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, 2010 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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes ____ 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_ Smaller Reporting Company ___

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

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

1

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 500,000 shares of $0.01 par value 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 July 30, 2010, the aggregate number of the shares of the Registrant’s Common Stock issued was 1,068,588 (including 191,667 Class B non-voting).  There are 33,500 shares of Common Stock held in treasury stock at July 30, 2010.

The Series Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A Preferred stock of which 136,842 shares are issued and 31,308 shares are held in treasury stock as of July 30, 2010.

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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	16
	3.	Quantitative and Qualitative Disclosures about Market Risk	25
	4T.	Controls and Procedures	25
PART II-OTHER INFORMATION
	1.	Legal Proceedings	26
	1A.	Risk Factors	26
	2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	3.	Defaults upon Senior Securities	26
	4	Reserved	26
	5.	Other Information	27
	6.	Exhibits	27

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Item 1.Consolidated Statements of Condition (unaudited)
	June 30,			December 31,
	2010			2009
Assets
Cash and due from banks	$	2,373,440		$	2,495,359
Interest bearing deposits with banks		304,376			303,485
Federal funds sold		4,191,000			3,491,000
Cash & cash equivalents		6,868,816			6,289,844
Investment securities:
Held-to-maturity, at amortized cost (fair value of $15,170,784		14,789,900			9,970,807
and $10,019,986. at June 30, 2010 and December 31, 2009, respectively)
Available-for-sale, at fair value		1,526,590			1,862,993
Loans, net of unearned discount		47,124,264			47,587,112
Less: allowance for loan losses		(845,186	)		(727,397	)
Net loans		46,279,078			46,859,715
Bank premises & equipment, net		1,251,544			1,358,296
Accrued interest receivable		388,780			421,292
Other real estate owned		689,084			0
Core deposit intangible		580,928			669,967
Prepaid expenses and other assets		757,566			884,879
Total Assets	$	73,132,286		$	68,317,793
Liabilities & Shareholders' Equity
Demand deposits, non-interest bearing		13,244,361			14,030,712
Demand deposits, interest bearing		12,320,811			10,188,990
Savings deposits		14,582,635			15,302,458
Time deposits, $100,000 and over		17,493,278			12,367,359
Time deposits		8,250,448			8,417,102
		65,891,533			60,306,621
Accrued interest payable		76,224			63,955
Accrued expenses and other liabilities		383,400			415,943
Total Liabilities		66,351,156			60,786,519
Shareholders' equity:
Preferred Stock, Series A, non-cumulative., 6%, $.01 par value,		1,368			1,368
500,000 shares authorized, 136,842 issued
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 and 31,308 shares preferred, at cost		0			0
Additional-paid-in-capital		14,749,852			14,749,852
Accumulated deficit		(8,032,628	)		(7,280,793	)
Accumulated other comprehensive income		51,853			50,163
Total Shareholders' equity		6,781,129			7,531,274
Total liabilities and shareholders' equity	$	73,132,286		$	68,317,793

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

4

Consolidated Statements of Operations—(unaudited)

	Quarter ended			Quarter ended			Six months ended			Six months ended
	June 30,			June 30,			June 30,			June 30,
	2010			2009			2010			2009
Interest Income:
Interest and fees on loans	$	688,509		$	788,671		$	1,381,740		$	1,557,171
Interest on investment securities		156,176			135,257			272,158			283,482
Interest on Federal Funds sold		2,910			1,997			4,989			4,343
Interest on time deposits with other banks		176			1,792			902			3,566
Total interest income		847,771			927,717			1,659,789			1,848,562
Interest Expense:
Interest on time deposits		53,130			93,128			105,638			203,297
Interest on demand deposits		19,890			23,438			39,505			50,258
Interest on savings deposits		3,584			9,293			7,319			21,088
Total interest expense		76,604			125,859			152,462			274,643
Net interest income		771,167			801,858			1,507,327			1,573,919
Provision for loan losses		377,000			30,000			407,000			60,000
Net interest income less provision for
loan losses		394,167			771,858			1,100,327			1,513,919
Noninterest income:
Customer service fees		112,555			120,629			218,166			236,150
ATM activity fees		94,844			118,519			185,673			231,181
Loan syndication fees		50,000			50,000			80,000			80,000
Other income		43,809			24,718			84,709			42,439
Total noninterest income		301,208			313,866			568,548			589,770
Non-interest expense
Salaries, wages, and employee benefits		441,506			401,198			870,352			781,327
Occupancy and equipment		255,225			274,316			509,240			557,180
Office operations and supplies		69,131			70,146			141,936			140,782
Marketing and public relations		9,485			2,415			12,749			35,721
Professional services		99,001			65,850			167,053			125,659
Data processing		117,117			135,362			232,893			279,296
Deposit insurance assessments		35,829			18,000			71,153			28,000
Other noninterest expense		229,450			197,932			415,333			372,376
Total non-interest expense		1,256,744			1,165,219			2,420,709			2,320,341
Net loss	$	(561,369	)	$	(79,495	)	$	(751,834	)	$	(216,652	)
Loss per share-basic and diluted	$	(0.54	)	$	(0.08	)	$	(0.73	)	$	(0.21	)
Comprehensive loss	$	(556,253	)	$	(77,748	)	$	(750,144	)	$	(196,307	)
Weighted average number of shares		1,035,088			1,035,088			1,035,088			1,035,088

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

5

Consolidated Statements of Cash Flows--(unaudited)

	Six Months Ended			Six Months Ended
	June 30,			June 30,
	2010			2009
Cash flows from operating activities
Net loss	$	(751,834	)	$	(216,652	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for loan losses		407,000			60,000
Depreciation and amortization		249,617			287,673
Decrease (increase) in accrued interest receivable and other assets		159,825			(35,495	)
Increase in accrued interest payable and other liabilites		(20,274	)		(4,138	)
Net cash provided by operating activities		44,334			91,388
Cash flows from investing activities
Purchase of investments-Held-to-Maturity		(10,846,763	)		(6,633,093	)
Proceeds from maturity and principal reductions of investments-Available-for-Sale		337,144			320,125
Proceeds from maturity and principal reductions of investments-Held-to-Maturity		6,009,940			6,647,255
Net increase in loans		(515,447	)		(205,838	)
Purchase of premises and equipment		(35,148	)		(40,744	)
Net cash (used in) provided by investing activities		(5,050,274	)		87,705
Cash flows from financing activities
Net increase (decrease) in deposits		5,584,912			(694,457	)
Net cash provided by (used in) financing activities		5,584,912			(694,457	)
Increase (decrease) in cash and cash equivalents		578,972			(515,364	)
Cash and cash equivalents at beginning of period		6,289,844			5,471,471
Cash and cash equivalents at end of period	$	6,868,816		$	4,956,107
Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	140,193		$	270,995
Noncash transfer of loans to other real estate owned	$	689,084		$	0

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

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, 2009 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, 2010 and December 31, 2009 and the consolidated results of its operations for the three and six month periods ended June 30, 2010 and 2009, and its consolidated cash flows for the three and six months ended June 30, 2010 and 2009.

