabilitated several previously nonperforming commercial loans totaling $131 thousand that demonstrated six months of payment performance. Most of the loans classified as non-performing either have guarantees of the Small Business Administration or have strong loan-to-values that help to minimize the risk of loss.  There is no other known information about possible credit problems other than those classified as nonaccrual that causes management to be uncertain as to the ability of any borrower to comply with present loan terms.

13

Investment Securities and Other Short-term Investments

Investment securities, including Federal Funds Sold, increased on average by $1.1 million, or 4.48%, during the quarter ended June 30, 2007 from the quarter ending March 31, 2007 as a result of an increase in the average deposit balances during the quarter.  (Refer to Deposits discussion below.)   Due to the volatility and short-term nature of the deposit source, investments were made in Federal Funds Sold.

The yield on the investment portfolio was 5.11% at June 30, 2007 slightly up from 5.07% at March 31, 2007.  The increase in the yield is primarily a result of some of the Bank’s floating rate mortgage-backed securities that have Treasury and LIBOR indices repricing in a higher interest rate environment.  In addition, the Bank had lower yielding callable agency securities totaling $750,000 mature in March 2007 that were replaced with higher yielding securities. The duration of the portfolio is relatively short at 2.9 years with investments evenly allocated between mortgage-backed securities and callable agency securities.  Management’s goal is to maintain a balanced portfolio with a short duration to allow for adequate cash flow to fund projected loan originations and to manage interest rate risk.

Deposits

During the quarter ended June 30, 2007, average deposits increased $1.9 million, or 3.04%, from the quarter ending March 31, 2007.  The most significant increase was in the Bank’s savings account balances that increased on average by $826 thousand, or 4.29%, primarily due to an account with a construction contractor that fluctuated widely with project disbursements.

In addition, a premium interest checking account to attract the deposits of non-profit organizations was introduced during the quarter ended June 30, 2007.  The introduction of this product attracted several sizeable deposits from non-profit organizations located in the Philadelphia region.  The result was a $575 thousand, or 6.04%, increase in average interest-bearing checking account balances during the quarter.

The Bank’s non-interest bearing balances also increased during the quarter ending June 30, 2007 by an average of $786 thousand, or 5.92%.  This increase is primarily attributed to a reinforcement of the requirement that loan customers of the Bank maintain minimum levels of account balances.  The funding of a loan advance is generally made into a customer’s demand deposit account at the Bank.

 The Bank continued the implementation of remote deposit capture during the quarter ended June 30, 2007.  This process will make it convenient for customers to make deposits with scanners without coming into the Bank’s branches and should result in increased deposit levels. Beta testing is underway with one customer.  Full availability of this product is anticipated by quarter end September 30, 2007.

While the Bank has $12.8 million in certificates of deposit with balances of $100,000 or more, approximately $9 million, or 70%, of these deposits are with governmental or quasi-governmental entities that have a long history with the Bank and are considered stable.

Commitments and Lines of Credit

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit, which are conditional commitments issued by the Bank to guarantee the performance of an obligation of a customer to a third party. Commitments to extend credit fluctuate with the completion and conversion of construction lines of credit to permanent commercial mortgage loans and/or the closing of loans approved not funded from one period to another.

Management believes the Bank has adequate liquidity to support the funding of unused commitments. The Bank's financial instrument commitments at June 30, 2007 are summarized below:

Commitments to extend credit $12,044,000

14

Liquidity and Interest Rate Sensitivity Management

The primary functions of asset/liability management are to assure adequate liquidity and maintain appropriate balance between interest-sensitive earning assets and interest-bearing liabilities.  Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs.  Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.

The Bank's principal sources of asset liquidity include investment securities consisting principally of U.S. Government and agency issues, particularly those of shorter maturities, and mortgage-backed securities with monthly repayments of principal and interest.  Other types of assets such as federal funds sold, as well as maturing loans, are also sources of liquidity.  Approximately $8.6 million in loans are scheduled to mature within one year.

