-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0rPOnzvccp8pnTbPkQhX3KvnjrYP8u2kgDPV4I4VtjFKTBfixugFY+WZlcvRhyD yp0p3h3z5pL/fuICiKahQQ== 0001010410-97-000126.txt : 19970818 0001010410-97-000126.hdr.sgml : 19970818 ACCESSION NUMBER: 0001010410-97-000126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970815 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCSHARES INC /PA CENTRAL INDEX KEY: 0000944792 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 23280415 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25976 FILM NUMBER: 97665336 BUSINESS ADDRESS: STREET 1: 714 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19106 BUSINESS PHONE: 2158292265 MAIL ADDRESS: STREET 1: 2300 PACKARD BLDG STREET 2: 111 S 15TH ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-Q 1 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, 1997 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 ------- SEC File Number Pennsylvania 23-2802415 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 714 Market Street, Philadelphia, PA 19106 ----------------------------------- ----- (Address of principal executive office) (Zip Code) (215) 829-2265 -------------- (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 file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No____ Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes _____ No _____ 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. Registrant has two classes of capital stock authorized - 2,000,000 shares of $.01 par value common stock, of which as of April 30, 1997, 816,355 shares were issued and outstanding and 500,000 authorized shares of Series Preferred Stock. The Board of Directors of United Bancshares, Inc. designated one series of the Series Preferred Stock (the "Series A Preferred Stock") of which 93,150 shares were outstanding as of July 31, 1997. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. United Bancshares, Inc. CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1997 1996 ---- ---- ASSETS Cash and due from banks $ 5,665,386 $ 3,544,110 Interest bearing deposits with banks 327,482 320,202 Federal funds sold 7,845,000 5,380,000 ----------- ---------- Cash and cash equivalents 13,837,867 9,244,312 Investment securities: Held-to-maturity, at amortized cost 10,967,227 8,476,638 Available-for-sale, at market value 5,675,854 5,983,461 Loans held for sale, net of unearned discount -- 4,906,455 Loans, net of unearned discount 68,252,507 64,717,914 Less: allowance for loan losses (530,120) (527,507) ----------- ---------- Net loans 67,722,387 69,096,862 Bank premises & equipment, net 1,809,924 1,788,937 Accrued interest receivable 1,406,093 1,376,416 Deferred branch acquisition cost 115,114 154,475 Prepaid expenses and other assets 755,070 648,300 ----------- ---------- 102,289,536 96,769,401 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits, non-interest bearing 16,953,506 12,393,256 Demand deposits, interest bearing 13,927,411 13,126,327 Savings deposits 23,428,186 23,484,301 Time deposits, $100,000 and over 13,658,945 14,001,981 Time deposits 24,705,969 25,755,107 ----------- ---------- 92,674,017 88,760,971 Long-term debt 59,306 74,561 Reverse repurchase agreement 1,522,439 0 Accrued interest payable 574,817 525,161 Accrued expenses and other liabilities 535,131 650,040 ----------- ---------- Total liabilities 95,365,710 90,010,733 Shareholders' equity: Preferred Stock, Series A, non-cum., 6%, $.01 par value 932 932 500,000 shares authorized, 93,150 issued and outstanding Common stock, $.01 par value; 2,000,000 shares authorized; 820,095 issued and outstanding 8,201 8,164 Additional-paid-in-capital l0,383,208 10,348,989 Accumulated deficit (3,529,753) (3,618,692) Net unrealized gain on securities available-for-sale 61,239 19,276 ----------- ---------- Total shareholders' equity 6,923,826 6,758,668 ----------- ---------- 102,289,536 96,769,401 =========== ==========
United Bancshares, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Quarter ended Quarter ended June 30, June 30, 1997 1996 ------------- ------------- Interest income: Interest and fees on loans $ 1,466,622 $ 1,365,654 Interest on investment securities 237,353 201,788 Interest on federal funds sold 136,242 82,382 Interest on time deposits with other banks 9,424 4,777 ---------- ----------- Total interest income 1,849,641 1,654,601 Interest expense: Interest on time deposits 465,377 406,536 Interest on demand deposits 91,727 73,775 Interest on savings deposits 115,003 127,609 Interest on borrowed funds 16,727 1,274 ---------- ----------- Total interest expense 688,834 609,194 Net interest income 1,160,807 1,045,407 Provision for loan losses 22,500 22,500 ---------- ----------- Net interest income less provision for loan losses 1,138,307 1,022,907 ---------- ----------- Noninterest income: Gain on sale of loans 5,210 0 Customer senice fees 294,462 229,048 Gain on sale of investments 0 0 Other income 43,634 28,188 ---------- ----------- Total noninterest income 343,306 257,236 Non-interest expense Salaries, wages, and employee benefits 565,275 561,108 Occupancy and equipment 237,119 204,575 Office operations and supplies 127,542 125,813 Marketing and public relations 57,006 46,593 Professional services 93,363 48,145 Data processing 214,141 242,437 Other noninterest expense 162,269 171,738 ---------- ----------- Total non-interest expense 1,456,715 1,400,409 ---------- ----------- Net income (loss) $ 24,898 ($ 120,266) ========== =========== Earnings (loss) per share $ 0.03 ($ 0.15) ========== =========== Weighted average number of shares 820,095 802,480 ========== ===========
United Bancshares, Inc. STATEMENTS OF CASH FLOWS (unaudited)
Six months ended Six months ended June 30, June 30, 1997 1996 ------- -------- Cash flows from operating activities Net income (loss) 89,536 (233,369) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for loan losses 45,000 40,000 Gain on sale of loans 120,862 (289) Depreciation and amortization 274,921 127,878 Realized investment securities gains -- (9,157) Increase in accrued interest receivable (136,447) (235,947) (Decrease) in accrued interest payable (65,254) (92,176) ---------- ---------- Net cash provided by (used in) operating activities 328,618 (403,060) Cash flows from investing activities Purchase of investments--Available-for-Sale (1,009,516) (3,503,840) Purchase of investments--Held-to-Maturity (3,511,452) (6,095,331) Proceeds from maturity & principal reductions of invest 1,325,985 1,198,132 Proceeds from maturity & principal reductions of invest 1,022,352 5,107,749 Proceeds from sale of investment securities--Available-for -- 4,562,444 Proceeds from sale of loans 5,110,843 -- Net increase in loans (3,902,230) (2,875,945) Purchase of premises and equipment (224,934) (131,425) ---------- ---------- Net cash (used in) investing activities (1,188,952) (1,738,216) Cash flows from financing activities Net increase in deposits 3,913,046 1,287,478 Repayments on long term debt (15,255) (14,522) Reverse repurchase agreement 1,522,439 -- Net proceeds from issuance of common stock 33,659 53,516 ---------- ---------- Net cash provided by financing activities 5,453,889 1,326,472 Increase (decrease) in cash and cash equivalents 4,593,555 (814,804) Cash and cash equivalents at beginning of period 9,244,312 10,825,547 ---------- ---------- Cash and cash equivalents at end of period 13,837,866 10,010,743 ========== ========== Supplemental disclosures of cash flow information Cash paid during the period for interest 1,295,765 1,232,317
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The purpose of this discussion is to focus on information about the Bank's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements included in this report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. Selected Financial Data The following table sets forth selected financial data for the each of the following periods: (Thousands of dollars, except per share data) Quarter ended Quarter ended June 30, 1997 June 30, 1996 ------------- ------------- Net interest income $1,161 $1,045 Provision for loan losses 23 23 Noninterest income 343 205 Noninterest expense 1,457 1,400 Net income (loss) $25 $(120) Earnings (Loss) per share $.03 $(0.15) Balance sheet totals: March 31, 1997 December 31, 1996 -------------- ----------------- Total assets $102,290 $96,769 Loans, net $ 67,722 $69,097 Investment securities $ 16,643 $14,460 Deposits $ 92,674 $88,761 Shareholders' equity $ 6,924 $ 6,759 Ratios Return on assets .09% (.89)% Return on equity 1.37% (12.02)% Equity to assets ratio 6.56% 7.45% Financial Condition Sources and Uses of Funds The Bank's financial condition 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 $108 thousand or .12% during the quarter ending June 30, 1997. Average funding sources increased $4 million for the same quarter. Sources and Uses of Funds Trends
June 30, 1997 March 31, 1997 Average Increase (Decrease) Average Balance Amount % Balance ------- ------ --- ------- Funding uses: Loans $68,990 ($ 667) (.96%) $69,657 Investment securities Held-to-maturity 9,969 976 10.85% 8,993 Available-for-sale 4,872 (694) (12.46%) 5,566 Federal funds sold 9,559 494 5.45% 9,065 ------- ------- ------- Total uses $93,282 $ 108 $93,282 ======= ======= ======= Funding sources: Demand deposits Noninterest-bearing $15,111 $ 2,418 19.05% $12,693 Interest-bearing 14,280 934 7.00% 13,347 Savings deposits 23,396 8 .03% 23,389 Time deposits 39,162 (239) (.61%) 39,400 Other borrowed funds 1,576 841 114.26 736 ------- ------- ------- Total sources $93,526 $ 3,962 $89,564 ======= ======= =======
4 Loans Average loans decreased approximately $667 thousand or .96% during the quarter ended June 30, 1997. This decrease was primarily due to the sale of approximately $4.9 million of student loans in February 1997. During the quarter ended June 30, much of the proceeds were used to fund higher yielding commercial loans. New loan originations were offset by paydowns/payoffs of purchased Small Business Administration (SBA) loans. The following table shows the composition of the Bank's loan portfolio by type loan. (Thousands of Dollars) June 30, December 31, 1997 1996 ---- -------- Commercial and industrial $11,017 $10,107 Commercial real estate 1,871 649 Consumer loans 19,152 17,240 Residential mortgages 36,213 36,622 Loans held-for-sale -- 4,906 ------- ------- Total Loans $68,253 $69,624 ======= ======= Residential mortgage loans at June 30, 1997 continue to comprise the greatest percentage of total loans representing approximately 53% of the total portfolio. However, these loans as a percentage of the total portfolio continue to decline as mortgage loan balances remain relatively constant while other loan categories such as commercial loans (primarily SBA guaranteed) and consumer loans continue to increase. 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 Bank's policy is to charge-off unsecured loans after 90 days past due. Interest on "nonperforming" loans ceases to accrue except for loans which 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 of and interest on the loan appears to be available. At June 30, 1997, non-accrual loans were $929 thousand. Approximately $638 thousand of the total nonaccrual loans were residential mortgages while the remainder consisted primarily of loans with SBA loans. There is no known information about possible credit problems other than those classified as nonaccrual that causes management to be uncertain as to the ability of any borrower to comply with present loan terms. The Bank grants commercial, residential, and consumer loans to customers primarily located in Philadelphia County, Pennsylvania and surrounding counties in the Delaware Valley. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy. At June 30, 1997, approximately 31% of the Bank's commercial loan portfolio was concentrated in loans made to religious organizations. From inception, the Bank has received support in the form of investments and deposits and has developed strong relationships with the Philadelphia region's religious community. Loans made to these organizations were primarily for expansion and repair of church facilities. At June 30, 1997, none of these loans were nonperforming. 