Accounting Standards Codification.

The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) is the FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles (GAAP) applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.  An estimate that is particularly susceptible to change in the near term is the allowance for loan losses.

Commitments

In the general course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these commitments.

Contingencies

The Company is from time to time a party to routine litigation in the normal course of its business. Management does not believe that the resolution of this litigation will have a material adverse effect on the financial condition or results of operations of the Company. However, the ultimate outcome of any such litigation, as with litigation generally, is inherently uncertain and it is possible that some litigation matters may be resolved adversely to the Company.

2.  Comprehensive Loss

Total comprehensive loss includes net loss 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 loss for the three months ended June 30, 2010 and 2009 was $(556,253) and $(77,748), respectively. The Company’s total comprehensive loss for the six months ended June 30, 2010 and 2009 was $(750,144) and $(196,307), respectively.  The difference between the Company’s net loss and total comprehensive loss 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.

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3. Net Loss Per Share

The calculation of net loss per share follows:

	Three Months Ended June 30, 2010	Three Months Ended June 30, 2009	Six Months Ended June 30, 2010	Six Months Ended June 30, 2009
Basic:
Net loss available to common shareholders	($561,369)	($79,495)	($751,834)	($216,652)
Average common shares outstanding-basic	1,035,088	1,035,088	1,035,088	1,035,088
Net loss per share-basic	$ (0.54)	$ (0.08)	$ (0.73)	$ (0.21)
Fully Diluted:
Average common shares-fully diluted	1,035,088	1,035,088	1,035,088	1,035,088
Net loss per share-fully diluted	$ (0.54)	$ (0.08)	$ (0.73)	$ (0.21)

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 loss per share calculations.

4.   New Authoritative Accounting Guidance

As discussed in Note 1, on July 1, 2009, the Accounting Standards Codification became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

FASB ASC Topic 310, “Receivables.” New authoritative accounting guidance (Accounting Standards Update No. 2010-20) under ASC Topic 310, "Receivables", amends the current disclosures required by ASC Topic 310. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  The Compa ny is currently evaluating this new disclosure guidance but does not expect it to have an impact on the Company’s financial condition or results of operations.

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FASB ASC Topic 820, “Fair Value Measurements and Disclosures”.  New authoritative accounting guidance (Accounting Standards Update No. 2010-6) provides amendments to ASC Topic 820 that require new disclosures as follows: 1) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). The new authoritative guidance also clarifies existing disclosures as follows: 1) A report ing entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. These new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. These disclosures did not have a significant imp act on the Company’s financial statements, however, refer to Note 6. Fair Value.

FASB ASC Topic 860, “Transfers and Servicing”.  The new authoritative accounting guidance under amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets.  The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets.  The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting during the period.  This new authorita tive accounting guidance under was effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.

5.  Investment Securities

The following is a summary of the Company's investment portfolio as of June 30, 2010: 

	Amortized Cost		Gross unrealized gains		Gross unrealized losses		Other-than-temporary impairments in OCI		Fair Value
Available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,320,350	$	77,392	$	-	$	-	$	1,397,742
Investments in mutual funds		128,848		-		-		-		128,848
	$	1,449,198	$	77,392	$	-	$	-	$	1,526,590
Held-to-maturity:
U.S. government agencies	$	9,885,298	$	163,212	$	-	$	-	$	10,048,510
Government Sponsored Enterprises residential mortgage-backed securities		4,904,602		217,673		-		-		5,122,275
	$	14,789,900	$	380,885	$	-	$	-	$	15,170,784

The following is a summary of the Company's investment portfolio as of December 31, 2009: 

	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Other-than-temporary impairments in OCI		Fair Value
Available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,659,353	$	74,870	$	-		$	-	$	1,734,223
Investments in mutual funds		128,770		-		-			-		128,770
	$	1,788,123	$	74,870	$	-		$	-	$	1,862,993
Held-to-maturity:
U.S. government agencies	$	6,574,668	$	8,898	$	(101,293	)	$	-	$	6,482,273
Government Sponsored Enterprises residential mortgage-backed securities		3,396,139		153,433		(11,859	)		-		3,537,713
	$	9,970,807	$	162,331	$	(113,152	)	$	-	$	10,019,986

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The amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity, by contractual maturity, as of June 30, 2010, are as follows:

	Amortized Cost		Fair Value
Available-for-Sale
Due within one year	$	-	$	-
Due after one year through three years		-		-
Due after three years through five years		-		-
Due five years through ten years		-		-
Due  after 10 years		-		-
Government Sponsored Enterprises residential mortgage-backed securities		1,320,350		1,397,742
Total debt securities	$	1,320,350		1,397,742
Investments in mutual funds		128,848		128,848
	$	1,449,198	$	1,526,590

Held to maturity
Due within one year	$	-	$	-
Due after one year through three years		-		-
Due after three years through five years		-		-
Due five years through ten years		9,598,956		9,755,461
Due  after 10 years		286,342		293,048
Government Sponsored Enterprises residential mortgage-backed securities		4,904,602		5,122,275
	$	14,789,900	$	15,170,784

Expected maturities will differ from contractual maturities because the issuers of certain debt securities do have the right to call or prepay their obligations without any penalties.

None of the Company’s investments had unrealized losses or have been in a continuous unrealized loss position at June 30, 2010.

