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 SEPTEMBER 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 November 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 November 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 November 1, 2007.

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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	19
	PART II-OTHER INFORMATION
1.	Legal Proceedings	19
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	20
5.	Other Information	20
6.	Exhibits	20

3

Item1. Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets

                      
60;                                                                            Unaudited

	September 30.			December 31,
	2007			2006
Assets
Cash and due from banks		3,174,675			3,179,239
Interest bearing deposits with banks		287,287			281,920
Federal funds sold		9,849,000			9,158,000
Cash & cash equivalents		13,310,962			12,619,159
Investment securities:
Held-to-maturity, at amortized cost(fair value of $11,335,093		11,413,658			12,804,351
and $12,683,809 at September 30, 2007 and December 31, 2006, respectively)
Available-for-sale, at market value		3,376,591			3,349,606
Loans , net of unearned discount		44,893,529			42,518,151
Less: allowance for loan losses		(528,633	)		(561,409	)
Net loans		44,364,896			41,956,742
Bank premises & equipment, net		1,003,757			1,099,524
Accrued interest receivable		403,241			422,216
Other real estate owned		180,000			0
Core deposit intangible		1,070,643			1,204,202
Prepaid expenses and other assets		418,844			479,959
Total Assets		75,542,592			73,935,759
Liabilities & Shareholders' Equity
Demand deposits, non-interest bearing		13,094,811			14,082,940
Demand deposits, interest bearing		11,552,749			10,585,080
Savings deposits		20,233,831			18,056,849
Time deposits, $100,000 and over		13,145,185			13,313,571
Time deposits		8,370,147			8,885,199
		66,396,723			64,923,639
Accrued interest payable		124,550			132,785
Accrued expenses and other liabilities		325,356			254,907
Total Liabilities		66,846,629			65,311,331
Shareholders' equity:
Preferred Stock, Series A, non-cum., 6%, $.01 par value,		1,432			1,432
500,000 shrs auth., 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		(6,044,471	)		(6,118,868	)
Net unrealized loss on available-for-sale securities		(10,885	)		(18,610	)
Total Shareholders' equity		8,695,963			8,624,428
		75,542,592			73,935,759

See Accompanying Notes to Consolidated Financial Statements

4

	Consolidated Statements of Operations
	(unaudited)
	Quarter ended		Quarter ended		Nine months ended		Nine months ended
	September 30,		September 30,		September 30,		September 30,
	2007		2006		2007		2006
Interest Income:
Interest and fees on loans		910,457		908,750		2,625,652		2,746,044
Interest on investment securities		189,241		143,479		571,013		415,180
Interest on federal funds sold		131,667		114,113		419,339		241,077
Interest on time deposits with other banks		4,471		2,228		12,356		3,729
Total interest income		1,235,836		1,168,570		3,628,360		3,406,030
Interest Expense:
Interest on time deposits		192,119		181,860		573,759		505,447
Interest on demand deposits		49,557		31,035		124,951		78,522
Interest on savings deposits		84,537		42,305		219,122		90,066
Total interest expense		326,213		255,200		917,832		674,035
Net interest income		909,623		913,370		2,710,528		2,731,995
Provision for loan losses		10,000		40,000		70,000		115,000
Net interest income less provision for
loan losses		899,623		873,370		2,640,528		2,616,995
Noninterest income:
Customer service fees		150,093		158,219		426,085		455,254
ATM activity fees		109,198		121,379		346,463		401,883
Loan syndication fees		25,000		20,000		95,000		90,000
Other income		16,920		13,849		110,751		69,141
Total noninterest income		301,211		313,447		978,299		1,016,278
Non-interest expense
Salaries, wages, and employee benefits		410,341		430,420		1,222,625		1,282,643
Occupancy and equipment		281,680		244,581		771,059		742,262
Office operations and supplies		79,024		83,393		234,655		234,676
Marketing and public relations		17,815		28,021		90,797		88,060
Professional services		52,487		63,288		186,111		209,354
Data processing		116,292		106,148		341,434		313,980
Deposit insurance assessments		40,200		27,487		114,397		83,356
Other noninterest expense		197,640		195,657		583,353		594,213
Total non-interest expense		1,195,479		1,178,995		3,544,431		3,548,544
Income before income taxes	$	5,355	$	7,822	$	74,396	$	84,729
Provision for Income Taxes		0		0		0		0
Net income	$	5,355	$	7,822	$	74,396	$	84,729
Earnings per share-basic	$	0.00	$	0.01	$	0.07	$	0.08
Earnings  per share-diluted	$	0.00	$	0.01	$	0.07	$	0.08
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)