5 Investment Securities and other short-term investments Investment securities, including Federal Funds Sold, increased on average by 3.28% or $776 thousand during the quarter ended June 30, 1997. The increase is due to an increase in demand deposits which were invested in Federal Funds Sold but will be used to fund the origination of higher yielding commercial loans. The Bank's investment portfolio primarily consists of mortgage-backed pass-through agency securities, U.S. Treasury securities, and other government-sponsored agency securities. The Bank does not invest in high-risk securities or complex structured notes. Deposits Non-interest bearing demand deposits increased on average by approximately $2.4 million or 19.05% during the quarter ended June 30, 1997. The increase was primarily due to significant corporate business development efforts which resulted in new large demand deposit accounts. In addition, continued enforcement of compensating balance arrangements with commercial loan borrowers has resulted in additional demand deposits. Other Borrowed Funds The average balance for other borrowed funds increased $841 thousand, or 114.27%, from March 31, 1997 to June 30, 1997. The increase is due to a $1.5 million reverse repurchase agreement the Bank entered into in February 1997. The level of other borrowed funds is dependent on many items such as capital adequacy, loan growth, deposit growth and interest rates paid on these funds. 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. Both arrangements have credit risk essentially the same as that involved in extending loans, and are subject to the Bank's normal credit policies. Collateral may be obtained based on management's assessment of the customer. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments is represented by the contractual amount of those instruments. The Bank's financial instrument commitments at June 30, 1997 are summarized below: Commitments to extend credit $3,112,000 Outstanding letter of credit $ 109,000 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since 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. 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 rate. 6 The Bank is required to maintain minimum levels of liquid assets as defined by FRB regulations. This requirement is evaluated in relation to the composition and stability of deposits; the degree and trend of reliance on short-term, volatile sources of funds, including any undue reliance on particular segments of the money market or brokered deposits; any difficulty in obtaining funds; and the liquidity provided by securities and other assets. In addition, consideration is given to the nature, volume and anticipated use of commitments; the adequacy of liquidity and funding policies and practices, including the provision for alternate sources of funds; and the nature and trend of off-balance-sheet activities. As of June 30, 1997, management believes the Bank's liquidity is satisfactory and in compliance with the FRB regulations. 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. Securities maturing in one year or less amounted to $3.6 million at June 30, 1997, representing 25% of the investment portfolio. Other types of assets such as federal funds sold, as well as maturing loans, are sources of liquidity. Approximately $3.8 million in loans are scheduled to mature within one year. The Bank's overall liquidity has been enhanced by a significant level of core deposits which management has determined are less sensitive to interest rate movements. The Bank has avoided reliance on large denomination time deposits as well as brokered deposits. The following is a summary of the remaining maturities of time deposits of $100,000 or more outstanding at June 30, 1997: (Thousands of dollars) ---------------------- 3 months or less $10,300 Over 3 through 12 months 2,944 Over 1 through five years 306 Over five years 109 ------- Total $13,987 ======= 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 key to measuring the interest sensitivity gap, or excess earning assets over interest-bearing liabilities. Management of interest sensitivity involves matching repricing dates of interest-earning assets with interest-bearing liabilities in a manner designed to optimize net interest income within the limits imposed by regulatory authorities, liquidity determinations and capital considerations. The following table sets forth the maturity distribution of the Bank's interest-earning assets and interest-bearing liabilities at June 30, 1997, the Bank's interest-rate sensitivity gap ratio (i.e. excess of interest rate sensitive assets over interest rate sensitive liabilities, divided by total assets) and the Bank's cumulative interest rate sensitivity gap ratio. For purposes of the table, except for savings deposits, an asset or liability is considered rate sensitive within a specified period when it matures or could be repriced within such period or repriced within such period in accordance with its contractual terms. At June 30, 1997, a liability sensitive position is maintained on a cumulative basis through 1 year of -6.08% which is within the Bank's policy guidelines of +/- 15% on a cumulative 1-year basis. The current gap position is primarily due to the high concentration of fixed rate mortgage loans the Bank has in its loan portfolio but is somewhat mitigated by the Bank's high level of core deposits which have been placed in longer repricing intervals. For purposes of the gap analysis, such deposits (savings, MMA, NOW) which do not have definitive maturity dates and do not readily react to changes in interest rates have been pushed out to longer repricing intervals versus immediate repricing timeframes making the analysis more reflective of the Bank's historical experience. Generally, because of the Bank's negative gap position in shorter time frames, the Bank can anticipate that increases in market rates will have a negative impact on the net interest income, while decreases will have the opposite effect. 7 Interest Sensitivity Analysis
Interest Rate Sensitivity Gaps As of June 30, 1997 More than More than More than More 0 to 3 3 to 6 6 to 12 1 to 5 than 5 (Thousands of dollars) months months months years years Cumulative - ---------------------- ------ ------ ------ ----- ----- ---------- Interest-sensitive assets Time deposits 42 105 180 -- -- 327 Investment securities: Held-to-maturity 1,365 -- 1,994 4,998 2,609 10,966 Available-for-sale 2,858 5 647 1,844 5,354 Federal funds sold 7,845 -- -- -- -- 7,845 Loans and leases 27,549 -- 1,301 2,830 35,643 67,323 ------- ------- ------- ------- ------- ------- Total interest-sensitive assets 39,659 105 3,480 8,475 40,096 91,815 ------- ------- ------- ------- ------- ------- Cumulative totals 39,659 39,764 43,244 51,719 91,815 ------- ------- ------- ------- ------- Interest-sensitive liabilities Interest checking accounts 124 373 1,541 2,933 -- 4,971 Money market accounts 322 965 3,988 7,590 -- 12,865 Savings accounts 488 1,464 6,051 11,516 -- 19,519 Certificates of deposit 17,478 7,173 7,342 6,263 -- 38,365 Other borrowings -- -- 1,507 67 -- 1,581 ------- ------- ------- ------- ------- ------- Total Interest-sensitive liabilities 18,412 9,975 20,444 28,361 109 77,301 ------- ------- ------- ------- ------- ------- Cumulative totals 18,412 28,387 48,831 77,192 77,301 ======= ======= ======= ======= ======= Interest sensitivity gap 21,247 (9,870) (16,964) (19,886) 40,946 ======= ======= ======= ======= ======= Cumulative gap 21,247 11,378 (5,587) (25,743) 14,514 ======= ======= ======= ======= ======= Cumulative gap/total earning assets 23.14% 12.39% (6.08%) (28.03%) 15.81% ======= ======= ======= ======= ======= Interest sensitive assets to interest sensitive liabilities 2.15 .01 .17 .29 367.85 ======= ======= ======= ======= =======
In 1996, banking regulators issued a "Joint Agency Policy Statement: Interest Rate Risk" (FDICIA 305). The agencies agreed that the focus should be on the risk to both net interest income (or net income) as outlined in the table above in the traditional gap analysis and economic (or fair) value of equity. The premise is that changes in interest rates affect a bank's earnings by changing its net interest income and the level of other interest-sensitive income and operating expenses. However, changes in interest rates also affect the underlying economic value of the bank's assets, liabilities and off-balance-sheet instruments because the present value of future cash flows and, in some cases, cash flows themselves, change when interest rates change. The combined effects of the changes in these present values reflect the change in the bank's underlying economic value. At a minimum, this Policy Statement requires that policies and procedures be implemented to determine acceptable levels of interest rate risk exposure, given the Bank's profile and capital position and to monitor and control the Bank's overall interest-rate risk. The regulators did not quantify the impact on capital standards in their policy statement, but left it up to banks to determine their own limits, with a minimum requirement based on exposure to a +/- 200 basis point rate change. The Bank's policies and procedures conform with FDICIA 305 and indicate a limit of +/- 3% as an acceptable fair value equity change in a +/- 200 basis point rate shock environment. Management performs a fair value simulation which demonstrates the fair value of equity increasing .80% if rates decrease 200 basis points and declining 1.65% if rates increase 200 basis points. This analysis confirms that the Bank has more exposure to increasing rates than to decreasing rates. 8 The Bank's Board of Directors and management consider all of the relevant factors and conditions in the asset/liability planning process. Interest-rate exposure is not considered to be significant and is within the Bank's policy limits at June 30, 1997. However, if significant interest rate risk arises, the Board of Directors and management may take (but are not limited to) one or all of the following steps to reposition the balance sheet as appropriate: 1. Limit jumbo certificates of deposit (CDs) and movement into money market deposit accounts and short-term CDs through pricing and other marketing strategies. 2. Purchase quality loan participations with appropriate interest rate/gap match for the Bank's balance sheet. 3. Restructure the Bank's investment portfolio. The Board of Directors has determined that active supervision of the interest-rate spread between yield on earnings assets and cost of funds will decrease the Bank's vulnerability to interest-rate cycles. Capital Resources Total shareholders' equity increased approximately $104 thousand during the quarter ended June 30, 1997. The increase during the quarter was due to internal capital generation in the form of net income of approximately $25 thousand, $33 thousand in proceeds from stock sold as a result of warrant exercise, and a $47 thousand increase in the unrealized gain on available-for-sale securities. The Federal Reserve Bank's ("FRB") standards for measuring capital adequacy for U.S. Banking organizations requires that banks maintain capital based on "risk-adjusted" assets so that categories of assets with potentially higher risk will require more capital backing than assets with lower risk. In addition, banks are required to maintain capital to support, on a risk-adjusted basis, certain off-balance-sheet activities such as loan commitments. The FRB standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 consists of common shareholders' equity, noncumulative and cumulative perpetual preferred stock, and minority interests less goodwill. Tier 2 capital consists of allowance for loan losses, hybrid capital instruments, term subordinated debt, and intermediate-term preferred stock. Banks are required to meet a minimum ratio of 8% of qualifying capital to risk-adjusted total assets with at least 4% Tier 1 capital and a Tier I Leverage ratio of at least 6%. Capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital. As indicated in the table below, the Bank's risk-based capital ratios are above the minimum requirements. Management continues the objective of raising additional capital by offering additional stock (preferred and common) for sale to the public as well as increasing the rate of internal capital growth as a means of maintaining the required capital ratios. The Company and the Bank do not anticipate paying dividends in the near future. June 30, December 31, 1997 1996 ---- ---- Tier 1 Capital $6,718 $6,558 Tier 2 Capital 530 504 ------ ------ Total Qualifying Capital $7,248 $7,062 ====== ====== Risk Adjusted Total Assets (including off-balance sheet exposures) $44,764 $40,306 Tier 1 Risk-Based Capital Ratio 15.01% 16.27% Tier 2 Risk-Based Capital Ratio 16.19% 17.52% Leverage Ratio 6.64% 7.09% Results of Operations Summary The Bank had net income of approximately $25 thousand for the quarter ended June 30, 1997 compared to a loss of $120 thousand for the same quarter in 1996. The improvement in the Bank's earnings performance is primarily attributable to an increase in the Bank's net interest margin and an increased level of other