10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013 OR

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

UNITED BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

0-25976

Commission File Number

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

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

(215) 351-4600

(Registrant's telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer___ Accelerated filer___ Non-accelerated filer__ Smaller Reporting Company _X__

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

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

1

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

Applicable only to corporate issuers:

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

United Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of capital stock authorized - 2,000,000 shares of $.01 par value Common Stock and 500,000 shares of $0.01 par value Series A Preferred Stock.

The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998.  This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights.  Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock.  There is no market for the Common Stock.  As of May 14, 2013, the aggregate number of the shares of the Registrant’s Common Stock issued was 1,068,588 (including 191,667 Class B non-voting).

The Series A Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A Preferred stock of which 136,842 shares are issued as of May 14, 2013.

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FORM 10-Q

Index

Item No.		Page
PART I-FINANCIAL INFORMATION
1.	Financial Statements	4
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
3.	Quantitative and Qualitative Disclosures about Market Risk	38
4.	Controls and Procedures	38
PART II-OTHER INFORMATION
1.	Legal Proceedings	40
1A.	Risk Factors	40
2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
3.	Defaults upon Senior Securities	40
4.	Mine Safety Disclosures	40
5.	Other Information	40
6.	Exhibits	40

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Item 1.

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets:	March 31, 2013			December 31, 2012
Cash and due from banks	$	2,168,537		$	2,363,166
Interest-bearing deposits with banks		306,260			306,033
Federal funds sold		5,886,000			7,567,000
Cash and cash equivalents		8,360,797			10,236,199
Investment securities:
Available-for-sale, at fair value		889,044			1,027,293
Held-to-maturity, at amortized cost (fair value of $11,461,715 and
$12,485,687 at March 31, 2013 and December 31, 2012, respectively)		10,931,336			11,895,037
Loans, net of unearned discounts and deferred fees		40,978,079			41,501,555
Less allowance for loan losses		(937,125	)		(1,203,942	)
Net loans		40,040,954			40,297,613
Bank premises and equipment, net		564,317			562,729
Accrued interest receivable		291,306			309,971
Other real estate owned		717,869			775,407
Intangible assets		91,214			135,733
Prepaid expenses and other assets		425,780			375,524
Total assets	$	62,312,617		$	65,615,506
Liabilities and Shareholders’ Equity
Liabilities:
Demand deposits, noninterest-bearing	$	14,661,300		$	14,324,970
Demand deposits, interest-bearing		12,679,860			15,526,344
Savings deposits		14,408,563			14,239,216
Time deposits, under $100,000		7,114,575			7,243,593
Time deposits, $100,000 and over		9,292,341			9,642,620
Total deposits		58,156,639			60,976,743
Accrued interest payable		31,541			30,500
Accrued expenses and other liabilities		229,380			368,278
Total liabilities		58,417,560			61,375,521
Shareholders’ equity:
Series A preferred stock, noncumulative, 6%, $0.01 par value,    500,000 shares authorized; 136,842 issued and outstanding		1,368			1,368
Common stock, $0.01 par value; 2,000,000 shares authorized;
876,921 issued and outstanding		8,769			8,769
Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value;
191,667 issued and outstanding		1,917			1,917
Additional paid-in-capital		14,749,852			14,749,852
Accumulated deficit		(10,894,865	)		(10,556,078	)
Accumulated other comprehensive income		28,016			34,157
Total shareholders’ equity		3,895,057			4,239,985
Total liabilities and shareholders’ equity	$	62,312,617		$	65,615,506

The accompanying notes are an integral part of these statements.