	Nine Months ended			Nine Months ended
	September 30,			September 30,
	2007			2006
Cash flows from operating activities
Net income	$	74,396		$	84,729
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		70,000			115,000
Loss on sale of ORE property		0			1,572
Depreciation and amortization		350,737			334,265
Decrease (increase) in accrued interest receivable and other assets		80,090			(175,188	)
Increase (decrease in accrued interest payable and other liabilites		62,214			(23,228	)
Net cash provided by operating activities		637,436			337,150
Cash flows from investing activities
Purchase of investments-Available-for-Sale		(504,359	)		0
Purchase of investments-Held-to-Maturity		(3,275,751	)		(1,989,076	)
Proceeds from maturity & principal reductions of investments-Available-for-Sale		340,447			470,207
Proceeds from maturity & principal reductions of investments-Held-to-Maturity		4,665,432			1,985,860
Net (increase)decrease in loans		(620,093	)		1,631,094
Purchase of  loans		(1,718,061	)		0
Proceeds from sale of ORE Property		0			162,928
Purchase of premises and equipment		(306,332	)		(256,249	)
Net cash provided by (used in) investing activities		(1,418,717	)		2,004,764
Cash flows from financing activities
Net increase in deposits		1,473,084			1,006,098
Net cash provided by financing activities		1,473,084			1,006,098
Increase in cash and cash equivalents		691,803			3,348,013
Cash and cash equivalents at beginning of period		12,619,159			9,239,793
Cash and cash equivalents at end of period	$	13,310,962		$	12,587,806
Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	909,597		$	657,401

See Accompanying Notes to Consolidated 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 September 30, 2007 and December 31, 2006 and the consolidated results of its operations for the nine month periods ended September 30, 2007 and 2006, and its consolidated cash flows for the nine month periods ended September 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 nine months ended September 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 September 30, 2007.

A summary of the status of the Bank’s stock options as of September 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

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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 September 30, 2007 and 2006 was $27,957and $36,819, respectively and for the nine months ended September 30, 2007 and 2006 was $82,122 and $85,001, 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:

	Three Months Ended September 30, 2007	Three Months Ended September 30, 2007	Nine Months ended September 30, 2007	Nine Months ended September 30, 2006
Basic:
Net income available to shareholders	$5,355	$7,822	$ 74,396	$84,729
Average common shares outstanding-basic	1,098,588	1,098,588	1,098,588	1,098,588
Net income per share-basic	$0.00	$0.01	$ 0.07	$ 0.08
Fully Diluted:
Average common shares-fully diluted	1,098,588	1,098,588	1,098,588	1,098,588
Net income per share-fully diluted	$0.00	$0.01	$ 0.07	$0.08

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)	Nine months ended September 30, 2007	Nine months ended September 30, 2006
Balance at January 1	$561	$472
Charge-offs:
Commercial loans	(91)	(62)
Consumer loans	(126)	(95)
Total charge-offs	(217)	(157)
Recoveries	114	185
Net charge-offs	(103)	28
Additions charged to operations	70	115
Balance at September 30	$528	$615

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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.

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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.

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.

Overview

The Bank had net income of $5 thousand ($0.00 per common share) for the quarter ended September 30, 2007 compared to net income of $8 thousand ($0.01 per common share) for the quarter ended September 30, 2006. The Bank’s net income declined as a result of increased interest expense from the introduction of new premium rate products as well as increased noninterest expense from the conversion to a new automated teller service provider.  Essential to improved profitability is growth in the Bank’s core deposits. 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, $73 million at June 30, 2007 and $75 million at September 30, 2007 These fluctuations are primarily related to several deposit accounts with construction contractors that have major shifts in balance based on their business activity.