noninterest income -- from $257 thousand in 1996 to $343 thousand in 1997. Customer service fees accounted for most of this increase as the number of 9 transactional accounts increased significantly as a result of new checking account products and compensating balance requirements. Also, in September 1996, the Bank implemented a surcharge for all non-customer use of its Automated Teller Machines (ATMs). On a per common share basis, there was an improvement from ($.15) at June 30, 1996 to $.03 at June 30, 1997. Net Interest Income Net interest income is an effective measure of how well management has balanced the Bank's interest rate sensitive assets and liabilities. Net interest income, the difference between (a) interest and fees on interest earning assets and interest paid on interest-bearing liabilities, is a significant component of the Bank's earnings. Changes in net interest income result primarily from increases or decreases in the average balances of interest earning assets, the availability of particular sources of funds and changes in prevailing interest rates. Net interest income was $1.160 million for the quarter ending June 30, 1997 compared to $1.045 million for the same quarter in 1996. The primary determinants of the increase was the increase in the Bank's average earning assets from $85.5 million at June 30, 1996 to $93.3 million at June 30, 1997. This growth in earning assets is primarily attributable to an increase in average demand deposit balances due to continued growth in new checking account products--"free" checking and "entrepreneurial-25" checking. These products provide a low-cost/minimum balance option for personal and small business customers who have relatively low-volume activity in their checking accounts. While benefiting customers, these products also serve as means of generating noninterest-bearing funds for the Bank as well as a source of service charge income from overdraft fees. The increase in volume of investable funds was primarily used to fund new loan originations and temporary investments in Federal Funds Sold. Provision for Loan Losses The Bank adopted Statement of Financial Accounting Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures," effective January 1, 1995. As a result of applying the new rules, certain impaired loans are reported at the present value of expected future cash flows using the loan's initial effective interest rate, or as a practical expedient, at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent. The adoption of these standards did not have a material impact on the Bank's financial position or results of operations. The provision is based on management's estimate of the amount needed to maintain an adequate allowance for loan losses. This estimate is based on the review of the loan portfolio, the level of net credit losses, past loan loss experience, the general economic outlook and other factors management feels are appropriate. The provision for loan losses charged against earnings for the quarter ending June 30, 1997 was $23 thousand, consistent with the quarter ended June 30, 1996. The gradual change in the composition of the loan portfolio during recent years from residential mortgage loans to purchased or originated commercial SBA loans and student loans resulted in a portfolio with significantly lower credit risk characteristics due to the related government guarantees. 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 charge, overdrafts, account analysis, and other customer service fees. Deposit-related noninterest income increased from 1.07% of average total assets to 1.26% for the quarter ended June 30, 1996 compared to the quarter ended June 30, 1997. The increase is primarily attributable to a continued increase in transactional deposit 10 accounts as a result of the success of product offerings introduced in 1995--"free" checking" and "entrepreneurial-25" checking. In addition, the Bank continues to strongly enforce compensating balance arrangements with its loan customers. Also contributing to the increase was the implementation of a surcharge for all non-customer use of the Bank's Automated Teller Machines (ATMs) in September 1996 and the continued expansion of the ATM network. Noninterest expense Salaries and benefits represented 2.23% and 2.25% of total average assets for the quarters ended June 30, 1997 and 1996, respectively. For the quarter ended June 30, 1997, staffing levels remained relatively constant with some planned attrition and management's concerted effort to minimize new hirings and control personnel expense. Data processing expenses represented .85% and .97% of the total average assets for the quarters ended June 30, 1997 and 1996, respectively. Data processing expenses are a result of the Bank's management decision to out source data processing to third party processors the bulk of its data processing. Such expenses are reflective of the high level of accounts being serviced for which the Bank is charged a per account charge by processors. In addition, the Bank uses outside loan servicing companies to service its mortgage, credit card, installment and student loan portfolios. The decline in data processing expenses compared to June 30, 1996 is due to the sale of student loans during the quarter ended March 31, 1997. The Bank continues to study methods by which it may reduce its data processing costs, including but not limited to a consolidation of servicers, in-house processing versus out-sourcing, and the possible renegotiation of existing contracts with servicers. Occupancy expense increased approximately $33 thousand for the quarter ended June 30, 1996 compared to the quarter ended June 30, 1997. This increase is primarily attributable to annual escalations in lease payments and maintenance contracts to service the Bank's growing ATM network. All other expenses are reflective of the general cost to do business and compete in the current regulatory environment and maintenance of adequate insurance coverage. Regulatory Matters At June 30, 1997, the Bank is operating under a Supervisory Letter from its primary regulator. The Supervisory Letter among other things, prevents the Bank and the Company from declaring or paying dividends without the prior written approval of its regulators, and prohibits the Bank and the Company from issuing debt. 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings. No material claims have been instituted or threatened by or against Registrant or its affiliates other than in the ordinary course of business. Item 2. Working Capital Restrictions on Payment of Dividends. The holders of the Common Stock are entitled to such dividends as may be declared by the Board of Directors out of funds legally available therefor under the laws of the Commonwealth of Pennsylvania. Under the Pennsylvania Banking Code of 1965, funds available for cash dividend payments by a bank are restricted to accumulated net earnings and if the surplus of a Bank is less than the amount of its capital the Registrant shall, until surplus is equal to such amount, transfer to surplus an amount which is at least 10% of the net earnings of the Registrant 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 50% of the amount of its capital, no dividend may be declared or paid by the bank without prior approval of the Secretary of Banking of the Commonwealth of Pennsylvania. Under the Federal Reserve Act, if a bank has sustained losses up to or exceeding its undivided profits, no dividend shall be paid, and no dividends can ever be paid in an amount greater than such bank's net profits less losses and bad debts. Cash dividends must be approved by the Federal Reserve Board if the total of all cash dividends declared by a bank in any calendar year, including the proposed cash dividend, exceeds the total of the Registrant's net profits for that year plus its retained net profits from the preceding two years, less any required transfers to surplus or to a fund for the retirement of preferred stock. Under the Federal Reserve Act, the Board has the power to prohibit the payment of cash dividends by a bank if it determines that such a payment would be an unsafe or unsound banking practice. The Federal Deposit Insurance act generally prohibits all payments of dividends a bank which is in default of any assessment to the Federal Deposit Insurance Corporation. Item 3. Defaults Upon Senior Securities. (a) There has been no material default in the payment of principal, interest, a sinking or purchase fund installment, or any material default with respect to any indebtedness of the Registrant exceeding five percent of the total assets of the Registrant. (b) There have been no material arrearage or delinquencies as discussed in Item 3(b). Registrant has declared and issued a Series A Preferred Stock. No obligations pursuant to those securities have become due. Item 4. Submission of Matters to a Vote of Security Holders. (a) An annual meeting of the security holders of the Registrant was held on May 19, 1997. (b) Proxies for the annual meeting of the Registrant scheduled for May 19, 1997, (the "Annual Meeting") were solicited by proxy statement filed with the Commission on April 21, 1997. (c) The following matters were voted upon at the Annual Meeting: 1. ELECTION OF DIRECTORS The following individuals were elected as directors of the Registrant: Luis A. Cortes, Jr. Angela M. Huggins Kemel G. Dawkins Elmer Young, Jr. An affirmative vote of approximately 395,000 shares representing 83% of the votes cast and 48% of the shares entitled to vote were cast in favor of the election of these Board members. 2. INDEPENDENT ACCOUNTANT The matter of ratification of independent accountants were submitted to the shareholders at the Annual Meeting. The Board of Directors selected Ernst & Young, LLP as independent accountants to audit and certify financial statements of the Bank and the Registrant for the year ending December 31, 1996 and to provide certain accounting services to the Bank during the 1997 fiscal year. Ernst & Young, LLP has served in this capacity since the Bank's inception. In connection with the audit function, Ernst & Young, LLP also reviewed the Registrant's annual report to shareholders and filings with the Securities and Exchange Commission. Neither Ernst & Young, LLP nor any of its partners has any direct or material indirect financial interest in the Bank. The selection of Ernst & Young, LLP as the Registrants independent accountant was ratified and approved by the shareholders at the meeting. An affirmative vote of approximately 397,000 shares, representing 84% of the votes cast at the Annual Meeting and 49% of the shares entitled to vote at the Annual Meeting were cast in favor of the proposal to ratify the appointment of Ernst & Young, LLP as Registrant's Independent accountants for the 1996 year. Item 5. Other Information. Bancshares Limited offering of Common Stock and Warrants Beginning April 24, 1995, Registrant commenced a private offering solely to existing stockholders of 250,000 shares of its common stock and 750,000 warrants to purchase a share of the common stock. 18,465 shares and 55,395 warrants were sold pursuant to this offering. Each unit, consisting of one share of common stock and three warrants to purchase one share of common stock in each of three subsequent years (total 3 shares), will be issued at $12.00 per unit. The warrant exercise price was $8.00 per share for the 1996 Warrant, $9.00 per share for the 1997 Warrant and will be $10.00 per share for the 1998 Warrant. The exercise price of the warrants may be adjusted to avoid dilution of warrant holders. The units were offered pursuant to an exemption from registration contained in section 4(2) and 3(a)(5) of the Act. No underwriters were used and no commissions were paid as a result of this offering. The offering closed on September 30, 1995. A copy of the Offering Memorandum was filed with the Registrant's periodic report on Form 10-Q for the period ending June 30, 1995 and is incorporated by reference. Pursuant to the exercise of the 1996 Warrants, the Registrant has received offers to purchase an additional 6,942 shares of its common stock at $8.00 per share. These shares were sold pursuant to an exemption from registration contained in section 4(2) of the Act. Pursuant to the exercise of the 1997 Warrants, the Registrant has received offers to purchase an additional 3,667 shares of its common stock at $9.00 per share. These shares were sold pursuant to an exemption from registration contained in section 4(2) of the Act. No underwriters were used and no commission was paid as a result of any warrant exercise. Beginning May 10, 1996, Registrant commenced a private offering solely to existing stockholders of 250,000 shares of its common stock. 