The table below indicates the length of time individual securities, have been in a continuous unrealized loss position at December 31, 2009:

(in 000’s)	Less Than 12 Months					12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Held-to-maturity:
U.S. government agencies	$	5,718	$	(101	)	$	-	$	-	$	5,718	$	(101	)
Government Sponsored Enterprises residential mortgage-backed securities		510		(12	)		-		-		510		(12	)
Total	$	6,228	$	(113	)	$	-	$	-	$	6,228	$	(113	)

U.S. Government and Agency Obligations. Unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2009.

Residential Federal Agency Mortgage-Backed Securities. Unrealized losses on the Company’s investment in federal agency mortgage-backed securities may be caused by interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investmen ts before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2009.

10

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary.  This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.  On a quarterly basis, we review all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. We consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decl ine in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a period of time that allows for the recovery in value.

6.  Fair Value

Fair Value Measurement

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accorda nce with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1

·   Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2

·   Quoted prices for similar assets or liabilities in active markets.

·   Quoted prices for identical or similar assets or liabilities in markets that are not active.

·   Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

Level 3 Inputs

·   Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

·   These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Fair Value on a Recurring Basis

Securities Available for Sale (“AFS”):  Where quoted prices are available in an active market, securities would be classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds and mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow models. Level 2 securities include U.S. agency securities and mortgage backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Lev el 3 of the valuation hierarchy.

Assets and liabilities on the consolidated balance sheets measured at fair value on a recurring basis are summarized below.

(in 000’s)					Fair Value Measurements at Reporting Date Using:
	Assets/Liabilities Measured at Fair Value at June 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,398	$	-	$	1,398	$	-
Mutual Funds		129		129		-		-
Total	$	1,527	$	129	$	1,398	$	-

(in 000’s)					Fair Value Measurements at Reporting Date Using:
	Assets/Liabilities Measured at Fair Value at December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,734	$	-	$	1,734	$	-
Mutual Funds	$	129		129		-		-
Total	$	1,863	$	129	$	1,734	$	-

As of June 30, 2010, the fair value of the Bank’s AFS securities portfolio was approximately $1,527,000.  Over 91% of the portfolio consisted of residential mortgage-backed securities, which had a fair value of $1,398,000 at June 30, 2010.  All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”).  The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States.  All AFS securities were classified as level 2 assets at June 30, 2010.  The valuation of AFS securities using Level 2 inputs was primarily de termined using the market approach, which uses quoted prices for similar instruments and all relevant information.  There were no transfers between Level 1 and Level 2 assets during the period ended June 30, 2010.

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Fair Value on a Nonrecurring Basis

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets and liabilities carried on the consolidated statements of condition by level within the hierarchy as of June 30, 2010 and December 31, 2009, for which a nonrecurring change in fair value has been recorded during the six months ended June 30, 2010.

Carrying Value at June 30, 2010:

(in 000’s)	Total		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total fair value gain (loss) during 6 months ended June 30, 2010
Impaired Loans	$	3,172		-		-	$	3,172	$	(71	)
Other real estate owned (“OREO”)		689		-		-		689		-

Carrying Value at December 31, 2009:

(in 000’s)	Total		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Total fair value gain (loss) during 12 months ended December 31, 2009
Impaired Loans	$	3,394		-		-	$	3,394	$	(91	)

Fair value of impaired loans is determined by the fair value of the collateral if the loan is collateral dependent.  Collateral values for loans and other real estate owned are determined by appraisal, which may be discounted based upon management’s review and changes in market conditions.  The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated statements of condition.   The valuation allowance for impaired loans at June 30, 2010 was $258,000.  The valuation allowance for impaired loans at December 31, 2009 was $187,000.

Fair Value of Financial Instruments

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The following methods and assumptions were used by the Bank in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Investment securities: Fair values for investment securities available for sale are as described above.  Investment securities held to maturity are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  The carrying amount of accrued interest receivable approximates fair market value.

Loans (other than impaired loans): The fair value of loans was estimated using a discounted cash flow analysis, which considered estimated pre­payments, amortizations, and non performance risk.  Prepayments and discount rates were based on current marketplace estimates and pricing.  Residential mortgage loans were discounted at the current effective yield, including fees, of conventional loans, adjusted for their maturities with a spread to the Treasury yield curve.  The carrying amount of accrued interest receivable approximates fair market value.

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Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are equal to the amounts payable on demand at the reporting date (e.g., their carrying amounts).  The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate the fair values at the reporting date.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation.  The Treasury Yield Curve was utilized for discounting cash flows as it approximates the average marketplace certificate of deposit rates across the relevant maturity spectrum.

Commitments to extend credit: The carrying amounts for commitments to extend credit approximate fair value as such commitments are not substantially different from the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparts.  The carrying amount of accrued interest payable approximates fair market value.

The fair value of assets and liabilities are depicted below:

	June 30, 2010				December 31, 2009
(in 000’s)	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
(Dollars in thousands)
Assets:
Cash and cash equivalents	$	6,869	$	6,869	$	6,290	$	6,290
Investment securities		16,316		16,697		11,834		11,883
Loans, net of allowance for loan losses		46,279		46,368		46,860		46,707
Interest receivable		389		389		421		421
Liabilities:
Demand deposits		25,565		25,565		24,219		24,219
Savings deposits		14,583		14,583		15,302		15,302
Time deposits		25,743		25,743		20,785		20,785
Interest Payable		76		76		64		64

7. Critical Accounting Policies

Allowance for Loan Losses

The Company 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 i mpact earnings in future periods. The following table presents an analysis of the allowance for loan losses.

(in 000’s)	Three months ended June 30, 2010			Three months ended June 30, 2009			Six Months ended June 30, 2010			Six Months Ended June 30, 2009
Balance at beginning of period	$	642		$	612		$	727		$	587
Charge-offs:
Commercial loans		(71	)		(22	)		(192	)		(22	)
Consumer loans		(107	)		(14	)		(117	)		(28	)
Total charge-offs		(178	)		(36	)		(309	)		(50	)
Recoveries		4			26			20			35
Net recoveries(charge-offs)		(174	)		(10	)		(289	)		(15	)
Provision for loan losses		377			30			407			60
Balance at end of period	$	845		$	632		$	845		$	632

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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 and the loan is in the process of collection.