By policy, the Bank’s minimum level of liquidity is 6.00% of total assets.  At June 30, 2007, the Bank had total short-term liquidity, including cash and federal funds sold, of $10.5 million, or 14.2% of total assets.  The liquidity ratios of the Bank comfortably exceed minimum levels required by policy.  In addition, the portion of the Bank’s investment portfolio classified as available-for-sale provides liquidity of approximately $3.5 million.  However, a portion of these securities is used as collateral for governmental/quasi-governmental agencies and is therefore restricted from use to fund loans or to meet other liquidity requirements.  The Bank also has contingent funding sources in the form of a line of credit with its correspondent bank as well as the Discount Window at the Federal Reserve. Management actively manages and monitors the Bank’s liquidity level to ensure that there are adequate funds to meet the growing loan pipeline.

Capital Resources

Total shareholders' equity increased approximately $44 thousand compared to December 31, 2006 as a result of net income of $69 thousand during the six months ended June 30, 2007. As reflected in the table below, the Company’s risk-based capital ratios are above the minimum regulatory requirements.  The Company and the Bank do not anticipate paying dividends in the near future.

	Company			Company
(thousands of dollars, except percentages)	June 30, 2007			December 31, 2006
Total Capital	$	8,668		$	8,624
Less: Intangible Assets and accumulated other comprehensive loss		(1,082	)		(1,185	)
Tier 1 Capital		7,586			7,439
Tier 2 Capital		571			556
Total Qualifying Capital	$	8,157		$	7,995
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$	45,649		$	44,464
Tier 1 Risk-Based Capital Ratio		16.61	%		16.73	%
Tier 2 Risk-Based Capital Ratio		17.86	%		17.98	%
Leverage Ratio		10.16	%		10.33	%
	Bank			Bank
Total Capital	$	8,390		$	8,335
Less: Intangible Assets and accumulated other comprehensive loss		(1,082	)		(1,185	)
Tier 1 Capital		7,308			7,150
Tier 2 Capital		571			556
Total Qualifying Capital		7,879		$	7,706
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$	45,649		$	44,464
Tier 1 Risk-Based Capital Ratio		16.01	%		16.08	%
Tier 2 Risk-Based Capital Ratio		17.26	%		17.33	%
Leverage Ratio		9.79	%		9.93	%

15

Results of Operations

Summary

The Bank had net income of $43 thousand ($0.04 per common share) for the quarter ended June 30, 2007 compared to net income of $6 thousand ($0.01 per common share) for the quarter ended June 30, 2006. The increase in net income is primarily attributable to an increase in noninterest income. The Bank had net income of $69 thousand ($0.06 per commons share) compared to $77 thousand ($0.07 per common share) for the six months ended June 30, 2006. A detailed explanation for each component of earnings is included in the sections below.

Net Interest Income

Average Balances, Rates, and Interest Income and Expense Summary

			Three months ended June 30, 2007							Three months ended June 30, 2006
(Dollars in thousands)	Average Balance		Interest		Yield/Rate			Average Balance		Interest		Yield/Rate
Assets:
Interest-earning assets:
Loans	$	42,670	$	867		8.13	%	$	46,624	$	917		7.86	%
Investment securities-HTM		12,240		153		4.99			8,946		95		4.25
Investments securities-AFS		3,301		43		5.21			3,219		40		4.97
Federal funds sold		11,600		155		5.35			5,863		72		4.90
Interest bearing balances with other banks		284		4		5.57			279		1		1.13
Total interest-earning assets		70,095		1,222		6.97			64,931		1,124		6.93
Interest-bearing liabilities
Demand deposits		10,099		42		1.65			9,052		24		1.04
Savings deposits		20,081		79		1.57			16,105		29		0.72
Time deposits		21,826		191		3.51			22,491		171		3.04
Total interest-bearing liabilities		52,006		312		2.40			47,648		223		1.88
Net interest earnings			$	910						$	901
Net yield on interest-earning assets						5.19	%						5.55	%

Net interest income increased $9 thousand, or 1.03%, for the quarter ended June 30, 2007 compared to June 30, 2006 and decreased $18 thousand, or 0.97%, for the six months ended June 30, 2007 compared to June 30, 2006. The yield on earning assets for the three months ended June 30, 2007 increased to 6.97% from 6.93% for the same three months in 2006 as a result of an increase in yield on the investment and loan portfolios.  In addition, average earning assets increased from $64.9 million to $70.1 million as a result of growth in the Bank’s commercial and residential loan portfolios. (Refer to the Loans discussion above.)