6,934 shares were sold pursuant to this offering. The stock was offered pursuant to an exemption from registration contained in 4(2) and 3(a)(5) of the Act. A copy of the Offering Memorandum was filed with the Registrant's periodic report on Form 10-Q for the period ending June 30, 1995 and is incorporated by reference. Beginning May 19, 1997, Registrant commenced a private offering solely to existing stockholders of 250,000 shares of its common stock. No shares were yet sold pursuant to this offering. The stock is offered pursuant to an exemption from registration contained in 4(2) and 3(a)(5) of the Act. Item 6. Exhibits and Reports on Form 8-K. (a) A list of the exhibits submitted with this Form 10-Q is as follows: Offering Memorandum for private offering of Registrant's Common Stock solely to existing shareholders. The following exhibit is filed in paper format on Form SE. Copy of the Registrant's Call Report for the Period ending June 30, 1997. (b) No reports on Form 8-K have been filed during the quarter for which this Form 10-Q is filed. 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: _________, 1997 /s/ Emma C. Chappell -------------------------- Emma C. Chappell Chairman, President & CEO EX-99 2 Exhibit 99 UNITED BANCSHARES, INC. 250,000 Shares of Common Stock United Bancshares, Inc., (the "Company"), is offering 250,000 Shares of its $.01 par value Common Stock (the "Common Stock") on a best efforts basis at a price of $12.00 per share (individually "Share," or collectively "Shares") (the "Offering"). Securities will be sold initially on a pro-rata basis only to investors who are security holders of the Company as of the date of this Offering Memorandum which is May 19, 1997. In any event no securities will be sold to any person who is not a security holder of the Company. The Company reserves the right to either increase or decrease the number of Shares offered at its sole discretion. The Company also reserves the right at its sole discretion to accept subscriptions only in certain increments. The Company has a class of 2,000,000 shares of $.01 par value common stock (the "Common Stock") of which approximately 818,555 shares were issued and outstanding as of the date of this Offering Memorandum. The Company also has a class of Series Preferred Stock of which one series has been designated (the "Series A Preferred Stock"). The Preferred Stock is non-voting and has been accorded limited rights under the Certificate of Designations, Preferences and Rights of a First Series of Preferred Stock on file with the Company and attached to the Articles of Incorporation of the Company filed with the Secretary of State, Commonwealth of Pennsylvania (the "Certificate of Designations"). Upon the declaration of any dividend by the Company, the Certificate of Designations provides that each of the Series A Preferred Shares will be accorded a non-cumulative dividend preference equal to the purchase price of the Preferred Stock multiplied by 6% per annum prior to the payment of any dividend on account of any other class or series of the Company's stock (the "Dividend Preference"). As of the date of this Offering Memorandum, 93,150 Series A Preferred Shares were issued and outstanding. Prior to this offering, there has been no market for the Common Stock, and there can be no assurance that an active or liquid trading market will develop. INVESTMENTS IN THESE UNITS INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" THE SHARES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT OF 1933, AS AMENDED, AND THE PENNSYLVANIA SECURITIES ACT OF 1972, AND HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION NOR HAVE THEY BEEN APPROVED OR DISAPPROVED BY THE PENNSYLVANIA DEPARTMENT OF BANKING OR PENNSYLVANIA SECURITIES COMMISSION OR THE FEDERAL RESERVE BOARD. NEITHER THE PENNSYLVANIA DEPARTMENT OF BANKING PENNSYLVANIA SECURITIES AND EXCHANGE COMMISSION, SECURITIES AND EXCHANGE COMMISSION NOR THE FEDERAL RESERVE BOARD HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Offering Memorandum is May 19, 1997. The Company is a shell bank holding company formed on April 8, 1993, for United Bank of Philadelphia (the "Bank"). The Bank was organized and is incorporated under the laws of the Commonwealth of Pennsylvania, is a member of the Federal Reserve System (the "FRS"), and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank opened to the public on Monday, March 23, 1992, after receiving its Certificate of Authorization to do Business (the "Charter") from the Commonwealth of Pennsylvania. The Bank operates from six branch facilities located at: 714 Market Street, Philadelphia, Pennsylvania; 1562 East Wadsworth Avenue, Philadelphia, Pennsylvania; 2 Penn Center, Philadelphia, Pennsylvania; 38th Street and Lancaster Avenue, Philadelphia, Pennsylvania; 4806 Frankford Avenue, Philadelphia, Pennsylvania; and 2820 West Girard Avenue, Philadelphia, Pennsylvania. The Company currently acts solely as a shell for the purpose of management of the affairs of the Bank. The Company does not anticipate engaging in any other business or transaction other than the management of the affairs of the Bank for the foreseeable future. ------------------------------------- NO AGENT OR OFFICER OF THE COMPANY OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE OFFERING MEMORANDUM, AND IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. ------------------------------------ The Company, through its officers and directors, is hereby offering on a best efforts basis an aggregate of 250,000 shares. The purchase price per Share is $12.00. The Shares will be offered only to existing security holders of the Company initially on a pro-rata basis. The offering will continue until September 30, 1997, unless extended in the discretion of the Company (the later of such dates being hereinafter referred to as the "Expiration Date"). No selling fees or commissions will be paid by the Company in connection with the offering. The Company may accept subscriptions for Shares when and as received and may, in its sole discretion, reject any subscription tendered. ii -------------------------------------- THE SECURITIES OFFERED HEREBY WILL BE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY. SEE "RISK FACTORS - LIMITED TRANSFERABILITY" ------------------------------------- EACH INVESTOR, AT HIS OWN EXPENSE, SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANTS AND/OR BUSINESS ADVISORS CONCERNING LEGAL, TAX AND OTHER RELATED MATTERS REGARDING AN INVESTMENT IN THE SHARES. ----------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM IN CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION IN WHICH AN OFFER MAY NOT LEGALLY BE MADE. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM NOR ANY SALES OF UNITS HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE COMPANY'S AFFAIRS SINCE THE DATE OF THIS OFFERING MEMORANDUM. ------------------------------------- TWO-DAY RIGHT OF RECISION FOR PENNSYLVANIA RESIDENTS: UNDER SECTION 207(m) OF THE PENNSYLVANIA SECURITIES ACT OF 1972, ANY RESIDENT OF PENNSYLVANIA WHO SUBSCRIBES FOR SHARES HAS THE RIGHT TO TERMINATE HIS OR HER SUBSCRIPTION, WITHOUT LIABILITY TO THE COMPANY OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS AFTER THE COMPANY RECEIVES HIS OR HER EXECUTED SUBSCRIPTION AGREEMENT, WHICH CONTAINS A NOTICE AS TO HIS OR HER RIGHTS UNDER SECTION 207(m). SEE "THE OFFERING - RIGHT OF WITHDRAWAL." --------------------------------------- iii THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR JURISDICTION, AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER SECURITIES LAWS. THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE ACT AND SUCH OTHER SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT AND SUCH OTHER LAWS IS AVAILABLE. --------------------------------------- THERE IS NO PUBLIC MARKET FOR THE SECURITIES, AND IT IS NOT EXPECTED THAT A PUBLIC MARKET WILL DEVELOP IN THE FORESEEABLE FUTURE. FURTHERMORE, SECURITIES LAWS SEVERELY RESTRICT THE TRANSFERABILITY OF THE SECURITIES. THUS, THE SHARES SHOULD BE CONSIDERED FOR PURCHASE ONLY AS A LONG-TERM INVESTMENT. ------------------------------------- THIS OFFERING MEMORANDUM CONTAINS ESSENTIAL INFORMATION ABOUT THE COMPANY AND THE SECURITIES BEING OFFERED HEREBY. EACH OFFEREE SHOULD REVIEW CAREFULLY THIS OFFERING MEMORANDUM IN ITS ENTIRETY AND THE EXHIBITS HERETO BEFORE DECIDING TO ACQUIRE ANY SHARES. --------------------------------------- EACH INVESTOR AND HIS/HER ADVISORS WILL BE GIVEN, UPON REQUEST, THE OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE COMPANY AND ITS OFFICERS AND DIRECTORS CONCERNING THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM. --------------------------------------- iv THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR THE BENEFIT OF THE SHAREHOLDER INTERESTED IN THE SECURITIES, AND CONSTITUTES AN OFFER ONLY TO THE SHAREHOLDER TO WHICH THIS MEMORANDUM WAS ORIGINALLY DELIVERED. DISTRIBUTION OF THIS MEMORANDUM TO ANY PERSON OTHER THAN SUCH SHAREHOLDER AND THOSE PERSONS RETAINED TO ADVISE SUCH SHAREHOLDER WITH RESPECT THERETO IS UNAUTHORIZED, AND ANY REPRODUCTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS WITHOUT THE PRIOR WRITTEN CONSENT OF UNITED BANCSHARES, INC. IS PROHIBITED. EACH SHAREHOLDER, BY ACCEPTING DELIVERY OF THIS MEMORANDUM, AGREES TO RETURN IT AND ALL OTHER DOCUMENTS RECEIVED BY SUCH SHAREHOLDER TO THE OFFICES OF THE COMPANY IF: (1) SUCH SHAREHOLDER DOES NOT SUBSCRIBE FOR THE PURCHASE OF ANY STOCK; (2) THE SHAREHOLDER'S SUBSCRIPTION AGREEMENT IS NOT ACCEPTED BY THE COMPANY; OR (3) THIS OFFERING IS TERMINATED. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. v SUMMARY SUMMARY OF THE OFFERING The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Offering Memorandum and should be read in conjunction there with. COMPANY SUMMARY The Company, is an African-American controlled and managed shell bank holding company for United Bank of Philadelphia (the "Bank"), a commercial bank chartered by the Pennsylvania Department of Banking and a member of the Federal Reserve System. The Bank focuses on providing full service community banking in Philadelphia neighborhoods that have traditionally been underserviced by commercial banks. The Bank. The Bank operates as an African-American-controlled and managed commercial bank chartered by the Pennsylvania Department of Banking. The Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"), and the Bank is a member of the Federal Reserve System (the "FRS"). Services and Market Area. The Bank offers a wide range of consumer and commercial banking services in Philadelphia with an emphasis on service to neighborhoods and local communities. As a community bank, the Bank seeks to be flexible and responsive to the needs of the residents in the areas it serves. Management. The Bank is under the direction of its Founder, Chairman of the Board, President and Chief Executive Officer of the Company and the Bank, Emma C. Chappell, who has in excess of 38 years of commercial banking experience in the Philadelphia metropolitan area. Dr. Chappell, and certain other directors of the Bank, are actively involved in the business, academic, and religious leadership of the African-American community in Philadelphia. William X. Smith serves as Executive Vice President and Chief Operating Officer of the Bank. Mr. Smith has extensive experience in the field of commercial banking and serves in his capacity pursuant to a two year employment agreement with the Bank. Office Locations. The Bank conducts all its banking activities through its six offices located as follows: (i) Main Branch 714 Market Street, Philadelphia, PA; (ii) Center City Branch Two Penn Center, Philadelphia, PA; (iii) Mount Airy Branch 1562 East Wadsworth Avenue, Philadelphia, PA; and (iv) Frankford Branch 4806 Frankford Avenue, Philadelphia, PA; (v) West Philadelphia Branch 38th Street and Lancaster Avenue, Philadelphia, Pennsylvania; and (vi) 2820 West Girard Avenue, Philadelphia, Pennsylvania. Through these locations, the Bank offers a broad range of commercial and consumer banking services. Although the Bank's primary service area for Community Reinvestment Act purposes is Philadelphia County, it also services the Delaware Valley, which consists of portions of Montgomery, Bucks, Chester, and Delaware 1 Counties in Pennsylvania; New Castle County in Delaware; and Camden, Burlington, and Glouchester Counties in New Jersey (the "Delaware Valley"). OFFERING SUMMARY The following summary of certain terms and conditions of the offering of Shares of the Company is qualified in its entirety by reference to the actual documents to which this summary relates.