4

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended March 31,

(Unaudited)

	2013			2012
Interest income:
Interest and fees on loans	$	628,176		$	659,691
Interest on investment securities		86,618			137,189
Interest on federal funds sold		4,394			5,592
Interest on time deposits with other banks		230			174
Total interest income		719,418			802,646
Interest expense:
Interest on time deposits		15,207			28,233
Interest on demand deposits		8,744			13,053
Interest on savings deposits		1,734			1,802
Total interest expense		25,685			43,088
Net interest income		693,733			759,558
Provision for loan losses		70,137			30,000
Net interest income after provision for loan losses		623,596			729,558
Noninterest income:
Customer service fees		100,608			97,146
ATM fee income		79,648			79,779
Loss on sale of other real estate		(396	)		-
Other income		15,619			17,314
Total noninterest income		195,479			194,239
Noninterest expense:
Salaries, wages and employee benefits		377,464			413,537
Occupancy and equipment		243,899			274,777
Office operations and supplies		78,355			74,405
Marketing and public relations		15,980			4,649
Professional services		70,834			73,238
Data processing		120,865			126,806
Other real estate expense		43,505			(9,414	)
Loan and collection costs		19,903			28,680
Deposit insurance assessments		36,999			1,215
Other operating		150,058			173,713
Total noninterest expense		1,157,862			1,161,606
Net loss before income taxes		(338,787	)		(237,809	)
Provision for income taxes		-			-
Net loss	$	(338,787	)	$	(237,809	)
Net loss per common share—basic  and diluted	$	(0.32	)	$	(0.22	)
Weighted average number of common shares		1,068,588			1,068,588
Comprehensive Loss
Net loss	$	(338,787	)	$	(237,809	)
Unrealized losses on available for sale securities		( 6,141	)		359
Total comprehensive loss	$	(344,928	)	$	(237,450	)

The accompanying notes are an integral part of these statements.

5

UNITED BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

	2013			2012
Cash flows from operating activities:
Net loss	$	(338,787	)	$	(237,809	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for loan losses		70,137			30,000
Loss on sale of other real estate		396			-
Amortization of premiums on investments		23,043			32,666
Amortization of core deposit intangible		44,519			44,520
Depreciation on fixed assets		38,526			58,606
Write-down of other real estate owned		30,538			15,148
Increase in accrued interest receivable  and
other assets		(31,591	)		(54,298	)
Decrease in accrued interest payable and
other liabilities		(137,857	)		(126,948	)
Net cash used in operating activities		(301,076	)		(238,115	)
Cash flows from investing activities:
Purchase of held-to-maturity investment securities		(754,054	)		(3,249,311	)
Proceeds from maturity and principal reductions of
available-for-sale investment securities		131,161			56,275
Proceeds from maturity and principal reductions of
held-to-maturity investment securities		1,695,657			3,811,848
Proceeds from the sale of other real estate owned		26,606			-
Net decrease (increase) in loans		186,522			(74,579	)
Purchase of bank premises and equipment		(40,114	)		(11,469	)
Net cash provided by investing activities		1,245,778			532,764
Cash flows from financing activities:
Net decrease in deposits		(2,820,104	)		(7,372,605	)
Net cash used in financing activities		(2,820,104	)		(7,373,605	)
Net decrease in cash and cash equivalents		(1,875,402	)		(7,077,956	)
Cash and cash equivalents at beginning of period		10,236,199			14,497,329
Cash and cash equivalents at end of period	$	8,360,797		$	7,419,373
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	24,644		$	53,348
Noncash transfer of loans to other real estate owned	$	-		$	74,800

The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

1. Significant Accounting Policies

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

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission.  Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2012 when reviewing this Form 10-Q.  Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of March 31, 2013 and December 31, 2012 and the consolidated results of its operations and its cash flows for the three months ended March 31, 2013 and 2012.

Management’s Use of Estimates

The preparation of the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities, the determination of the allowance for loan losses, valuation allowance for deferred tax assets, the carrying value of other real estate owned, the determination of other than temporary impairment for securities and consideration of impairment of other intangible assets.

Commitments

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

Contingencies

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

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 Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses.  Loans that are determined to be uncollectible are charged against the allowance account, and subsequent recoveries, if any, are credited to the allowance.  When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically include changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans, current economic conditions which may affect borrowers’ ability to repay, and other factors whichmay warrant current recognition.  Such periodic assessments may, in management’s judgment, require the Bank to recognize additions or reductions to the allowance.