With increased competition from new larger, better capitalized entrants into the Philadelphia marketplace, core deposit growth has become more challenging.  During 2006 and 2007, several premium rate checking and savings products were introduced as a means to attract new deposits.  While a modest level of growth was achieved, there was some migration from the Bank’s lower interest rate products to the new premium products resulting in increased interest expense and margin compression.  In light of this and the anticipated reductions in rate by the Federal Reserve, management will review its product offerings and modify its deposit gathering strategy to focus more on collaboration with the corporate sector in the region.  Visibility and branding are also key components of the growth strategy that will be achieved with continued marketing and advertising.

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 September 30, 2007		Quarter ended September 30, 2006
Net interest income	$	910	$	913
Provision for loan losses		10		40
Noninterest income		301		313
Noninterest expense		1,195		1,179
Net income		5		8
Earnings per share-basic and diluted	$	0.00	$	0.01

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Balance sheet totals:	September 30, 2007			December 31, 2006
Total assets	$	75,543		$	73,936
Loans, net	$	44,364		$	41,957
Investment securities	$	14,790		$	16,154
Deposits	$	66,397		$	64,924
Shareholders' equity	$	8,696		$	8,624
Ratios:	Quarter ended September 30, 2007			Quarter ended September 30, 2006
Return on assets		.03	%		0.04	%
Return on equity		0.33	%		0.44	%
Tangible Equity to assets ratio		9.71	%		9.74	%

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

	September 30, 2007								June 30, 2007
(Thousands of Dollars, except percentages)	Average		Increase (Decrease)						Average
	Balance		Amount			%			Balance
Funding uses:
Loans	$	45,013	$	2,343			5.49	%	$	42,670
Investment securities
Held-to-maturity		12,114		(126	)		(1.03	)		12,240
Available-for-sale		3,240		(61	)		(1.85	)		3,301
Federal funds sold		10,434		(1,166	)		(10.05	)		11,600
Balances with other banks		286		2			0.70			284
Total  uses	$	71,087	$	992			1.42	%	$	70,104
Funding sources:
Demand deposits
Noninterest-bearing	$	13,482	$	(590	)		(4.19	)%	$	14,072
Interest-bearing		10,407		308			3.05			10,099
Savings deposits		20,342		261			1.30			20,081
Time deposits		21,701		(125	)		(0.57	)		21,826
Total sources	$	65,932	$	(146	)		(0.22	)%	$	66,078

Loans

Average loans increased $2.3 million, or 5.49%, during the quarter ended September 30, 2007 primarily as a result of the origination and funding of $2.045 million in commercial loans as well as the purchase of $1.7 million in residential mortgage loans in May 2007 that were outstanding the entire quarter.  None of the purchased residential mortgage loans were originated in the subprime market.  They are seasoned well-performing loans.  Prepayments of commercial loans increased to $1.2 million during the quarter compared to just $579 thousand during the quarter ending June 30, 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.  Management will attempt to minimize the level of payoffs and prepayments by providing counter offers and imposing prepayment penalties whenever possible.

12

The Bank’s loan portfolio is heavily concentrated in commercial loans that comprise $33 million, or 74.26%, of total loans at September 30, 2007.   Approximately $16.6 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 30% 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 1.19% at September 30, 2007 a decline from 1.31% at December 31, 2006.  The decline is primarily a result of net charge-offs totaling $103 thousand during the nine months ended September 30, 2007.   These charge-offs had been fully reserved in prior periods. The Bank also experienced reductions in its classified assets that resulted in a lower level of required specific reserves.  (Refer to discussion below.)  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 based on many factors including charge-off history, migration analysis, economic conditions, concentrations of credit risk and other relevant data.

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)	September 30, 2007	June 30, 2007	March 31, 2007	December 31, 2006
Allowance for loan losses	$528	$595	$581	$561
Total classified loans	$2,423	$3,112	$2,715	$2,672
Allowance for loan losses as a percentage of:
Total Loans	1.19%	1.32%	1.41%	1.31%
Total  nonperforming loans	122%	105%	83%	90%
Net(charge-offs) recoveries as a percentage of average loans	(0.22)%	(0.06)%	0.02%	(0.10%)

The level of classified loans at September 30, 2007 declined to $2.4 million from $3.1 million at June 30, 2007.  The improvement is related to an impaired loan totaling $180 thousand that was transferred to other real estate owned, the paydown of several classified loans from the proceeds of real estate sales, and the upgrade to “Pass/Watch” classification of a loan totaling $252 thousand.   Approximately 29%, or $691 thousand, of the classified loans are categorized “Other Loans Especially Mentioned”.  Management is actively working with borrowers to prevent further decline in credit quality.