Securities Offered: 250,000 Shares of Common Stock on a best effort basis, only to security holders of record as of the date of this offering memorandum on a pro-rata basis. Gross Proceeds: $3,000,000 maximum Price: $12.00 per share Minimum Investment: None Maximum Investment: None Registration Rights (Restrictions on Transfer) The Shares will not be registered under the Securities Exchange Act of 1933 (the "Act") or the securities laws of any jurisdiction. The shareholders will have no rights to require that the Shares be registered. It is uncertain whether registration will take place in the future. In order to ensure compliance with applicable federal and state securities laws, the Subscription Agreement will provide that no transfer of the Shares may be made except upon receipt by the Company of an opinion of counsel satisfactory to it in form and substance that the proposed transfer will not require registration under the Act or any state securities laws. Use of Proceeds: The Company will receive proceeds of approximately $3,000,000 in the case of the maximum offering. The Company intends to use the net proceeds to contribute capital to the Bank as is necessary for expansion and provision of financial services in neighborhoods that have been traditionally underserved. Tax Considerations: Prospective purchasers of the Shares are urged to consult with their tax advisors prior to making an investment in the Shares. 2 Subscription Agreement: The purchase of the Shares shall be made pursuant to a Subscription Agreement which shall contain, among other things, customary representations and warranties by the Company, certain covenants of the Company, and such investment representations by the purchaser as may be required by the Act and the applicable "blue sky" laws. A form of Subscription Agreement is included with this Offering Memorandum. Expenses: All proposed purchasers of the Shares will be responsible for their own costs, fees and expenses, including the costs, fees and expenses of their counsel and other advisors.
INVESTOR SUITABILITY STANDARDS The Shares (also referred to as the "Securities") represent a non-liquid investment. Consequently, the Shares are suitable only for persons who have no need for liquidity in their investment. No public market exists for the Shares, and it is unlikely that a public market will develop in the foreseeable future. Moreover, there are substantial restrictions on the transferability of the Securities. Accordingly, holders of the Shares may not be able to liquidate their investment in the event of an emergency or for any other reason. Securities will be sold on a pro-rata basis only to investors who are security holders of the Company as of the date of this Offering Memorandum which is May 10, 1996. RISK FACTORS AN INVESTMENT IN THE SECURITIES IS SUBJECT TO A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT. PRIOR TO SUBSCRIBING FOR ANY SECURITIES, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AMONG OTHERS DESCRIBED ELSEWHERE IN THIS OFFERING MEMORANDUM: 1. Operating Experience; Operating Losses. Although the Bank has joined the FRS and has FDIC insurance, the Bank and the Company have only approximately five years of operating experience. From the Bank's inception it has experienced only limited profitability. From inception through 1993 and from 1993 through December 31, 1996 the Company experienced losses. In 1993 the Company had modest profits, however, these profits did not result from customary bank operations, but from the sale of a loan portfolio. As of March 31, 1997, the 3 Company has accumulated deficit of $3,554,650. There can be no assurance that the Company will achieve profitable operations in the future. No assurance can be given that the Company will ever pay dividends or that the purchasers of the Common Stock will receive a return on their investment even if the Company is profitable. 2. Arbitrary Determination of Offering Price. The offering price of $12.00 per unit has been established by the Company's Board of Directors based upon the amount of capital the Company wants to raise, and is not based upon earnings, book value, assets or any other customary measure of value. The offering price should not be regarded as indicative of the actual value of the Stock. 3. No Dividends. The net proceeds from this Offering, together with any income earned thereon, will be invested in the capital of the Bank and used to fund stability. The ability of the Company to pay cash dividends is indirectly subject to the restrictions set forth in the Pennsylvania Banking Code of 1965, as amended, the Federal Deposit Insurance Act of 1933, as amended, and the Federal Reserve Act. See "Dividend Policies." The Company has not paid any dividends on its stock to date. The Company intends to retain earnings, if any to finance the operations of its business and therefore does not anticipate payment of dividends in the forseeable future. The Company is prohibited from the payment of dividends by the Pennsylvania Banking Code of 1965, the Federal Deposit Insurance Act and the Federal Reserve Act so long as an accumulated deficit exists. The Company anticipates that the accumulated deficit will not be significantly reduced for the forseeable future. The payment of dividends is also subject to the payment of a dividend preference to holders of the Company's Series A Preferred Stock. See "Risk Factors - Preferred Stock; Prior Dividend Right." 4. Dependence on Key Individuals. As of the date of this Offering Memorandum, the Bank has approximately 70 employees. Emma C. Chappell, Chairman, President and Chief Executive Officer (CEO), has signed an Employment Agreement with the Bank and the Company which commenced on January 1, 1994, which provides for an employment term through December 21, 2000. Although Dr. Chappell has 38 years of banking experience, including significant commercial banking expertise, until becoming CEO of the Bank, she had never been a CEO of a bank. A majority of the Bank's co-founders have no banking experience. Under the Employment Agreement, Dr. Chappell is serving as the Chairman of the Board of Directors, President and Chief Executive Officer of the Bank and the Company. Dr. Chappell, since July 1990, has devoted her efforts entirely to the Bank. From that date to February 29, 1992, Dr. Chappell was compensated as a consultant. If for any reason the services of Dr. Chappell or various key Board members or staff were no longer available to the Bank, there is no assurance that a replacement could be found. The unavailability of a replacement for these key individuals could have a materially adverse effect on the Bank. The Bank maintains a life insurance policy on the life of Dr. Chappell in the face amount of $1,000,000 to partially compensate the Bank for the loss of Dr. Chappell's services in the case of her death. 4 5. Need for Additional Capital. Bank supervisory authorities generally require that a bank maintain capital equal to a certain percentage of its total assets. The Bank's capital may be reduced by additional operating losses in the future. There may be additional need for capital in the future, and there can be no assurances that the Company will be able to raise sufficient amounts of additional capital if and when needed. 6. Changing Regulatory Environment. Federal legislation in the past several years has significantly affected the operations of federally insured and regulated financial institutions and has increased competition among savings banks, commercial banks, and other financial institutions. Various legislative proposals have been made which would further deregulate or restructure the financial services industry. It is not possible to predict if any of these proposals will be enacted, or if enacted, what impact they might have on the operation of the Company. 7. Governmental Monetary Policy and Economic Conditions. The business of the Company will be subject to fluctuations in interest rates and national and local economic conditions as well as consumer confidence in the Bank. These fluctuations are neither predictable nor controllable and may have materially adverse consequences upon the operations and financial condition of the Bank. The Bank's profitability will depend on its ability to attract deposits and make loans and otherwise invest its assets profitably. The Bank's profitability is dependent upon a wide variety of factors, including both the volume of business conducted by the Bank and the Bank's interest rate spread, which is the difference between (i) the interest rate paid by the Bank on its deposits and other interest bearing liabilities, and (ii) the interest rate the Bank receives from its loans, securities and other interest earning assets. 8. Competition. The banking environment is extremely competitive. In Pennsylvania, in general, and specifically in Philadelphia, larger banks dominate the commercial banking industry. These institutions generally have significantly greater capital than the Bank. They are therefore able to lend significantly more than the Bank to a single customer, and offer services that the Bank does not offer. The Bank will also be subject to competition from other financial institutions such as savings banks, savings and loan associations, credit unions, and others. 9. Limited Trading Market. Prior to this Offering, there has been no market for the Common Stock and there can be no assurance that a regular trading market will develop or that, if developed, will be sustained. There can be no assurance that an investor will be able to sell his or her shares of Common Stock at any particular time. 10. Limited Transferability of the Securities. Each prospective investor should consider an investment in the Company to be a long-term investment. There are a variety of restrictions upon the transferability of the Securities Stock (a) The Securities will not be registered under the Securities Act of 1993, as amended (the "Act"), or under the securities laws of any other jurisdiction. 5 (b) It is unlikely that any market will develop for the purchase and sale of the Securities in the foreseeable future. Consequently, apart from the restrictions referred to above, a holder of the Securities may not be able to liquidate its investment and may be required to retain its investment indefinitely. Furthermore, it is unlikely that the Securities will be acceptable collateral to be pledged or hypothecated to secure a loan or for any other reason. 11. Preferred Stock; Prior Dividend Rights. The Preferred Stock is entitled to a non-cumulative dividend preference of 6% per annum prior to any dividend being declared on account of ownership of the Common Stock. This prior commitment will reduce the amount available for dividend to the Common Stockholders. See - "Dividend Policies". 12. Adverse Effect of Warrant Redemption. Pursuant to an offering conducted by the Company in 1995, the Company issued warrants to purchase Common Stock at a purchase price less than the price at which Common Stock is offered in this offering. As a result, over the three year term of the warrants, an investor's ownership will be subject to dilution by warrantholders. See - "Capitalization." CAPITALIZATION The authorized capital stock of the Company is 2,000,000 shares of common stock $.01 par value and 500,000 shares of Series Preferred Stock. As of the date of this Offering Memorandum, the Company has outstanding 818,555 shares of common stock $.01 par value. The Company sold a total of 818,555 shares of the Series A Preferred Stock at $20.00 per share. The Company engaged in an offering of warrants to purchase common stock in 1995. Pursuant to this offering warrants to purchase up to 18,465 shares of Common stock at $8.00 per share were exercisable in 1996; warrants to purchase up to 18,465 share of common stock at $9.00 per share are exercisable in 1997; and warrants to purchase up to 18,465 shares of common stock at $10.00 per share are exercisable in 1998. In 1996, warrants for 6,942 shares were exercised. In 1997, as of May 10, 1997, 2,200 warrants were exercised. Assuming the Company accepts subscriptions for all 250,000 shares in this offering, the purchasers thereof will have paid an aggregate of $3,000,000 to the Company. 