Various regulatory agencies periodically review the adequacy of the Bank’s allowance for loan losses as an integral part of their examination process.  Such agencies may require the Bank to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination.  It is reasonably possible that the above factors may change significantly and, therefore, affects management’s determination of the allowance for loan losses in the near term.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical charge-off experience, other qualitative factors, and adjustments made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.  The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Bank will identify and assess loans that may be impaired through any of the following processes:

·   During regularly scheduled meetings of the Asset Quality Committee

·   During regular reviews of the delinquency report

·   During the course of routine account servicing, annual review, or credit file update

·   Upon receipt of verifiable evidence of a material reduction in the value of collateral to a level that creates a less than desirable LTV ratio

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller, homogeneous loans, including consumer installment and home equity loans, 1-4 family residential mortgages, and student loans are evaluated collectively for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Non-accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have not been received 30 days as of the date such payments were due.  The Bank generally places a loan on non-accrual status when interest or principal is past due 90 days or more.  If it otherwise appears doubtful that the loan will be repaid, management may place the loan on nonaccrual status before the lapse of 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection.  When a loan is placed on nonaccrual status, previously accrued and unpaid interest is reversed out of income.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

8

Income Taxes

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

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

Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

2. Net Loss Per Share

The calculation of net loss income per share follows:

	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012
Basic:
Net loss available to common shareholders	$	(338,787	)	$	(237,809	)
Average common shares outstanding-basic		1,068,588			1,068,588
Net loss per share-basic	$	(0.32	)	$	(0.22	)
Diluted:
Average common shares-diluted		1,068,588			1,068,588
Net loss per share-diluted	$	(0.32	)	$	(0.22	)

The preferred stock is non cumulative and the Company is restricted from paying dividends.  Therefore, no effect of the preferred stock is included in the loss per share calculations.

3. New Authoritative Accounting Guidance

In December 2011, the FASB issued Accounting Standards Update ASU 2011-11: Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This Update affects all entities that have financial instruments and derivative

9

instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information is intended to enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company’s adoption of this guidance for the quarter ended March 31, 2013 did not have an impact on its financial statements.

In February 2013, the FASB issued an update (ASU 2013-02 – Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income) which requires entities to disclose, for items reclassified out of accumulated other comprehensive income (“AOCI”) and into net income in their entirety, the effect of the reclassification on each affected net income line item and, for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012; early adoption is allowed. The Company’s adoption of this guidance for the quarter ended March 31, 2013 did not have an impact on its financial statements.

4.  Investment Securities

The following is a summary of the Company's investment portfolio as of March 31, 2013: 

(In 000’s)	March 31, 2013
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	Cost		gains		losses			value
Available-for-sale:
Government Sponsored Enterprises   residential mortgage-backed securities	$	718	$	42	$	-		$	760
Investments in money market funds		129		-		-			129
	$	847	$	42	$	-		$	889
Held-to-maturity:
U.S. Government agency securities	$	3,105	$	149	$	(5	)	$	3,249
Government Sponsored Enterprises residential mortgage-backed securities		7,826		394		(7	)		8,213
	$	10,931	$	543	$	(12	)	$	11,462
	December 31, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	Cost		gains		losses			Value
Available-for-sale:
Government Sponsored Enterprises          residential mortgage-backed securities	$	847	$	51	$	-		$	898
Investments in money market funds		129		-		-			129
	$	976	$	51	$	-		$	1,027
Held-to-maturity:
U.S. Government agency securities	$	3,605	$	159	$	(4	)	$	3,760
Government Sponsored Enterprises residential mortgage-backed securities		8,290		437		(1	)		8,726
	$	11,895	$	596	$	(5	)	$	12,486

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The amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity, by contractual maturity, as of March 31, 2013, are as follows:

(In 000’s)	Amortized Cost		Fair Value
Available-for-Sale
Due in one year	$	-	$	-
Due after one year through five years		-		-
Due after five years through ten years		-		-
Government Sponsored Enterprises residential mortgage-backed securities		718		760
Total debt securities		718		760
Investments in money market funds		129		129
	$	847	$	889
Held-to-maturity
Due in one year	$	-		-
Due after one year through five years		250		268
Due after five years through ten years		2,855		2,981
Government Sponsored Enterprises residential mortgage-backed securities		7,826		8,213
	$	10,931	$	11,462