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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)	September 30, 2007	June 30, 2007	March 31, 2007	December 31, 2006
Nonperforming loans:
Commercial	$297	$382	$514	$403
Installment	-	--	--	--
Residential Real Estate	135	184	184	223
Total	$433	$566	$698	$626

At September 30, 2007, non-accrual loans declined to $433 thousand from $566 thousand at June 30, 2007.  During the quarter ended September 30, 2007, the Bank charged-off $91 thousand of the non-accrual loan balances and transferred to other real estate owned the net balance of one loan totaling $180 thousand.  In addition, a home equity loan totaling $40 thousand was charged-off as uncollectible during the quarter.  Offsetting these reductions were two commercial loans totaling $221 thousand that were moved to non-accrual status because of severe delinquencies. Many 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.  Management continues to aggressively pursue collection of non-accrual and previously charged-off loans utilizing a collection attorney to maximize recovery.  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.

Investment Securities and Other Short-term Investments

Investment securities, including Federal Funds Sold, decreased on average by $1.4 million, or 4.99%, during the quarter ended September 30, 2007 from the quarter ending June 30, 2007 as a result of an increase in the average loans outstanding during the quarter.  (Refer to Loans discussion above.)   Funds were redeployed from Federal Funds Sold to fund loan purchases and other loan origination activity.

The yield on the investment portfolio was 5.03% at September 30, 2007 down from 5.11% at June 30, 2007.  The decrease in the yield is primarily a result of the call of $750,000 of the Bank’s higher yielding callable agency securities during the quarter. These securities had yields of 6.00% and could not be readily replaced in the current declining rate environment. The duration of the portfolio remains relatively short at 3.2 years with investments relatively 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 loan origination activity and to manage interest rate risk.

14

Deposits

During the quarter ended September 30, 2007, average deposits decreased $146 thousand, or 0.22%, from the quarter ending June 30, 2007.  The most significant decrease was in the Bank’s noninterest bearing checking account balances that decreased on average by $590 thousand, or 4.19%.  A portion of these deposits were shifted to the Bank’s premium interest checking product that was introduced in June 2007 for nonprofit and religious organizations.  Interest checking balances increased on average by $308 thousand, or 3.05%.

Certificates of deposit declined $125 thousand, or 0.57%, due to the maturity and transfer of several certificates to the Bank’s higher yielding signature savings product.

In 2006 and 2007, the Bank implemented products with higher interest rates to attract new depositors.  While somewhat successful, the level of deposit growth did not meet management’s expectations because of increased competition in the region.  Management will re-examine this strategy and the features of these deposit products and make modifications where appropriate including the reduction and tiering of interest rates.  In addition, collaboration with and deposit gathering from the corporate sector will become important elements in the Bank’s growth strategy.

The Bank continued the implementation of remote deposit capture during the quarter ended September 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.  Although delayed, remote deposit capture is expected to be fully implemented by year-end 2007.

While the Bank has $13.1 million in certificates of deposit with balances of $100,000 or more, approximately $9 million, or 69%, 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 September 30, 2007 are summarized below:

Commitments to extend credit $14,230,000

There are no outstanding letters of credit.

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 $9.2 million in loans are scheduled to mature within one year.

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By policy, the Bank’s minimum level of liquidity is 6.00% of total assets.  At September 30, 2007, the Bank had total short-term liquidity, including cash and federal funds sold, of $13.3 million, or 17.61% 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 $3.4 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 has contingent funding sources in the form of a $2 million line of credit with its correspondent bank as well as the Discount Window at the Federal Reserve Bank. Management actively manages and monitors the Bank’s liquidity level to ensure that there are adequate funds to meet loan demand.