6 USE OF PROCEEDS If the Company sells all 250,000 Shares offered hereby, as to which there can be no assurance, the Company will realize gross proceeds of this offering of $3,000,000. The Company expects to use these proceeds substantially as follows: Total Proceeds from Offering $3,000,000 Cost of Offering ($ 25,000) Capital Contribution to United Bank of Philadelphia* ($2,975,000) - ---------- * Investment will be used to augment capital in the Bank and for future expansion. BUSINESS General The Company is a Pennsylvania corporation formed in April, 1993, to become a shell bank holding company of the Bank. The Company became a holding company for the Bank on October 14, 1994. The Company currently acts solely as a shell for the purpose of management of the affairs of the Bank. The Company does not anticipate engaging in any other business or transaction other than the management of the affairs of the Bank for the foreseeable future. The Bank Upon the completion of the Bank's organization, which occurred on March 23, 1992, the Bank commenced operations as an African-American-controlled and managed commercial bank chartered by the Pennsylvania Department of Banking. The Bank's deposits are insured by the FDIC and the Bank is a member of the FRS. The Bank offers a wide range of consumer and commercial banking services in Philadelphia with an emphasis on service to neighborhoods and local communities. As a community bank, the Bank seeks to be flexible and responsive to the needs of the residents in the areas it serves. The Bank believes that its business development activities will be enhanced by the close ties of its directors to the African-American community in Philadelphia and vicinity. 7 History The Bank filed its Application for Permission to Establish a State-Chartered Banking Institution (the "Application") with the Pennsylvania Department of Banking (the "Department") on July 3, 1990, and received preliminary approval on September 17, 1990. The Department conditioned receipt of the Bank's Certificate of Authorization to do Business (the "Charter") upon, among other things, the Bank's raising of at least $5,000,000 in capital and Federal Reserve Board (the "FRB") approval of the Bank's Application for Membership in the FRS (the "Federal Applica tion"). The Bank filed its Federal Application with the FRB in August, 1991. The Bank raised $6,042,950 and was accepted for membership into the FRS on January 29, 1992. Due to a change in Federal Regulations, the Bank was required to file an application for Federal Deposit Insurance on January 27, 1992. The Bank received notification of Insurance from the Federal Deposit Insurance Corporation ("FDIC") on March 18, 1992, and received its Certificate of Authorization to do Business from the Department on March 19, 1992. The Bank opened for business on March 23, 1992. In 1993, the Bank acquired five (5) branch locations from the Resolution Trust Corporation ("RTC"). The first of these acquisitions included both branches and all of the deposits of Chase Federal Savings and Loan Association ("Chase"). Pursuant to the Chase acquisition, the Bank acquired approximately $11,800,000 in deposits from the RTC and established branch locations at 1562 East Wadsworth Avenue, in the Mt. Airy section of Philadelphia, and at 1015 North Marshall Street in North Philadelphia. The RTC has provided these locations to the Bank on a rent-free basis for a period of five years from the date of the acquisition. Additionally, pursuant to the acquisition of Chase, the Bank received the right to purchase residential real estate loans from the RTC totalling approximately $11,800,000. In August, 1993, the Bank acquired the deposits of three branches of Home Unity Savings and Loan Association ("Home Unity"), totalling approximately $97,000,000. Pursuant to the Home Unity acquisition, the Bank established locations at Two Penn Center, Philadelphia, PA and 4806 Frankford Avenue, Philadelphia, PA. The Bank sold the third acquired branch, which was located outside of the Bank's current market area in Bensalem, PA, to PNC Bank, along with approximately $34,500,000 in deposits associated with that branch. Additionally, pursuant to the acquisition of Home Unity, the Bank received the right to purchase up to approximately $97,000,000 of residential real estate loans from the RTC. 8 The Bank exercised its right to acquire loans equal to the amount of deposits acquired in the branch acquisitions on December 22, 1993. The Bank acquired loans with outstanding principal balances totalling approximately $107,600,000 for $104,400,000 net of a discount of $3,200,000. The Bank immediately sold $64,800,000 of these loans at a net gain of $2,600,000. In March, 1994, the Bank sold approximately $13,100,000 of the acquired loans. After paying PNC Bank $350,000 (the amount attributable to the loans acquired by PNC Bank in connection with the acquisition of the Bensalem branch), the net gain on the sale was approximately $191,000. The payment to PNC Bank was contingent upon the Bank's sale of loans during 1994. In 1994, the Bank acquired two (2) branch locations. The first of these acquisitions included one branch and deposits of Ukrainian Federal Savings and Loan ("Ukrainian") from the RTC. Pursuant to the Ukrainian acquisition, the Bank acquired approximately $17,500,000 in deposits from the RTC and established a branch location at 1321 West Lindley Avenue, in North Philadelphia. The RTC has provided this location to the Bank on a rent-free basis for a period of five years from the date of the acquisition. Additionally, pursuant to the acquisition of Ukrainian, the Bank received the right to purchase residential real estate loans from the RTC totalling approximately $17,500,000. Due to inappropriate pricing, the Bank never exercised its right to purchase these loans. Instead, it was offered a compromise whereunder the Bank would receive the amount of accrued interest due. The amount of the accrued interest is in controversy. See "Litigation". In August, 1994, the Bank acquired the branch location and deposits of one branch of Central Pennsylvania Savings Association, totalling approximately $7,500,000. Pursuant to the Central Penn acquisition, the Bank established a location at 2820 West Girard Avenue, Philadelphia, PA. In 1996, the Bank closed two unprofitable branch locations acquired from the RTC, located at 1015 North Marshall Street, Philadelphia, Pennsylvania and 1321 West Lindley Avenue, Philadelphia, Pennsylvania. Also in 1996, the Bank opened a branch facility at 38th Street and Lancaster Avenue, Philadelphia, Pennsylvania. MANAGEMENT The business of the Company will be managed by the Board of Directors. The names and ages of the current officers and directors of the Company are as follows: 9 NAME AGE POSITION - ---- --- -------- James F. Bodine 75 Vice Chairman S. Amos Brackeen 78 Director Emma C. Chappell 56 Chairman, President and CEO Luis A. Cortes, Jr 39 Director Kemel G. Dawkins 73 Director Verdaynea F. Eason 34 Director L. Armstead Edwards 54 Treasurer, Director Marionette Y. Frazier 51 Director William C. Green 72 Director Angela M. Huggins 56 Director William B. Moore 54 Secretary, Director Ernest L. Wright 68 Director Elmer Young, Jr 72 Director Information concerning the Board of Directors and officers of the Company is as follows: Emma C. Chappell, age 56, is the Founder, President, Chairman of the Board and Chief Executive Officer of the Bank and the Company, a shareholder, and a director. Dr. Chappell has held her positions with the Bank since July, 1990 and held her positions with the Company since its inception. From 1959 to June, 1990, Dr. Chappell was employed by Continental Bank ("Continental") and its predecessors in various capacities where she rose to become the first woman vice president of any major commercial bank in Pennsylvania. Dr. Chappell served as Vice President, Assistant Vice President, and Assistant Treasurer of Continental from 1977 to 1990, 1975 to 1977, and 1971 to 1974, respectively. In the period most recent to her move to the Bank, Dr. Chappell served as Vice President in charge of the Urban Development Services Department of Continental. Dr. Chappell received her education at Berean Institute, Temple University and the Stonier Graduate School of Banking at Rutgers University. James F. Bodine, age 75, Vice Chairman of the Board of Directors and a shareholder of the Company, has been retired as the Managing Partner of The Urban Affairs Partnership since 1987, a position he held for approximately seven years. From 1979 to 1980, Mr. Bodine served as the 10 Secretary of Commerce of the Commonwealth of Pennsylvania. Mr. Bodine served as the President of First Pennsylvania Bank, Philadelphia, Pennsylvania from 1972 to 1978. From 1948 to 1972 Mr. Bodine was employed by First Pennsylvania Bank in various capacities, including Executive Vice President, Senior Vice President, Vice President, Assistant Vice President, and Treasurer. Mr. Bodine received a Bachelor of Arts degree from Yale University in 1943 and a Master of Business Administration degree from Harvard University in 1948. Mr. Bodine is active in numerous business, cultural, and community organizations committed to social issues of inner- city low income minorities, including the Philadelphia Youth Service Corps. and the Informal Coalition on Homelessness, for which Mr. Bodine serves as Chairman. Reverend S. Amos Brackeen, age 78, a director and shareholder of the Company, is the founder and pastor of the Philippian Baptist Church of Philadelphia. He formerly served as a regional supervisor for the Atlanta Life Insurance Company, as an auditor for the Baptist State Convention and the Baptist Ministers Conference of Philadelphia, and as a consultant to the Mortgage Bankers of New York. He received his Bachelor of Divinity degree from Oberlin School of Theology and a Master of Divinity degree from Vanderbilt University, Nashville, Tennessee. Reverend Luis A. Cortes, Jr., age 39, a director and shareholder of the Company, is an ordained minister of the American Baptist Churches, USA. He has served since 1988 as Executive Director of the Hispanic Clergy of Philadelphia & Vicinity. From 1984 to 1988, Reverend Cortes was Associate Executive Minister and Fund-raiser for the Philadelphia Baptist Association. Reverend Cortes also served as a Professor at Eastern Theological Seminary from 1981 to 1984. He received his Bachelor of Arts degree from City College of New York and a Master of Divinity degree from Union Theological Seminary, New York. Kemel G. Dawkins, age 73, a director and shareholder of the Company, has been President of Kemrodco Development and Construction Company, Inc. and Kem-Her Construction Company, Inc. since 1972. Prior to organizing his own companies, he served as journeyman, carpenter foreman, and superintendent for McCloskey and Company, general contractors, for over 20 years. Verdaynea C. Eason, age 34 is a director and shareholder of the Company. Ms. Eason served as Vice President, Compliance for the Bank from its inception through 1994. Ms. Eason served an integral role in the formation of the Bank. Ms. Eason received a Bachelors degree from Howard University and a Masters of Business Administration from the Wharton School of the University of Pennsylvania. L. Armstead Edwards, age 54, is Treasurer and a director and shareholder of the Company. Mr. Edwards has been the owner and president of P.A.Z., Inc., an entertainment management company located in Philadelphia, since 1980. Mr. Edwards received a Bachelor's degree in 11 Elementary Education from Cheyney University in 1964, a Master's degree in Urban Education from Temple University in 1973, and his Elementary Principal Certification from Temple University in 1973. Marionette Y. Frazier, age 52, a director and shareholder of the Company. Ms. Frazier is secretary and treasurer of John Frazier, Inc., Philadelphia, Pennsylvania, a position that she has held since 1981. Ms. Frazier has 15 years experience in the commercial construction field. William C. Green, age 72, a director and shareholder of the Company, is a co-founder of the Ivy Leaf Middle School. Mr. Green has been a teacher with the School District of Philadelphia for 32 years at the elementary, junior high, and senior high school levels, and from 1970 to 1981, he served as Director of the Division on African and Afro-American Studies. Mr. Green received his Bachelor of Science degree from Morgan State College and a Master of Education degree from the University of Pennsylvania. Angela M. Huggins, age 53, is a director and shareholder of the Company. Since 1984, Ms. Huggins has served as the Director of Facilities Services for RMS Technologies, Inc. in Marlton, New Jersey. Ms. Huggins holds a Bachelor of Arts degree from Howard University and a Master of Science degree from Drexel University. Reverend William B. Moore, age 54, is Secretary, director and shareholder of the Company. Reverend Moore has served as pastor of the Tenth Memorial Baptist Church, Philadelphia, Pennsylvania, since 1974. Reverend Moore served as the Chairman, First Vice President and President of the Black Clergy of Philadelphia and Vicinity from 1978 to 1982, 1985 to 1986, and January, 1987 to January 1990, respectively. He is also currently a member of the Baptist Ministers Conference of Philadelphia and