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

In May 2013, The Bank transferred its entire held to maturity portfolio to available for sale. This transfer was made to improve capital ratios and liquidity by allowing for the disposition of securities, if necessary. In May 2013, the Bank committed to sell securities with a book value totaling approximately $7.4 million, for which a gain of approximately $381,000 will be recognized.    Proceeds from the sale will be reinvested in new securities.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2013:

	Number		Less than 12 months					12 months or longer				Total
Description of	of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Securities	securities		Value		Losses			value		losses		value		losses
U.S. Government
agency securities		3	$	745	$	(5	)	$	-	$	-	$	745	$	(5	)
Government Sponsored Enterprises
residential mortgage-backed securities		3	$	491	$	(7	)	$	-	$	-	$	491	$	(7	)
Total temporarily
Impaired investment
securities		6	$	1,236	$	(12	)	$	-	$	-	$	1,236	$	(12	)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2012:

	Number		Less than 12 months					12 months or longer				Total
Description of	of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Securities	securities		Value		Losses			value		losses		value		losses
U.S. Government
agency securities		3	$	746	$	(4	)	$	-	$	-	$	746	$	(4	)
Government Sponsored Enterprises
residential mortgage-backed securities		2	$	253	$	(1	)	$	-	$	-	$	253	$	(1	)
Total temporarily
Impaired investment
securities		5	$	999	$	(5	)	$	-	$	-	$	999	$	(5	)

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

U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2013 and December 31, 2012.

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

5. Loans and Allowance for Loan Losses

The composition of the Bank’s loan portfolio is as follows:

(Dollars in thousands)	March 31, 2013		December 31, 2012
Commercial and industrial	$	3,762	$	3,734
Commercial real estate		30,975		31,381
Consumer real estate		4,527		4,619
Consumer loans other		1,714		1,768
Total loans	$	40,978	$	41,502

The determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance is the accumulation of three components that are calculated based on various independent methodologies that are based on management’s estimates.  The three components are as follows:

·   Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans.  

·   Historical Charge-Off Component – Applies an eight-quarter rolling historical charge-off rate to all pools of non-classified loans.

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Qualitative Factors Component – The loan portfolio is broken down into multiple homogenous sub classifications, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.

All of these factors may be susceptible to significant change.   There was an increase in the qualitative factor for commercial real estate loans because of an escalation in delinquencies during the quarter.  There were no other changes in qualitative factors during period.  In addition, the average historical loss factor for commercial and industrial loans increased as a result of a $340,000 charge-off during the quarter. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

The following table presents an analysis of the allowance for loan losses.

(in 000's)				For the Three months ended March 31, 2013
	Commercial and industrial			Commercial real estate			Consumer real estate		Consumer loans other		Total
Beginning balance	$	891		$	308		$	5	$	-	$	1,204
Provision for loan losses		62			(33	)		41		-		70
Charge-offs		(340	)		-			-		-		(340	)
Recoveries		1			-			2		-		3
Net charge-offs		(339	)		-			2		-		(337	)
Ending balance	$	614		$	275		$	48	$	-	$	937

(in 000’s)			For the three months ended March 31, 2012
	Commercial and industrial		Commercial real estate		Consumer real estate			Consumer loans other			Total
Beginning balance	$	387	$	412	$	68		$	-		$	867
Provision for loan losses		30		-		-			-			30
Charge-offs		-		-		(38	)		(3	)		(41	)
Recoveries		-		-		5			3			8
Net charge-offs		-		-		(33	)		-			(33	)
Ending balance	$	417	$	412	$	35		$	-		$	864

(in 000's)			March 31, 2013
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$	534	$	-	$	-	$	-	$	534
Loans collectively  evaluated for impairment		80		275		48		-		403
	$	614	$	275	$	48	$	-	$	937
Loans, ending balance:
Loans indivdually evaluated for impairment	$	712	$	1,310	$	-	$	-	$	2,022
Loans collectively  evaluated for impairment		3,050		29,665		4,527		1,714		38,956
Total	$	3,762	$	30,975	$	4,527	$	1,714	$	40,978