While the yield on earning assets increased by a modest 4 basis points from 2006 to 2007, the cost of interest-bearing liabilities increased 52 basis points.  The increase in the Bank’s cost of funds was primarily a result of the introduction of premium rate anniversary products in 2007 including the interest-bearing checking account for non-profit organizations at a rate of 4.50% and the signature savings product at a rate of 4.15%.  In addition, in line with market conditions, the Bank increased the rates paid on certificates of deposits.

While the Bank experienced a 36 basis point margin compression, because the Bank’s deposit base includes many core checking and savings deposits that are not sensitive to rate changes, it was not as severe as other banks in its peer group.   If successful, the Bank’s higher interest rate premium checking and savings products will increase the cost of funds resulting in a lower net interest margin but will result in higher net interest earnings because of the increased level of earning assets generated through deposit growth.  Management continues to market these products through various media to drive deposit growth.

16

Provision for Loan Losses

The Bank made provisions totaling $50 thousand for the quarter ending June 30, 2007 compared to $35 thousand for the same quarter in 2006.  The provisions made in 2007 were based on review and analysis of the Bank’s loan portfolio in accordance with the Bank’s Allowance for Loan Loss policies and procedures. (Refer to Allowance for Loan Losses above for discussion and analysis of credit quality.)

Noninterest Income

The amount of the Bank's noninterest income generally reflects the volume of the transactional and other accounts handled by the Bank and includes such fees and charges as low balance account fees, overdrafts, account analysis, ATM fees and other customer service fees.  Noninterest income increased $39 thousand, or 10.80%, for the quarter ending June 30, 2007, compared to the same quarter in 2006 but decreased $26 thousand, or 3.66%, for the six months ended June 30, 2007 compared to 2006.

Customer service fees declined by $14 thousand, or 9.41%, for the quarter ended June 30, 2007, compared to 2006 and $21 thousand, or 7.08%, for the six months ended June 30, 2007 compared to 2006. The decline came as a result of less activity fees on deposits because of higher average balances resulting in less minimum balance and overdraft fees. In addition, ATM fees declined by $20 thousand, or 13.98% for the quarter ending June 30, 2007, compared to 2006 and declined $43 thousand, or 15.42%, for the six months ended June 30, 2007 compared to 2006 because of increased competition.

Loan syndication fees increased $20 thousand, or 40%, for the quarter ended June 30, 2007 compared to 2006 because of a change in the timing of a syndication. For the six months ended June 30, 2007 and 2006, fees totaled $70 thousand.  The Bank continues to serve as agent/arranger for three (3) facilities for which annual fees are projected to be a minimum of $150 thousand.

In June 2007, the Bank was awarded a $50 thousand grant from the City of Philadelphia.  This grant serves as a match to a $50 thousand grant the Bank was awarded in 2006 by the Commonwealth of Pennsylvania’s Department of Community and Economic Development to provide Small Business and Non-profit bridge loan financing to the community.

Noninterest Expense

Salaries and benefits decreased $48 thousand, or 10.55%, for the quarter ended June 30, 2007 compared to 2006 and decreased $40 thousand, or 4.69%, for the six months ended June 30, 2007 compared to 2006. The decrease is primarily related to the consolidation/elimination of several highly paid management positions in the third quarter of 2006.  Management continues its review to ensure the Bank is operating with the most efficient organizational structure.

Occupancy expense decreased $12 thousand, or 4.75%, for the quarter ended June 30, 2007 compared to 2006 and decreased $8 thousand, or 1.67% for the six months ended June 30, 2007 compared to 2006.  The decrease is primarily attributable to a reduction in equipment rental expense as well as equipment maintenance expense.  In addition, the level of required bank building repairs and maintenance declined.