Capital Resources

Total shareholders' equity increased approximately $72 thousand compared to December 31, 2006 as a result of net income of $75 thousand during the nine months ended September 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)	September 30, 2007			December 31, 2006
Total Capital	$	8,695		$	8,624
Less: Intangible Assets and accumulated other comprehensive loss		(1,060	)		(1,185	)
Tier 1 Capital		7,635			7,439
Tier 2 Capital		529			556
Total Qualifying Capital	$	8,164		$	7,995
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$	46,032		$	44,464
Tier 1 Risk-Based Capital Ratio		16.58	%		16.73	%
Tier 2 Risk-Based Capital Ratio		17.73	%		17.98	%
Leverage Ratio		10.07	%		10.33	%
	Bank			Bank
Total Capital	$	8,416		$	8,335
Less: Intangible Assets and accumulated other comprehensive loss		(1,060	)		(1,185	)
Tier 1 Capital		7,356			7,150
Tier 2 Capital		529			556
Total Qualifying Capital		7,885		$	7,706
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$	46,032		$	44,464
Tier 1 Risk-Based Capital Ratio   (Minimum Ratio- 4.00%)		15.98	%		16.08	%
Tier 2 Risk-Based Capital Ratio   (Minimum Ratio- 8.00%)		17.13	%		17.33	%
Leverage Ratio                               (Minimum Ratio- 4.00%)		9.71	%		9.93	%

Results of Operations

Summary

The Bank had net income of $5 thousand ($0.00 per common share) for the quarter ended September 30, 2007 compared to net income of $8 thousand ($0.01 per common share) for the quarter ended September 30, 2006. The Bank had net income of $74 thousand ($0.07 per commons share) compared to $85 thousand ($0.08 per common share) for the nine months ended September 30, 2006. A detailed explanation for each component of earnings is included in the sections below.

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Net Interest Income

Average Balances, Rates, and Interest Income and Expense Summary

	Three  months ended September 30, 2007			Three  months ended September 30, 2006
(Dollars in thousands)	Average Balance	Interest	Yield/Rate	Average Balance	Interest	Yield/Rate
Assets:
Interest-earning assets:
Loans	$45,013	$910	8.09%	$45,453	$909	8.00%
Investment securities-HTM	12,114	148	4.87	9,171	105	4.58
Investments securities-AFS	3,240	42	5.19	3,138	38	4.84
Federal funds sold	10,434	132	5.05	8,718	114	5.24
Interest bearing balances with other banks	286	4	5.59	279	2	3.19
Total interest-earning assets	71,087	1,236	6.95	66,759	1,168	7.00
Interest-bearing liabilities
Demand deposits	10,407	50	1.90	9,747	31	1.27
Savings deposits	20,342	85	1.66	15,826	42	1.07
Time deposits	21,701	192	3.54	22,312	182	3.26
Total interest-bearing liabilities	52,450	326	2.49	47,885	255	2.13
Net interest earnings		$910			$913
Net yield on interest-earning assets			5.12%			5.47%

Net interest income decreased $4 thousand, or 0.41%, for the quarter ended September 30, 2007 compared to September 30, 2006 and decreased $21 thousand, or 0.79%, for the nine months ended September 30, 2007 compared to September 30, 2006. The yield on earning assets for the three months ended September 30, 2007 decreased to 6.95% from 7.00% for the same three months in 2006 as a result of a reduction in rates paid on Federal Funds Sold.

While the yield on earning assets decreased 5 basis points from 2006 to 2007, the cost of interest-bearing liabilities increased 36 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 as well as deposit migration from its lower interest savings products to the higher rate signature savings product resulted in a higher cost of funds.  Also, the rates the Bank paid on its certificates of deposits increased in line with market conditions.  All of these factors resulted in a $71 thousand, or 27.8%, increase in the Bank’s interest expense for the quarter ending September 30, 2007 compared to the same quarter in 2006 and an increase of $243 thousand, or 26.5%, for the nine months ended September 30, 2007 compared to the same period in 2006.

While the Bank experienced a 35 basis point margin compression, because its 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.  However, in light of recent reductions in rate by the Federal Reserve, management will review and reduce and tier the rates on these products to mitigate future interest rate risk and margin compression.