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(in 000's)			December 31, 2012
	Commercial and industrial		Commercial real estate		Consumer real estate		Consumer loans other		Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$	843	$	-	$	-	$	-	$	843
Loans collectively  evaluated for impairment		48		308		5		-		361
	$	891	$	308	$	5	$	-	$	1,204
Loans, ending balance:
Loans indivdually evaluated for impairment	$	1,021	$	1,323	$	-	$	-	$	2,344
Loans collectively  evaluated for impairment		2,713		30,058		4,619		1,768		39,158
Total	$	3,734	$	31,381	$	4,619	$	1,768	$	41,502

Nonperforming and Nonaccrual and Past Due Loans

An age analysis of past due loans, segregated by class of loans, as of March 31, 2013 is as follows:

			Accruing
	Loans		Loans 90 or
(In 000's)	30-89 Days		More Days				Total Past		Current
	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	-	$	-	$	531		531	$	664	$	1,195
SBA loans		48		-		-		48		76		124
Asset-based		179		-		132		311		2,132		2,443
Total Commercial and industrial		227		-		663		890		2,872		3,762
Commercial real estate:
Commercial mortgages		1,483		-		644		2,127		12,785		14,912
SBA loans		341		-		-		341		277		618
Construction		-		-		-		-		3,755		3,755
Religious organizations		-		-		666		666		11,024		11,690
Total Commercial real estate		1,824		-		1,310		3,134		27,841		30,975
Consumer real estate:
Home equity loans		169		44		81		294		1,114		1,408
Home equity lines of credit		-		-		-		-		25		25
1-4 family residential mortgages		55		-		242		297		2,797		3,094
Total consumer real estate		224		44		323		591		3,936		4,527
Total real estate		2,048		44		1,633		3,725		31,777		35,502
Consumer and other:
Consumer installment		-		-		-		-		26		26
Student loans		140		82		-		222		1,254		1,476
Other		1		-		-		1		211		212
Total consumer and other		141		82		-		223		1,491		1,714
Total loans	$	2,416	$	126	$	2,296	$	4,838	$	36,140	$	40,978

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An age analysis of past due loans, segregated by class of loans, as of December 31, 2012 is as follows:

			Accruing
	Loans		Loans 90 or
	30-89 Days		More Days				Total Past		Current
(In 000's)	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	15	$	-	$	873		888	$	574	$	1,462
SBA loans		-		-		-		-		125		125
Asset-based		83		-		99		182		1,965		2,147
Total Commercial and industrial		98		-		972		1,070		2,664		3,734
Commercial real estate:
Commercial mortgages		306		-		649		955		13,765		14,720
SBA loans		-		-		-		-		621		621
Construction		-		-		-		-		3,398		3,398
Religious organizations		-		-		674		674		11,968		12,642
Total Commercial real estate		306		-		1,323		1,629		29,752		31,381
Consumer real estate:
Home equity loans		274		44		63		381		1,072		1,453
Home equity lines of credit		-		26		-		26		-		26
1-4 family residential mortgages		69		-		226		295		2,845		3,140
Total consumer real estate		343		70		289		702		3,917		4,619
Total real estate		649		70		1,612		2,331		33,669		36,000
Consumer and other:
Consumer installment		-		-		-		-		30		30
Student loans		87		141		-		228		1,360		1,588
Other		5		-		-		5		145		150
Total consumer and other		92		141		-		233		1,535		1,768
Total loans	$	839	$	211	$	2,584	$	3,634	$	37,867	$	41,502

Loan Origination/Risk Management.  The Bank has lending policies and procedures in place to maximize loan income within an acceptable level of risk.  Management reviews and approves these policies and procedures on a regular basis.  A reporting system supplements the review process by providing management with periodic reports related to loan origination, asset quality, concentrations of credit, loan delinquencies and non-performing and emerging problem loans.  Diversification in the portfolio is a means of managing risk with fluctuations in economic conditions.

Credit Quality Indicators.  For commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality.  Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating.  The Bank uses a 1 through 8 loan grading system that follows regulatory accepted definitions as follows:

·   Risk ratings of “1” through “3” are used for loans that are performing and meet and are expected to continue to meet all of the terms and conditions set forth in the original loan documentation and are generally current on principal and interest payments.  Loans with these risk ratings are reflected as “Good/Excellent” and “Satisfactory” in the following table.