Office operations and supplies expense increased $11 thousand, or 14.36%, for the quarter ended June 30, 2007 compared to 2006 and increased $4 thousand, or 2.87%, for the six months ended June 30, 2007 compared to 2006.  The increase is primarily attributable to increased telephone expense.  The Bank began providing wireless telephones to its business development staff in the latter part of 2006.  In addition, in December 2006, a new high speed DSL line was installed at one of the Bank’s branches that serves as its disaster recovery site.

Marketing and public relations expense increased $12 thousand, or 29.45%, for the quarter ended June 30, 2007 compared to 2006 and increased $13 thousand, or 21.56% for the six months ended June 30, 2007 compared to 2006. In January 2007, the Bank hired a marketing consultant to assist with the implementation of its marketing campaign to introduce new products and services including a direct mail solicitation, ongoing newspaper advertisements, and billboards.  Additional spending is projected in marketing and public relations efforts throughout the year to re-introduce the Bank’s products and services to the community and achieve growth in the balance sheet.

17

Professional services expense increased approximately $7 thousand, or 10.86%, for the quarter ended June 30, 2007 compared to 2006 but decreased $12 thousand, or 8.52%, for the six months ended June 30, 2007 compared to 2006. The increase during the quarter is primarily attributable to an increase in consulting fees related to the use of consultants to assist the Bank with the development of a formal compliance monitoring program.  The decline for the six months is a result of the elimination of a monthly legal retainer for the Bank’s general counsel because of fewer legal matters.  Legal services are now billed based on actual hours spent.

Data processing expenses increased $7 thousand, or 6.43% for the quarter ended June 30, 2007 compared to 2006 and increased $17 thousand, or 8.33% for the six months ended June 30, 2007 compared to 2006. The increase is primarily in the Bank’s ATM processing expense associated with net interchange expenses—more Bank customers using non-proprietary ATMs for which the Bank is charged a fee versus non-customers using the Bank’s ATM network for which it receives a fee.  Transaction volume for the Bank’s ATM network declined as the result of new competition and ATM down-time for repairs.  In July 2007, the Bank transferred its ATM maintenance contract to a new provider to improve the performance of the network.

Federal deposit insurance assessments increased $10 thousand, or 37.12%, for the quarter ended June 30, 2007 compared to 2006 and increased $18 thousand, or, 32.81%, for the six months ended June 30, 2007 compared to 2006.  The FDIC adopted new rules in 2006 to re-capitalize the deposit insurance fund that resulted in increased deposit insurance premiums in 2007.  Assessments are based on many factors including the Bank’s current regulatory ratings.

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

Regulatory Matters

In February 2000, as a result of a regulatory examination completed in December 1999, the Bank entered into a Written Agreement (“Agreement”) with its primary regulators with regard to, among other things, achievement of agreed-upon capital levels, implementation of a viable earnings/strategic plan, adequate funding of the allowance for loan losses, the completion of a management review and succession plan, and improvement in internal controls.  The current Agreement requires the Bank maintain a minimum Tier 1 leverage capital ratio of 7.00%. As of December 31, 2002, the Bank had met the required ratios by continuing to implement strategies that included improving profitability, consolidating branches, and soliciting new and additional sources of capital. At June 30, 2007, the Bank’s Tier 1 leverage ratio was 9.79%, which is well above the 7.00% minimum requirement.  Management continues to address all matters outlined in the Agreement and believes that the Bank is substantially in compliance with the Agreement’s terms and conditions.  Failure to comply could result in additional regulatory supervision and/or actions.

Dividend Restrictions

The Company has never declared or paid any cash or stock dividends.  The Pennsylvania Banking Code of 1965, as amended, provides that cash dividends may be declared and paid only from accumulated net earnings and that, prior to the declaration of any dividend, if the surplus of a bank is less than the amount of its capital, the bank shall, until surplus is equal to such amount, transfer to surplus an amount which is at least ten percent(10%) of the net earnings of the bank for the period since the end of the last fiscal year or any shorter period since the declaration of a dividend.  If the surplus of a bank is less than fifty percent (50%) of the amount of its capital, no dividend may be declared or paid by the Bank without the prior approval of the Pennsylvania Department of Banking.