Vicinity and the Missionary Baptist Pastors Conference of Philadelphia and Vicinity. Ernest L. Wright, age 67, a director and shareholder of the Company, is the founder, President and Chief Executive Officer of Ernest L. Wright Construction Company. Mr. Wright has held this position since 1972. Mr. Wright has been active in the construction industry for over 45 years with both business and technical experience. Elmer Young, Jr., age 71, a director and shareholder of the Company retired in 1988 from The Glenmede Trust Company, where he served as Vice President since 1983. Previously, Mr. Young served as Senior Vice President of First Pennsylvania Bank, Philadelphia, Pennsylvania, where he worked since 1971. Mr. Young has been serving on the board of directors of North Carolina Mutual Life Insurance Company, Durham, North Carolina since 1980. The Company is a party to an employment contract with Dr. Emma C. Chappell ending December 31, 2000 (the "Employment Agreement"). Dr. Chappell is entitled to receive health, disability, life and other insurance benefits and is entitled to participate in or receive benefits under employee benefit, retirement, pension, profit- 12 sharing or other similar plans to be established at the discretion of the Board of Directors of the Company. One Hundred Thousand shares of the Company's common stock are subject to a Long Term Incentive Compensation Plan (the "Plan") under which options to purchase the Company's common stock may be granted to key employees at a price not less than the fair market value thereof at the date of the grant ("Options"), and common stock may be awarded as Restricted Stock, subject for a period of time to substantial risk of forfeiture and restrictions on disposition as determined by the Board of Directors as of the date of the grant ("Restricted Stock"). Pursuant to the Plan, Options are granted in tandem with Stock Appreciation Rights allowing the holder of an Option to surrender the Option and receive an amount equal to the appreciation in market value of a fixed number of shares of common stock from the date of the grant of the Option ("SARs"). SARs may be payable in common stock or cash or a combination of both. The Plan also allows the Board of Directors to grant Performance Shares, which are contingent rights to receive, when certain performance criteria have been attained, amounts of common stock and cash determined by the Board of Directors for such an award ("Performance Shares"). Such rights are subject to forfeiture or reduction if performance goals specified are not met during the performance period. The following table sets forth the identity of the members of the Board of Directors of the Company, the percentage of the common stock that is currently beneficially owned by such shareholders: Directors and Officers of the Bank Shares of Registrant's Common Stock Name Beneficially Owned Percentage - ---- ------------------ ---------- James F. Bodine 10,833 1.33% S. Amos Brackeen 5,000 .61% Emma C. Chappell(1) 7,000 .86% Luis A. Cortes, Jr 500 .06% Kemel G. Dawkins 8,333 1.02% Verdaynea F. Eason 300 .04% L. Armstead Edwards 10,833 1.33% Marionette Y. Frazier 9,350 1.14% William C. Green (2) 13,833 1.69% Angela M. Huggins 4,200 .51% William B. Moore 1,000 .12% Ernest L. Wright 5,000 .62% Elmer Young, Jr 100 .01% ------ ---- TOTAL 80,815 9.44% ====== ==== - ---------- (1) Dr. Chappell also acts as Trustee of a voting trust agreement pursuant to which Fahnstock, Inc deposited 5,209 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. 13 Dr. Chappell acts as Trustee of a voting trust agreement pursuant to which NationsBank Corporation deposited 33,500 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. Dr. Chappell also owns options to purchase up to 29,694 shares of the common stock of UBS at a purchase price of $8.54 per share . This option was awarded on September 15, 1993 and remains in effect for a term of five years from that date. (2) Owned jointly with Liller B. Green, his wife. Dr. Chappell also acts as Trustee of a voting trust agreement, pursuant to which Fahnstock, Inc deposited 5,209 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. Dr. Chappell acts as Trustee of a voting trust agreement, pursuant to which NationsBank Corporation deposited 33,500 shares of Common Stock of UBS with Dr. Chappell as Trustee, to be voted by Dr. Chappell pursuant to the terms of the Voting Trust. The term of the Voting Trust is ten years. Dr. Chappell also owns options to purchase up to 29,694 shares of the common stock of UBS for a purchase price of $8.54 per share. This option was awarded on September 15, 1993 and remains in effect for a term of five years from that date. THE OFFERING The Units A maximum of 250,000 Shares are being offered on a best efforts basis by the officers and directors of the Company at a price of $12.00 per Share. No selling fees or commissions will be paid in connection with the offer and sale of the Shares. The offering of the Shares will continue until September 30, 1996, unless extended in the discretion of the Company. Shares will be sold only to persons who are existing Shareholders of the Company. The Company shall have the right in its absolute discretion to accept or reject any subscription for a Share. No fractional Shares will be issued. Subscription Agreement Each person desiring to subscribe for Shares will be required to enter into a Subscription 13 Agreement with the Company in the form attached as Exhibit B hereto. Prospective investors must execute the Subscription Agreement and return it to the Company together with a check in the amount of $12.00 per Share payable to United Bancshares, Inc. Determination of the Offering Price The offering price for the Shares has been determined solely by the Company and is based on the amount of funds that the Company currently anticipates requiring for expansion. The offering price should not be regarded as an indication of the value of the Shares, or the value of the Company. Investment Restrictions No public market exists for the Shares and it is unlikely that a public market will arise in the future. Accordingly, it may be difficult or impossible for a purchaser to resell the Shares. Moreover, the Shares are being offered pursuant to exemptions from registration under the Act and applicable state securities laws, the availability of which depends, among other conditions, upon the intent of the subscribers to purchase such Shares for investment purposes only and not with a view toward the resale or distribution thereof. By executing the Subscription Agreement an investor will represent that he/she is purchasing the Shares for investment purposes only and will agree not to sell, transfer or otherwise dispose of the Shares unless they are registered under the Act and applicable state securities laws (which the Company is neither required to do nor anticipates doing) or an exemption from such registration requirements is available. In addition, Pennsylvania law requires that investors who are Pennsylvania residents or domiciliaries not sell the Shares for a period of twelve months from the date of purchase. Right of Withdrawal Any Pennsylvania resident who has entered into the Subscription Agreement may elect, within two business days from the date of receipt by the Company of the Subscription Agreement, to withdraw from the Subscription Agreement and receive a full refund of all monies paid. In the event of such a withdrawal, the subscriber will not incur any further liability to the Company or to any other person. To accomplish this withdrawal, a subscriber need only send a letter or telegram, which must be postmarked prior to the end of the aforementioned second business day, to the Company indicating his intention to withdraw. If a subscriber chooses to withdraw by letter, it is prudent to send it by certified mail, return receipt requested, to ensure that the letter is received and also to evidence the time of mailing. A subscriber making an oral request for withdrawal must ask for written confirmation that such request has been received. 14 DIVIDEND POLICIES The Company intends to retain its earnings, if any, for the purpose of making additions to the Bank's capital and reserves. Accordingly, the Company does not anticipate it will pay any cash dividends for the foreseeable future, and there can be no assurance that the Company will ever pay cash dividends. If the Company has stable profitable operations, the Company's dividend policy will be subject to various regulatory considerations and to the discretion of the Company's Board of Directors, which will consider a number of factors, including the Bank's operating results, financial condition, and prevailing economic conditions. The Company's ability to dividend to the holders of the Common Stock will be directly related, therefore, to the Bank's performance and ability to dividend to the Company. The Bank's ability to declare dividends is subject to the restrictions set forth in the Banking Code, the Federal Reserve Act, and the Federal Deposit Insurance Act. The Banking Code 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 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 50% of the amount of its capital, no dividend may be declared or paid by the bank without the prior approval of the Department. Under the Federal Reserve Act, if a bank has sustained losses equal to or exceeding its undivided profits then on hand, no dividend shall be paid, and no dividends can ever be paid in an amount greater than such bank's net profits less losses and bad debts. Cash dividends must be approved by the Board if the total of all cash dividends declared by a bank in any calendar year, including the proposed cash dividend, exceeds the total of the Bank's net profits for that year plus its retained net profits from the preceding two years less any required transfers to surplus or to a fund for the retirement of preferred stock. Under the Federal Reserve Act, the Board has the power to prohibit the payment of cash dividends by a bank if it determines that such a payment would be an unsafe or unsound banking practice. The Federal Deposit Insurance Act generally prohibits all payments of dividends by a bank which is in default of any assessment to the FDIC. The Series A Preferred Stock is accorded limited rights under the Certificate of Designations, Preferences and Rights of a First Series of Preferred Stock of United Bancshares, Inc. (the "Certificate of Designations"). Upon any declaration of a dividend by the Company, the Certificate of Designations provides that, so long as the Company has sufficient assets legally available for distribution, each share of the Series A Preferred Stock will be accorded a dividend preference equal to 6% of the original purchase price. The holders of the Series A Preferred Stock will be paid this amount prior to any amount being paid on account of the Common Stock. 15 The availability of this preference may be limited by the funds available for dividend or by management policies. No assurance can be given that there will be available to the Company a sufficient amount to cover this dividend preference either in whole or in part. The Series A Preferred Stock does not have any conversion rights, and, except as otherwise required by applicable law, does not have any voting rights. The Certificate of Designations provides that the Company's Articles of Incorporation shall not be amended in any manner that would materially affect the rights of the Series A Preferred Stock without consent of the holders of al least 51% of the outstanding Series A Preferred Stock. LIMITATION OF LIABILITY. Pursuant to the Pennsylvania Director's Liability Act, the Bylaws of the Company provide that a director of the Company is not personally liable for monetary damages as such for any act taken, or any failure to take action, unless (a) the director has breached or failed to perform the duties of his office, and (b) the breach or failure constitutes self-dealing, willful misconduct, or recklessness. The Bylaw provision does not eliminate the personal monetary liability of a director of the Company where such director is responsible or liable pursuant to any criminal statute or for the payment of taxes. LITIGATION There is no pending, or to the best of our knowledge and after reasonable inquiry of the Officers, threatened actions, suits or proceedings before any court, governmental agency, arbitrator or instrumentality other than in the ordinary course of the Company's business. ADDITIONAL INFORMATION All original documentation and information with respect to the offering of the Shares not previously defined are available for inspection at the office of the Company at 714 Market Street, Philadelphia, Pennsylvania 19106. Prospective investors or their representatives may, at any time, during normal business hours, prior to the sale of the Units, ask questions of the officers of the Company with respect to the terms and conditions of the offering of the Units and request additional information. Any such requests should be addressed to the attention of the Secretary of the Company. The officers of the Company will provide answers to such questions and provide information to the extent such answers and information are available to it or can be obtained without unreasonable effort or expense. 16 EXHIBIT A UNAUDITED BALANCE SHEET OF THE COMPANY AT MARCH 31, 1997 Balance Sheet of United Bancshares, Inc. March 31, 1997