(Dollars in thousands)	June 30, 2010		March 31, 2010		December 31, 2009
Nonperforming loans:
Commercial	$	3,156	$	2,854	$	2,791
Consumer		68		167		169
Residential Real Estate		95		143		175
Total	$	3,319	$	3,164	$	3,135
Total impaired loans	$	3,430	$	3,275	$	3,581
Specific reserve related to impaired loans	$	258	$	66	$	187

At June 30, 2010, non-accrual loans totaled approximately $3.3 million, an increase of approximately $184,000, or 5.87%, compared to December 31, 2009. The increase is primarily concentrated in the commercial loan portfolio for which the economic slow down is creating a reduction in cashflow for several of the Bank’s borrowers.  Non-accrual loans primarily include loans with SBA guarantees or real estate collateral that help to mitigate potential losses.  Management is actively working with these borrowers to develop suitable repayment plans.

Income Taxes

Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities.  Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not.   For financial reporting purposes, a valuation allowance of 100% of the net deferred tax asset has been recognized to offset the net deferred tax assets related to cumulative temporary differences and tax loss carryforwards.  If management determines that the Company may be able to realize all or part of the deferred tax asset in the future, an income tax benefit may be required to increase the recorded value of the net deferred tax asset to the expected realizable amount.

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 ultimately would be 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. The evaluation of a tax position taken is considered by itself and 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 perce nt likely of being realized upon settlement with the applicable taxing authority. The portion of 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, if any, would be recognized in income tax expense in the statements of income.

Subsequent Events

In accordance with FASB ASC Topic 855, Subsequent Events, management has evaluated subsequent events through the date the financial statements were issued and has determined that no recognized or non-recognized subsequent events warranted inclusion or disclosure in the interim financial statements as of June 30, 2010.

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

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").

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,” “bel ieve,” “seek,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements.  These forward looking statements include: (a) statements of goals, intentions and expectations; and (b) statements regarding business prospects, asset quality, credit risk, reserve adequacy and liquidity.  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 on 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 company’s, 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) ,the war on terrorism and the U.S. Government’s response to those events or the U.S. Government becoming involved in a conflict in a foreign country including the war in Iraq; (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 its customers; and (l) the ability of key third party providers to perform their obligations to UBS and; (m) the Bank and UBS’ success in managing the risks involved in the foregoing.

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

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Overview

The Company had a net loss of approximately $561,000 ($0.54 per common share) for the quarter ended June 30, 2010 compared to a net loss of approximately $79,000 ($0.08 per common share) for the quarter ended June 30, 2009. The Company had a net loss of approximately $752,000 ($0.73 per common share) for the six months ended June 30, 2010 compared to a net loss of approximately $217,000 ($0.21 per common share) for the six months ended June 30, 2009. The increase in the loss in 2010 is primarily the result of a higher level of provisions for loan losses, higher loan collection costs, and a reduction in net interest income due to an increased level of non-accrual loans and a lower yield on the investment portfolio.

The Company is operating under unprecedented and difficult economic conditions that have created asset quality challenges including increased levels of delinquent/nonaccrual loans and declining real estate values of underlying collateral. The Philadelphia region lagged most of the country in experiencing the effects of the recession and the real estate “bubble” and has now resulted in reductions in cashflow for some borrowers as well as diminished values associated with real estate that serve as collateral.   During the quarter ended June 30, 2010, the Company increased its provisions for losses to address potential credit exposure.  In addition, management intensified its collection efforts which resulted in increased legal and collection cost and foreclosure-related expenses. While there can be n o assurance, management believes it has addressed all significant quality matters related to its loan portfolio.  The following actions are critical to enhancing the Company’s future financial performance:

Proactive management of asset quality to minimize credit losses.  In April, 2010, the Company hired an experienced Senior Lending Officer to lead the Credit Administration and Lending Department that has resulted in a better structured and more “nimble” organization.  Improvements have been made to the collection, underwriting, and customer relationship management practices. Regular asset quality meetings are held to review and proactively manage classified and emerging problem credits to address negative credit quality trends and reduce the risk of potential losses.   Further, to mitigate risk on new originations, the Company may utilize programs that provide credit enhancements in the form of guarantees (i.e. Small Business Adminis tration, Department of Transportation, etc.).

Continued core deposit growth.  Utilizing its competitive advantage as a community development bank and increased FDIC insurance limits, management identified and called upon corporations and institutions in the region to request core depository relationships to support the Bank’s small business lending strategies.   During the quarter ended June 30, 2010, approximately $1 million in new core deposits were received from several entities in the region.  Management will continue to utilize this strategy as well as other retail deposit marketing strategies to achieve deposit growth that is critical to attaining economies of scale and leveraging its capital to maximize the Company’s earnings potential.

Controlling and managing noninterest expense.   Noninterest expenses have escalated as a result of the hiring of additional personnel to oversee credit administration, increased legal and collection cost associated with classified loans and increased FDIC insurance expense.  While the ultimate goal is asset growth to achieve economies of scale, management continues its cost control efforts.  Savings were realized in the area of data processing with the implementation of branch capture in late 2009. However, management will continue to seek additional savings and efficiencies utilizing technology where possible including the introduction of e-statements to reduce postage and an elect ronic document storage solution to reduce the cost of storage.

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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, 2010	Quarter ended June 30, 2009	Six Months ended June 30, 2010	Six Months ended June 30, 2009
Net interest income	$771	$802	$1,507	$1,574
Provision for loan losses	377	30	407	60
Noninterest income	301	314	569	590
Noninterest expense	1,257	1,165	2,421	2,320
Net loss	(561)	(79)	(752)	(217)
Loss per share-basic and diluted	(0.54)	(0.08)	(0.73)	(0.21)
Balance sheet totals:	June 30, 2010	December 31, 2009
Total assets	$73,132	$68,318
Loans, net	$46,279	$46,860
Investment securities	$16,316	$11,834
Deposits	$65,892	$60,307
Shareholders' equity	$6,781	$7,531
Ratios*:	Quarter ended June 30, 2010	Quarter ended June 30, 2009
Loss on assets	(3.07%)	(0.45%)
Loss on equity	(33.10%)	(4.02%)

*annualized

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. Average funding uses increased approximately $5,649,000, or 8.97%, during the quarter ended June 30, 2010 compared to the quarter ended March 31, 2010. Average funding sources increased approximately $5,993,000, or 10.03%, during the quarter ended June 30, 2010 compared to the quarter ended March 31, 2010.  The increase is primarily a result of an increase in the deposit balance of one customer.