18

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

The FDIC generally prohibits all payments of dividends by a bank that is in default of any assessment to the FDIC.  (See “Regulatory Matters” above)

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities.  Overnight federal funds on which rates change daily and loans which are tied to prime or other short term indices differ considerably from long-term investment securities and fixed-rate loans.  Similarly, time deposits are much more interest sensitive than passbook savings accounts.  The shorter-term interest rate sensitivities are critical to measuring the interest sensitivity gap, or excess earning assets over interest-bearing liabilities.  Management of interest sensitivity involves matching repricing dates of interest-earning assets with interest-bearing liabilities in a manner designed to optimize net interest income within the limits imposed by regulatory authorities, liquidity determinations and capital considerations.

At June 30, 2007, an asset sensitive position is maintained on a cumulative basis through 1 year of 2.22% that is within the Bank’s policy guidelines of +/- 15% on a cumulative 1-year basis.  The current gap position is primarily due to the level of Federal Funds Sold as well as loans and investments maturing and repricing in one year or less. Generally, because of the positive gap position of the Bank in shorter time frames, the Bank can anticipate that increases in market rates will have a positive impact on the net interest income, while decreases will have the opposite effect.

While using the interest sensitivity gap analysis is a useful management tool as it considers the quantity of assets and liabilities subject to repricing in a given time period, it does not consider the relative sensitivity to market interest rate changes that are characteristic of various interest rate-sensitive assets and liabilities.  Consequently, although the Bank currently has a positive gap position because of unequal sensitivity of these assets and liabilities, management believes this position will not materially impact earnings in a changing rate environment.  A simulation model is used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the net income of the Bank.  This model produces an interest rate exposure report that forecast changes in the market value of portfolio equity under alternative interest rate environments.  The market value of portfolio equity is defined as the present value of the Company’s existing assets, liabilities and off-balance-sheet instruments.  Based on these models, interest-rate exposure is not considered significant and is within the policy limits of the Bank on all measures at June 30, 2007.

Item 4.  Controls and Procedures

As of the end of the period covered by the report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, Evelyn F. Smalls, and Chief Financial Officer, Brenda M. Hudson-Nelson, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e).  Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Securities and Exchange Commission filings.

19

As of the date of this report, there have not been any changes in the Company’s internal controls over financial reporting that have materially affected its internal controls.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There have not been any material changes to the risk factors disclosed in the Company’s 2005 Annual Report on Form 10-K.

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

 None

Item 3.  Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5.  Other Information.

None

Item 6. Exhibits.

a)           Exhibits.

Exhibit 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

Exhibit 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

20

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: August 14, 2007	/s/ Evelyn F. Smalls
	Evelyn F. Smalls
	President & Chief Executive Officer
Date: August 14, 2007	/s/ Brenda M. Hudson-Nelson
	Brenda Hudson-Nelson
	Executive Vice President/Chief Financial Officer

21

Index to Exhibits-FORM 10-Q

Exhibit 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

Exhibit 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

22

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Evelyn F. Smalls, Chief Executive Officer, 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 quarterly report;

3.           Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.           The registrant’s other certifying officers 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 we 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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)           Not applicable

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, (Registrant’s fourth fiscal quarter in the case of an annual report.) 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(s) 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 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/ Evelyn F. Smalls

Evelyn F. Smalls

Chief Executive Officer

August 14, 2007

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Brenda M. Hudson-Nelson, Chief Financial Officer, 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 quarterly report;

3.           Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.           The registrant’s other certifying officers 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 we 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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)           Not applicable

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, (registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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 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/ Brenda M. Hudson-Nelson

Brenda M. Hudson-Nelson

Chief Financial Officer

August 14, 2007

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of United Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Evelyn F. Smalls, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. '1350, as adopted pursuant to '906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

(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 result of operations of the Company.

/s/ Evelyn F. Smalls

Evelyn F. Smalls

Chief Executive Officer

August 14, 2007

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of United Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brenda M. Hudson-Nelson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. '1350, as adopted pursuant to '906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

(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 result of operations of the Company.

/s/ Brenda M. Hudson-Nelson

Brenda M. Hudson-Nelson

Chief Financial Officer

August 14, 2007