Dollar Amounts in Thousands --------------------------- ASSETS Cash and balances due from depository institutions: Noninterest bearing balances and currency and coin 2,987 Interest bearing balances 310 Securities: Held-to-maturity securities 7,164 Available-for-sale securities 6,968 Federal funds sold and securities purchased under agreements to resell: Federal funds sold 6,038 Securities purchased under agreements to resell 0 Loans and lease financing receivables: Loans and leases, net of unearned income 63,881 Allowance for loan and leases losses (494) Loans and leases, net of unearned income, allowance and reserve 63,387 Trading assets 0 Premises and fixed assets 1,530 Other real estate owned 0 Investments in unconsolidated subsidiaries and associated companies 0 Customers' liability to this bank on acceptances outstanding 0 Intangible assets 236 Other assets 1,684 ------ Total assets 90,304 LIABILITIES Deposits, interest bearing 71,997 Deposits, noninterest bearing 10,074 Long term debt 97 Accrued expenses and other liabilities 816 ------- Total liabilities 82,984 EQUITY CAPITAL Perpetual preferred stock and related surplus 1,863 Common stock 802 Surplus 7,554 Undivided profits and capital reserves (2,900) Net unrealized holding gains unavailable for sale securities 1 ------- Total equity capital 7,320 Total liabilities and equity capital 90,304
A-1 United Bancshares, Inc. Statement of Operations March 31, 1997
Interest income: Interest and fees on loans 1,354 Interest on investment securities 218 Interest on federal funds sold 61 Interest on time deposits with other banks 5 ------ Total interest income 1,638 Interest expense: Interest on deposits 421 Interest on demand deposits 13 Interest on savings deposits 183 Interest on borrowed funds 1 ------ Total interest expense 618 Net interest income 1,020 Provision for loan losses 18 Net interest income after provision for loan losses 1,002 Noninterest income: Customer service fees 136 Other income 60 ------ Total noninterest income 196 Realized gain on available for sale securities 9 Noninterest expense Salary, wages and employee benefits 568 Occupancy and equipment 199 Other noninterest expense 553 ------ Total non-interest expense 1,320 Net (loss) income (113)
A-2 EXHIBIT B SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT United Bancshares, Inc. 714 Market Street Philadelphia, PA 19106 The undersigned is entering into this Subscription Agreement (the "Agreement") in connection with his or her subscription for _____________ shares of Common Stock (the "Shares") in United Bancshares, Inc. (the "Company"). The purchase price is $12 per Share. 1. Subscription. Subject to the terms and conditions set forth herein, the undersigned hereby irrevocably subscribes for and agrees to purchase the above-designated number of Shares. The purchase price for the Shares will be payable upon submission by the undersigned of this executed Subscription Agreement. If this subscription for Shares is rejected by the Company the undersigned will promptly be refunded all amounts he or she has paid for the Shares without interest. 2. Acceptance of Subscription. The undersigned understands and agrees that this subscription is made subject to the following terms and conditions: (a) The Company shall have the right in its discretion to reject this subscription in whole or in part. (b) The Company shall have no obligation to accept subscriptions in the order in which they are received. 3. Representations and Warranties of the Undersigned. The undersigned understands that the Shares are being offered and sold under an exemption from registration of the Securities Act of 1933, as amended (the "Act") and under similar exemptions under applicable state securities laws; that he/she is subscribing for Shares without being furnished any offering literature or prospectus other than the Confidential Offering Memorandum dated May 19, 1997 (the "Offering Memorandum"); that this transaction has not been examined by the United States Securities and Exchange Commission or by any administrative agency charged with the administration of the securities laws of any other jurisdiction; that all documents, records and books pertaining to this investment requested by the undersigned have been made available by the Company to the undersigned and his representatives, including his/her attorney, his/her accountant and/or his/her purchaser representative; and that the books and records of the Company have been and will be available upon reasonable notice for inspection by investors during reasonable business hours at the Company's offices. The undersigned hereby further represents and warrants as follows: (a) The undersigned, if he or she is an individual, is at least 21 years of age. (b) The undersigned, if a corporation or partnership, is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized, and has all requisite corporate or partnership authority to execute and deliver this agreement and to consummate the transactions contemplated hereby. (c) The undersigned understands that the Shares are a speculative investment that involves a degree of risk of loss by the undersigned of his or her investment therein. The undersigned understands that the Company was formed in April, 1993 and has not conducted profitable operations to date. The Company's ownership interest in United Bank of Philadelphia (the "Bank") is its sole asset. (d) The undersigned confirms that he or she understands and has fully considered for purposes of this investment that there are substantial restrictions on the transferability of the Shares, there will be no public B-1 market for the Shares and, accordingly, it probably will not be possible for the undersigned to liquidate his or her investment in the Shares in the case of an emergency or to use the Shares as collateral for a loan. (e) The undersigned confirms that, in making his or her decision to purchase the Shares hereby subscribed for, he or she has relied solely upon the information contained herein and in the Offering Memorandum and upon independent investigations made by him or her and/or his or her representatives and that he or she and such representatives have been given the opportunity to ask questions of and to receive answers from the Company concerning any information delivered to the undersigned by the Company, to the extent the Company can do so without unreasonable effort or expense. (f) The Shares hereby subscribed for are being acquired by the undersigned, in his or her own name, in good faith solely for his or her own personal account for investment purposes only and is not being purchased with a view to or for resale, distribution, subdivision or fractionization thereof; the undersigned has no contract, understanding, undertaking, agreement or arrangement, formal or informal, with any person to sell, transfer or pledge to any person the Shares for which he or she hereby subscribes or any part thereof; the undersigned has no current plans to enter into any such contract, undertaking, agreement, understanding or arrangement; and the undersigned understands that the legal consequences of the representations and warranties are that he or she must bear the economic risk of an investment in the Shares for an indefinite period of time because the Shares have not been registered under the Act or under the applicable state securities laws and therefore cannot be sold unless they are subsequently registered under the Act and such state securities laws (which the Company is not obligated to do and has no current intention of doing) or an exemption from such registration is available. (g) The undersigned consents to the placement of a legend on the certificate representing the Shares being purchased by him or her and the shares purchased pursuant to warrant exercise, which legend will be in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY JURISDICTION. THE SALE OR OTHER DISPOSITION OF THESE SECURITIES IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND OTHER APPLICABLE REGISTRATION STATUTES. BY ACQUIRING THE SECURITIES REPRESENTED HEREBY, THE HOLDER HEREOF REPRESENTS THAT HE OR SHE WILL NOT SELL OR OTHERWISE DISPOSE OF THESE SECURITIES WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND RULES AND REGULATIONS THEREUNDER AND, WILL NOT SELL OR OTHERWISE DISPOSE OF THESE SECURITIES FOR IN ANY EVENT A PERIOD OF TWO YEARS AFTER THE DATE OF PURCHASE. (h) The undersigned has been advised by the Company and understands that pursuant to Section 207(m) of the Pennsylvania Securities Act of 1972, (i) he or she has the right to cancel and withdraw this subscription agreement upon written notice to the Company given within two business days following receipt by the Company of this executed subscription agreement, (ii) upon such cancellation or withdrawal, he or she will have no obligation or duty under this subscription agreement to the Company or any other person and will be entitled to full refund without interest of any amounts paid by him pursuant to this subscription agreement, and (iii) any notice of cancellation or withdrawal should be made by telegraph or certified or registered mail and will be effective when delivered to Western Union or deposited in the United States mails as aforesaid, with postage or other transmittal fees prepaid. B-2 (i) The undersigned hereby represents that he or she is a stockholder of the Company The foregoing representations, warranties and undertakings are made by the undersigned with the intent that they be relied upon in determining his or her suitability as an investor in the Company, and the undersigned hereby agrees that such representations and warranties shall survive his or her purchase of the Shares. 4. Revocation. The undersigned agrees that, except as and to the extent set forth in paragraph 3(h) hereof, he or she may not cancel, terminate or revoke this agreement or any agreement of the undersigned made hereunder and that this Agreement shall be legally binding upon the undersigned's heirs, executors, administrators, successors and assigns. 5. No Waiver of Rights. Notwithstanding any of the representations, warranties, acknowledgements or agreements made herein, the undersigned does not thereby or in any other manner waive any rights granted to him or her under applicable federal or state securities laws. 6. Miscellaneous. (a) All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the parties hereto at the addressees set forth in the records of the Company, or such other address as the addressee shall designate. (b) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without reference to the conflict of laws provisions thereof. (c) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by the parties. B-3 UNITED BANCSHARES, INC. Signature Page to Subscription Agreement (Please Print) INDIVIDUAL SUBSCRIBER CORPORATION OR PARTNERSHIP SUBSCRIBER __________________________________ ______________________________________ NAME NAME OF CORPORATION OR PARTNERSHIP __________________________________ By:__________________________________ Subscriber's Signature Name:________________________________ Title:_______________________________ Subscriber Address Subscriber Address __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ Telephone Number Telephone Number ( ) ( ) __________________________________ __________________________________ Social Security Number Taxpayer Identification Number __________________________________ __________________________________ Date: ____________________________ Date: ____________________________ Number of Shares: ________________ Number of Shares: ________________ B-4 ACCEPTANCE This Subscription Agreement is hereby accepted. DATE: ____________________________ UNITED BANCSHARES, INC. By__________________________________ Title_______________________________ B-5 EX-27 3 FDS FOR UNITED BANCSHARES, INC. 10-Q
9 1,000 3-MOS DEC-31-1997 APR-1-1997 JUN-30-1997 5,665 327 7,845 0 5,676 10,967 10,956 68,252 (530) 102,290 92,674 0 2,692 0 0 1 8 6,915 102,290 1,467 237 145 1,850 671 17 1,161 23 0 1,457 25 25 0 0 25 .03 0 7.691 929 2,789 0 0 551 79 35 530 530 0 0
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