Sources and Uses of Funds Trends

	June 30, 2010			March 31, 2010
(Thousands of Dollars, except percentages)	Average	Increase (Decrease)		Average
	Balance	Amount	%	Balance
Funding uses:
Loans	$47,132	$(529)	(1.11)%	$47,661
Investment securities
Held-to-maturity	14,564	4,594	46.08	9,970
Available-for-sale	1,502	(166)	(9.95)	1,668
Federal funds sold	5,098	1,750	52.27	3,348
Balances with other banks	304	-	0.00	304
Total  uses	$68,600	$5,649	8.97%	$62,951
Funding sources:
Demand deposits
Noninterest-bearing	$14,708	$924	6.70%	$13,784
Interest-bearing	11,459	1,154	11.20	10,305
Savings deposits	14,549	(228)	(1.54)	14,777
Time deposits	25,033	4,146	19.85	20,887
Total sources	$65,749	$5,996	10.03%	$59,753

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Loans

Average loans declined approximately $529,000, or 1.11%, during the quarter ended June 30, 2010.  While commercial loan fundings during the quarter totaled approximately $931,000, they were offset by payoffs/paydowns, charge-offs totaling approximately $178,000 in the commercial and consumer portfolios and the transfer of approximately $215,000 commercial real estate to bank ownership following foreclosure and Sheriff’s sale actions.  Although the economy is slowly growing out of recession, the Bank continues to maintain stringent underwriting standards especially related to non-owner occupied real estate lending.  The focus is on traditional small business lending for which credit enhancements through the Small Business Administration or other loan guaranty programs may be available to mitigate cred it risk.

The Bank’s loan portfolio continues to be concentrated in commercial loans that comprise approximately $36.8 million, or 78.1%, of total loans at June 30, 2010, of which approximately $32.4 million are commercial real estate. Approximately $18.9 million of these loans are owner occupied which may serve to minimize the risk of loss. The Bank continues to have a strong niche in lending to religious organizations for which total loans at June 30, 2010 were $14.2 million, or 38.6%, of the commercial portfolio.   Management has heightened its monitoring of this concentration to proactively identify and manage credit risk in light of the current high level of unemployment that may impact the level of tithes and offerings that provide cash flow for repayment.

The composition of the net loans is as follows:

(in 000’s)	June 30, 2010	March 31, 2010	December 31, 2009
Commercial real estate	$32,435,193	$32,086,934	$ 32,581,925
Commercial and industrial	4,359,296	4,078,982	4,066,016
Consumer	5,283,820	5,372,695	5,625,799
Residential	5,045,955	5,128,689	5,313,372
Total	47,124,264	46,667,300	47,587,112
Less allowance for loan losses	(845,186)	(642,295)	(727,397)
Net loans	$46,279,078	$46,025,005	$46,859,715

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. Provisions are made to the allowance for loan losses in accordance with a detailed periodic analysis.  This analysis includes specific reserves allocated to impaired loans based on underlying recovery values as well as a general reserve based on many qualitative factors including charge-off history, delinquency trends, loan terms, regulatory environment, economic conditions, concentrations of credit risk and other relevant data. The allowance for loan losses as a percentage of total loans was 1.79% at June 30, 2010, compared to 1.53% at December 31, 2009.  During the quarter ended June 30, 2010, provisions for loan losses totaled $377,000. p rimarily fueled by the allocation of specific reserves totaling approximately $192,000 related to several impaired loans because of the decline in the value of underlying real estate collateral.  In addition, in accordance with policy, several consumer loans in excess of 120 days delinquent totaling approximately $107,000 were charged-off during the quarter.

Loans deemed “impaired” are those for which borrowers are no longer able to pay in accordance with the terms of their loan agreements.  The Bank’s source of repayment is generally the net liquidation value of the underlying collateral.  The level of impaired loans declined from approximately $3.6 million at December 31, 2009 to approximately $3.4 million at June 30, 2010.  The decline is related to the charge-off of one credit totaling $120,000 and the foreclosure and transfer to “other real estate owned” of three credits totaling approximately $689,000.  During the six months ended June 30, 2010, approximately $581,000 new loans were identified and classified as impaired.  Specific reserves related to impaired loans totaled approximately $258,000 and $187, 000 at June 30, 2010 and December 31, 2009, respectively.

At June 30, 2010, loans to religious organizations represented approximately $442,000 of total impaired loans compared to $128,000 at December 31, 2009.  The increase is related to one church relationship with credit exposure totaling approximately $318,000.  Management is working closely with the leadership of these organizations to develop suitable repayment plans. In general, loans to religious organizations are being monitored closely to proactively identify potential weaknesses in this area of high concentration.  The Bank is working with collection attorneys to assist with its recovery efforts on its impaired loans including forbearance agreements, foreclosure and other collection strategies.  Loans that have been identified as troubled debt restructured have been included in non-accrual an d impaired loans.  Based on a recent evaluation, the risk related to these credits is mitigated by collateral positions in real estate or guarantees of the SBA of approximately $250,000.

19

Management uses all available information to recognize losses on loans; however, future additions may be necessary based on further deterioration in economic conditions and market conditions affecting underlying real estate collateral values.  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 based on 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.

The percentage of allowance to nonperforming loans at June 30, 2010 has improved from 19.2% at December 31, 2009 to 25.46% primarily as a result of additional specific reserves added for impaired loans.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars in thousands)	June 30, 2010	March 31, 2010	December 31, 2009
Allowance for loan losses	$845	$642	$727
Total Impaired Loans (includes non-accrual loans)	$3,430	$3,275	$3,581
Total non-accrual loans	$3,319	$3,164	$3,135
Allowance for loan losses as a percentage of:
Total Loans	1.79%	1.38%	1.53%
Total  nonperforming loans	25.46%	20.3%	19.2%
Net(charge-offs) recoveries as a percentage of average loans *	(1.22%)	(0.97%)	(0.19%)

*Annualized

There is no other known information about possible credit problems other than those classified as nonaccrual and/or impaired 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 increased on average by approximately $4,428,000 during the quarter ended June 30, 2010 from the quarter ending March 31, 2010. The increase was primarily related to an increase of $5 million in governmental deposits which required collateralization equal to 102% of the uninsured amount.  Additional government agency securities were purchased during the quarter to meet this requirement.