Provision for Loan Losses

The Bank made provisions totaling $10 thousand for the quarter ending September 30, 2007 compared to $40 thousand for the same quarter in 2006.  Provisions for the nine months ended September 30, 2007 totaled $70 thousand for the nine months ended September 30, 2007 compared to $115 thousand for the nine months ended September 30, 2006. The Bank was not affected by the recent fallout in the sub-prime lending market as it was not a lender or purchaser of this type of residential mortgage loan.  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 decreased $12 thousand, or 3.90%, for the quarter ending September 30, 2007, compared to the same quarter in 2006 and decreased $38 thousand, or 3.74%, for the nine months ended September 30, 2007 compared to 2006.

17

Customer service fees declined by $8 thousand, or 5.14%, for the quarter ended September 30, 2007, compared to 2006 and $29 thousand, or 6.41%, for the nine months ended September 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 $12 thousand, or 10.04% for the quarter ending September 30, 2007, compared to 2006 and declined $55 thousand, or 13.79%, for the nine months ended September 30, 2007 compared to 2006 because of increased competition as well as poor service resulting in a high level of down-time.  In July 2007, the Bank converted to a new service provider to improve the efficiency of its network.

Loan syndication fees increased $5 thousand, or 25%, for the quarter ended September 30, 2007 compared to 2006 and increased $5 thousand, or 5.56%, for the nine months ended September 30, 2007 compared to 2006.  The Bank continues to serve as agent/arranger for two (2) facilities for which annual fees are projected to be a minimum of $120 thousand.  Management is actively pursuing growth in this line of business and will market this service to local corporations.

Noninterest Expense

Salaries and benefits decreased $20 thousand, or 4.66%, for the quarter ended September 30, 2007 compared to 2006 and decreased $60 thousand, or 4.68%, for the nine months ended September 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 increased $37 thousand, or 15.17%, for the quarter ended September 30, 2007 compared to 2006 and increased $29 thousand, or 3.88% for the nine months ended September 30, 2007 compared to 2006.  The increase is primarily attributable to costs related to the switch to a new ATM maintenance provider in July 2007.  The move to the new provider was made in effort to improve the ATM service level and up-time to increase the Bank’s ATM fee income.

Office operations and supplies expense decreased $4 thousand, or 5.24%, for the quarter ended September 30, 2007 compared to 2006 and was the same for the nine months ended September 30, 2007 compared to 2006.  The decrease for the quarter is primarily related to a reduction in supplies expense.

Marketing and public relations expense decreased $10 thousand, or 36.42%, for the quarter ended September 30, 2007 compared to 2006 and increased $3 thousand, or 3.11% for the nine months ended September 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.  However, during the summer months, marketing was significantly curtailed because potential customers typically vacation during this period. Additional spending is projected in marketing and advertising during the Fall/Winter 2007 to continue the Bank’s re-branding and specific product marketing to achieve growth in the balance sheet.

Professional services expense decreased approximately $11 thousand, or 17.07%, for the quarter ended September 30, 2007 compared to 2006 and decreased $23 thousand, or 11.10%, for the nine months ended September 30, 2007 compared to 2006. The decrease during the quarter is primarily attributable to a decrease in consulting fees.  In 2006, the Bank used consultants to assist with information technology matters.  The decline for the nine 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.

18

Data processing expenses increased $10 thousand, or 9.56% for the quarter ended September 30, 2007 compared to 2006 and increased $27 thousand, or 8.74% for the nine months ended September 30, 2007 compared to 2006. The increase during the quarter relates to the implementation of a new e-banking platform for the Bank’s remote deposit capture product.  This platform will be used by the Bank’s corporate customers to perform cash management transactions.  The increase is also related to the Bank’s ATM processing expense—specifically, its net interchange expense.  More Bank customers are 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 is improving as the result of the conversion to a new ATM service provider but is still less than prior years as the result of new competition and ATM down-time for repairs.

Federal deposit insurance assessments increased $13 thousand, or 46.25%, for the quarter ended September 30, 2007 compared to 2006 and increased $31 thousand, or, 37.24%, for the nine months ended September 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 September 30, 2007, the Bank’s Tier 1 leverage ratio was 9.71%, 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.

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.

19

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 September 30, 2007, an asset sensitive position is maintained on a cumulative basis through 1 year of 8.98% 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 September 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.

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 or are reasonably likely to affect its internal controls.

20

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 2006 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.

21

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

22

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.

23 

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 am 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

November 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

November 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 September 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

November 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 September 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

November 14, 2007