The yield on the investment portfolio declined to 3.88% at June 30, 2010 compared to 4.07% at March 31, 2010 as a result the purchase of securities to serve as collateral as well as the call of higher yielding agency securities during the quarter.  The duration of the portfolio remains relatively short at 1.7 years. At June 30, 2010, 61%, or approximately $9.9 million, of the investment portfolio consisted of callable agency securities for which the duration shortened as a result of a high level of projected call activity in the current low interest rate environment.  The remainder of the portfolio consists of government sponsored agency (GSA) mortgage-backed pass-through securities.  The payments of principal and interest on these pools of GSA loans are guaranteed by these entities that bear the risk of d efault.  The Bank’s risk is prepayment risk when defaults accelerate the repayment activity.  These loans have longer-term con­tractual maturities but are sometimes paid off/down before maturity or have repricing characteristics that occur before final maturity. Home foreclosures in the current recessionary economy and lower interest rates continue to result in increased prepayment speeds and a shortened duration.  Management’s goal is to maintain a portfolio with a short duration to allow for adequate cash flow to fund loan origination activity and to manage interest rate risk.

Deposits

During the quarter ended June 30, 2010, average deposits increased approximately $6 million from thequarter ending March 31, 2010.  There was an increase of approximately $924,000, or 6.70%, in noninterest checking account balances and an increase of approximately $1,154,000, or 11.20%, in interest-bearing checking balances (including money market accounts).   A concerted effort was made to attract and retain core deposits from existing, new, and potential commercial loan customers to stabilize and grow deposit levels. In addition, utilizing its competitive advantage as a community development bank and increased FDIC limits, management was successful with its strategy of calling upon corporations and institutions in the region to develop c ore depository relationships in support its small business lending initiatives.  During the quarter ended June 30, 2010, new money market deposit relationships totaling approximately $1 million were established with these entities.  This strategy will continue to be utilized to grow core deposits.

20

Savings account balances decreased approximately $228,000, or 1.54%. During the current period of high unemployment, deposit attrition continues to occur as a result of increased liquidity needs of customers. However, a new retail marketing strategy to increase savings account balances has been designed with the theme of “Saving Families” that is focused on financial preparedness.  “Bank Days” will be held with regional institutions and corporations to encourage direct deposit savings by their employees.

Certificates of deposit increased on average by approximately $4.1 million, or 19.85%, from the quarter ended March 31, 2010. In April 2010, the Bank received an additional $5 million deposit from the City of Philadelphia for which a certificate of deposit was established.  While this certificate has a maturity of less than one year, it is anticipated that these funds will take on similar characteristics of the existing long-term depository relationship the Bank has with the City.  Including this deposit, the Bank has approximately $17.5 million in certificates of deposit with balances of $100,000 or more. Approximately $13 million, or 74%, of these deposits are governmental or quasi-governmental relationships that have a long history with the Bank and are considered stable and core.

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 but not funded from one period to another.

Many of the commitments are expected to expire without being drawn upon. The total commitment amounts do not necessarily represent future cash requirements.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Management believes the Bank has adequate liquidity to support the funding of unused commitments. There are no outstanding letters of credit.  The Bank's financial instrument commitments are summarized below:

	June 30, 2010	March 31, 2010	December 31, 2009
Commitments to extend credit	$5,801,000	$7,453,000	$8,558,100

The level of commitments declined from approximately $8.6 million at December 31, 2009 to approximately $5.8 million at June 30, 2010 primarily as a result of the funding of outstanding commitments for lines/loans during the period and a reduction in the pipeline of new loans. Although the Bank continues to lend, the average size of transactions has declined as a result of the small business lending strategy of the Bank versus larger commercial real estate and/or construction deals.

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.

21

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 $10.6 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, 2010, the Bank had total short-term liquidity, including cash and federal funds sold, of approximately $6.8 million, or 9.4% of total assets, compared to $6.3 million, or 9.2%, at December 31, 2009. The increase relates to deposit growth and loan paydown activity. The portion of the Bank’s investment portfolio classified as available-for-sale could also provide liquidity. However, the majority of these securities are pledged as collateral for deposits of governmental/quasi-governmental agencies as well as the Discount Window at the Federal Reserve Bank.  Therefore, they are restricted from use to fund loans or to meet other liquidity requirements.  To ensure the ongoing adequacy of liquidity, the following s trategies will be utilized in order of priority, if necessary:

·   Seek additional non-public deposits from existing private sector customers

·   Sell participations of existing commercial credits to other financial institutions in the region

Liquidity levels continue to be adequate.  Therefore, it was not necessary to sell loan participations to other institutions during the quarter ended June 30, 2010.

The Bank’s contingent funding sources  include the Discount Window at the Federal Reserve Bank for which it currently has $1.75 million in securities pledged that result in borrowing capacity of $1.5 million. Liquidity will continue to be closely monitored and managed to minimize risk and ensure that adequate funds are available to meet daily customer requirements and loan demand.

Capital Resources

Total shareholders' equity declined approximately $750,000 compared to December 31, 2009 as a result of a net loss of approximately $752,000 during six months ended June 30, 2010 offset by other comprehensive income of approximately $2,000 from an increase in unrealized gains on investment securities classified as available-for-sale. As reflected in the table below, the Company’s risk-based capital ratios are above the minimum regulatory requirements.  At June 30, 2010, the Bank is deemed "well capitalized."  The Company and the Bank do not anticipate paying dividends in the near future because of regulatory imposed dividend restrictions. The Company will seek to maintain the requisite minimum regulatory capital levels by internal capital generation (retained earnings) and by monitoring its asset growth.

	Company	Company
(thousands of dollars, except percentages)	June 30, 2010	December 31, 2009
Total Capital	$6,781	$7,531
Less: Intangible Assets and accumulated other comprehensive  gain (loss)	(633)	(720)
Tier 1 Capital	6,148	6,811
Tier 2 Capital	609	596
Total Qualifying Capital	$6,757	$7,407
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$48,310	$47,569
Tier 1 Risk-Based Capital Ratio	12.73%	14.32%
Tier 2 Risk-Based Capital Ratio	13.99%	15.57%
Leverage Ratio	8.46%	10.08%

	Bank	Bank
Total Capital	$6,678	$7,414
Less: Intangible Assets and accumulated other comprehensive gain (loss)	(633)	(720)
Tier 1 Capital	6,045	6,694
Tier 2 Capital	609	596
Total Qualifying Capital	$6,654	$7,290
Risk Adjusted Total Assets (including off-
Balance sheet exposures)	$48,310	$47,569
Tier 1 Risk-Based Capital Ratio   (Minimum Ratio- 6.00%)	12.51%	14.07%
Tier 2 Risk-Based Capital Ratio   (Minimum Ratio- 10.00%)	13.77%	15.33%
Leverage Ratio                               (Minimum Ratio- 5. 00%)	8.32%	9.91%

22

Results of Operations

Summary

The Company had a net loss of approximately $561,000 ($0.54 per common share) for the quarter ended June 30, 2010 compared to a net loss of approximately $79,000 ($0.08 per common share) for the quarter ended June 30, 2009. The Company had a net loss of approximately $752,000 ($0.73 per common share) for the six months ended June 30, 2010 compared to a net loss of approximately $217,000 ($0.21 per common share) for the six months ended June 30, 2009. The increase in the loss in 2010 is primarily the result of increased provisions for loan losses as well as a reduction in net interest income due to a high level of non-accrual loans and a lower yield on the investment portfolio.  A detailed explanation of 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, 2010			Three  months ended June 30, 2009
(in 000’s)	Average Balance	Interest	Yield/Rate	Average Balance	Interest	Yield/Rate
Assets:
Interest-earning assets:
Loans	$47,132	$689	5.85%	$48,657	$789	6.49%
Investment securities-HTM	14,564	140	3.85	9,737	106	4.35
Investments securities-AFS	1,502	16	4.26	2,462	29	4.71
Federal funds sold	5,098	3	0.24	3,117	2	0.26
Interest bearing balances with other banks	304	-	-	299	2	2.68
Total interest-earning assets	68,600	848	4.95	64,272	928	5.78
Interest-bearing liabilities
Demand deposits	11,459	20	0.70	10,681	24	0.90
Savings deposits	14,549	4	0.11	16,284	9	0.22
Time deposits	25,033	53	0.85	20,743	93	1.79
Total interest-bearing liabilities	51,041	77	0.60	47,708	126	1.06
Net interest earnings		$771			$802
Net yield on interest-earning assets			4.50%			4.99%

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

		Six  months ended June 30, 2010			Six  months ended June 30, 2009
(in 000’s)	Average Balance	Interest	Yield/Rate	Average Balance	Interest	Yield/Rate
Assets:
Interest-earning assets:
Loans	$47,342	$1,382	5.84%	$48,156	$1,557	6.47%
Investment securities-HTM	12,281	240	3.91	9,852	222	4.51
Investments securities-AFS	1,584	32	4.04	2,596	63	4.85
Federal funds sold	4,228	5	0.24	3,093	4	0.26
Interest bearing balances with other banks	304	1	0.66	299	3	2.01
Total interest-earning assets	65,739	1,660	5.05	64,996	1,849	5.78
Interest-bearing liabilities
Demand deposits	10,886	40	0.73	10,888	50	0.92
Savings deposits	14,721	7	0.10	16,386	21	0.26
Time deposits	22,972	106	0.92	20,817	204	1.96
Total interest-bearing liabilities	48,579	153	0.63	48,091	275	1.14
Net interest earnings		$1,507			$1,574
Net yield on interest-earning assets			4.58%			4.92%

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

Net interest income declined approximately $31,000, or 3.83%, for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009. Net interest income declined approximately $67,000, or 4.23%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The yield on earning assets for the quarter ended June 30, 2010 declined to 4.50% from 4.99% for the same quarter in 2009. While the yield on earning assets declined 83 basis points compared to the same quarter in 2009, the cost of interest-bearing liabilities declined 46 basis points as a result of rate reductions made on the Bank’s deposit products to follow market conditions. The reduction in the Bank’s net interest income compared to the prior year is primarily related to an increase in the level of non-accrual loans and a lower yiel d on the investment portfolio because of calls of higher yielding bonds.  Management continues to focus on reducing the level of nonaccrual loans and growing its core assets to increase net interest income.  In addition, rates on loan and deposit products are reviewed continuously and modified to manage interest rate risk and minimize margin compression.

23

Provision for Loan Losses

Provisions for loan losses were $377,000 for the quarter ended June 30, 2010 compared to $30,000 for the quarter ended June 30, 2009. Provisions for loan losses were $407,000 for the six months ended June 30, 2010 compared to $60,000 for the six months ended June 30, 2009. Increased provisions during 2010 were primarily driven by a higher level of impaired loans and declining real estate collateral values.  In general, provision requirements are based on credit losses inherent in the loan portfolio and the review and analysis of the loan portfolio in accordance with the Bank’s Allowance for Loan Loss policies and procedures. (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 declined approximately $13,000, or 4.03%, for the quarter ended June 30, 2010, compared to the same quarter in 2009 and declined approximately $21,000, or 3.60%, for the six months ended June 30, 2010 compared to 2009.  The decline was primarily as a result of a reduction in ATM activity fees.

Customer service fees declined by approximately $8,000, or 6.69%, for the quarter ended June 30, 2010, compared to 2009 and declined approximately $18,000, or 7.62%, for the six months ended June 30, 2010 compared to 2009. The decline was primarily a result of a reduction in overdraft and other activity fees on deposit accounts.

ATM fees declined approximately $24,000, or 19.98%, for the quarter ended June 30, 2010, compared to 2009 and declined approximately $46,000, or 19.69%, for the six months ended June 30, 2010 compared to 2009.  Consistent with trends in the industry, the Bank continues to experience a significant reduction in ATM usage as consumers move to electronic payment methods utilizing debit and credit cards versus cash. Methods to reduce cost and increase revenues associated with the ATM network continue to be evaluated.

Noninterest Expense

Salaries and benefits increased approximately $40,000, or 10.05%, for the quarter ended June 30, 2010 compared to 2009 and increased approximately $89,000, or 11.39%, for the six months ended June 30, 2010 compared to 2009. The increase in 2010 is related to the hiring of additional staff in credit administration and business development as well as a cost of living increase awarded to staff during the quarter ended March 31, 2010. Management continues to review the organizational structure to maximize efficiencies and increase business development activity.

Occupancy expense decreased approximately $19,000, or 6.96%, for the quarter ended June 30, 2010 compared to 2009 and decreased approximately $48,000, or 8.60%, for the six months ended June 30, 2010 compared to 2009. The reduction in 2010 is attributable to lower depreciation expense as a result of computer equipment and furniture becoming fully depreciated and a negotiated reduction in Use and Occupancy Tax the Bank pays to the City of Philadelphia.

Office operations and supplies expense decreased approximately $1,000 or 1.45%, for the quarter ended June 30, 2010 compared to 2009 and increased approximately $1,000, or 0.82%, for the six months ended June 30, 2010 compared to 2009. Management continues to review all office operations expenses including supplies, storage, security, etc. to determine if cost reductions can be achieved.

Marketing and public relations expense increased approximately $7,000, or 293%, for the quarter ended June 30, 2010 compared to 2009 but decreased approximately $23,000, or 64.31%, during the six months ended June 30, 2010 compared to 2009.  During the quarter ended June 30, 2010, the Bank introduced a “Saving Families” marketing campaign aimed at increasing savings accounts and financial preparedness. Costs primarily related to brochures and posters. All formal marketing in radio and other media was curtailed during 2009 in favor of more direct outreach through office receptions, “Bank Days” at local institutions, and direct calling by business development staff.

24

Professional services expense increased approximately $33,000, or 50.34%, for the quarter ended June 30, 2010 compared to 2009 and increased approximately $41,000, or 32.94% for the six months ended June 30, 2010 compared to 2009. The increase is primarily related to higher accounting fees, loan-related legal fees and consulting fees for strategic planning and SBA loan collection services.

Data processing expenses declined approximately $18,000, or 13.48%, for the quarter ended June 30, 2010 compared to 2009 and declined approximately $46,000, or 16.61%, for the six months ended June 30, 2010 compared to 2009. In September 2009, negotiations for contract extensions were completed that resulted in a reduction in core processing fees.  In addition, in October 2009, the Bank converted to an electronic transmission of its items processing by utilizing “Check 21” and branch capture processing that resulted in a reduction in its items processing fees.

Federal deposit insurance assessments increased approximately $18,000, or 99.05%, for the quarter ended June 30, 2010 compared to 2009 and increased approximately $43,000, or 154.12%, for the six months ended June 30, 2010 compared to 2009.  Assessments are based on many factors including the Bank’s deposit size and composition and its current regulatory ratings.  In 2006, as part of the Reform Act, Congress provided credits to institutions that paid high premiums in the past to bolster the FDIC’s insurance reserves. As a result, the Bank had an assessment credit to offset a portion of its premium. The assessment credit continued to be used to reduce deposit premiums that would otherwise have been due through 2009 when they were completely exhausted.< /font>

Other noninterest expense increased approximately $32,000, or .16%, for the quarter ended June 30, 2010 compared to 2009 and increased approximately $43,000, or 12%, for the six months ended June 30, 2010 compared to 2009.  The increase is primarily associated with significant collection cost resulting from the Bank’s high level of classified and impaired loans including expenses related to acquiring properties through foreclosure (i.e. transfer tax, real estate tax, utilities, etc.).

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, the Federal Reserve Board has the power to prohibit the payment of cash dividends by a bank holding company if it determines that such a payment would be an unsafe or unsound practice or constitutes a serious risk to the financial soundness or stability of the subsidiary bank.  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.

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, liquidit y determinations and capital considerations.

At June 30, 2010, a slight negative gap position is maintained on a cumulative basis through 1 year of -2.72% that is within the Bank’s policy guidelines of +/- 15% on a cumulative 1-year basis. This position makes the Bank’s net interest income more negatively susceptible to rising interest rates.  The negative gap position is created by the high level of certificates of deposit that reprice within one year.  Management will review and monitor rates paid on certificate of deposit renewals to proactively manage interest rate risk if rates begin to rise in the next year.

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.  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 forecasts 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 an d off-balance-sheet instruments.  At June 30, 2010, the change in the market value of equity in a +200 basis point interest rate change is -31.7% that exceeds the Bank’s policy limit of -25%.  The limit was exceeded as a result of the high level of fixed rate investment securities that decline in value in a rising rate environment.  Because most of these investments are used to secure public funds, management will closely review and monitor rates paid on these funds to mitigate interest rate risk when rates begin to rise.  In addition, management will attempt to mitigate this risk by originating more variable rate loans and/or purchasing floating rate mortgage-backed securities, if available. However, based on these models, with the exception of the market value measure, interest-rate exposure is not considered significant and is within the policy limits of the Bank on all measures at June 30, 2010.

Item 4T.  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 during the quarterly period covered by this report that have materially affected or are reasonably likely to materially affect its internal controls over financial reporting.

25

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 2009 Annual Report on Form 10-K except as disclosed below.  The risk factors disclosed in the Company’s 2009 Annual Report on Form 10-K are not the only risks that we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

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

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

 None

Item 3.  Defaults Upon Senior Securities.

None

Item 4. Reserved.

None

26

Item 5.  Other Information.

None

Item 6. Exhibits.

a)           Exhibits.

Exhibit 31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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.

27

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 16, 2010	/s/ Evelyn F. Smalls
	Evelyn F. Smalls
	President & Chief Executive Officer
Date: August 16, 2010	/s/ Brenda M. Hudson-Nelson
	Brenda Hudson-Nelson
	Executive Vice President/Chief Financial Officer

28

Index to Exhibits-FORM 10-Q

Exhibit 31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.

29

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Evelyn F. Smalls, 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)) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the registrant and have:

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

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

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

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, (the 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 16, 2010

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Brenda M. Hudson-Nelson, 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)) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the registrant and have:

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

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

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

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, (the 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 16, 2010

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, 2010, 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 16, 2010

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, 2010 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 16, 2010