·   Risk ratings of “4” are assigned to “Pass/Watch” loans which may require a higher degree of regular, careful attention.  Borrowers may be exhibiting weaker balance sheets and positive but inconsistent cash flow coverage. Borrowers in this classification generally exhibit a higher level of credit risk and are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Loans with this rating would not normally be acceptable as new credits unless they are adequately secured and/or carry substantial guarantors. Loans with this rating are reflected as “Pass” in the following table.

·   Risk ratings of “5” are assigned to “Special Mention” loans that do not presently expose the Bank to a significant degree of risks, but have potential weaknesses/deficiencies deserving Management’s closer attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned.  Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit.  Secondary sources of repayment are accessible and considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result in

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repayment.  The asset is currently protected, but is potentially weak.  This category may include credits with   inadequate loan agreements, control over the collateral or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material. These borrowers would have limited ability to obtain credit elsewhere.

·   Risk ratings of “6” are assigned to “Substandard” loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets must have a well-defined weakness. They are characterized by the distinct possibility that some loss is possible if the deficiencies are not corrected. The borrower’s recent performance indicated an inability to repay the debt, even if restructured. Primary source of repayment is gone or severely impaired and the Bank may have to rely upon the secondary source. Secondary sources of repayment (e.g., guarantors and collateral) should be adequate for a full recovery. Flaws in documentation may leave the bank in a subordinated or unsecured position when the collateral is needed for the repayment.

·   Risk ratings of “7” are assigned to “Doubtful” loans which have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weakness makes the collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.  The borrower's recent performance indicates an inability to repay the debt.  Recovery from secondary sources is uncertain.  The possibility of a loss is extremely high, but because of certain important and reasonably- specific pending factors, its classification as a loss is deferred.

·   Risk rating of “8” are assigned to “Loss” loans which are considered non-collectible and do not warrant classification as active assets.  They are recommended for charge-off if attempts to recover will be long term in nature.  This classification does not mean that an asset has no recovery or salvage value, but rather, that it is not practical or desirable to defer writing off the loss, although a future recovery may be possible.  Loss should always be taken in the period in which they surface and are identified as non-collectible as a result there is no tabular presentation.

For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality.  Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt.  These credit quality indicators are updated on an ongoing basis.  A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan, but no later than 90 days past due.

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The tables below detail the Bank’s loans by class according to their credit quality indictors discussed above.

(In 000's)					Commercial Loans March 31, 2013
	Good/ Excellent		Satisfactory		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial:
Commercial	$	250	$	182	$	220	$	12	$	138	$	393	$	1,195
SBA loans		-		27		-		48		49		-		124
Asset-based		-		2,133		125		53		132		-		2,443
		250		2,342		345		113		319		393		3,762
Commercial real estate:
Commercial mortgages		-		12,893		1,305		-		624		90		14,912
SBA Loans		-		618		-		-		-		-		618
Construction		-		3,124		-		-		631		-		3,755
Religious organizations		-		8,426		2,439		159		666		-		11,690
		-		25,061		3,744		159		1,921		90		30,975
Total commercial loans	$	250	$	27,403	$	4,089	$	272	$	2,240	$	483	$	34,737
					Residential Mortgage and Consumer Loans March 31, 2013
	Performing				Nonperforming				Total
Consumer Real Estate:
Home equity	$	1,327			$	81			$	1,408
Home equity line of credit		25				-				25
1-4 family residential mortgages		2,852				242				3,094
		4,204				323				4,527
Consumer Other:
Consumer Installment		26				-				26
Student loans		1,476				-				1,476
Other		212				-				212
		1,714				-				1,714
Total  consumer loans	$	5,918			$	323			$	6,241
Total loans													$	40,978

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(In 000's)					Commercial Loans, December 31, 2012
	Good/ Excellent		Satisfactory		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial:
Commercial	$	250	$	104	$	15	$	220	$	480	$	393	$	1,462
SBA loans		-		27		-		49		49		-		125
Asset-based		-		1,869		125		54		99		-		2,147
		250		2,000		140		323		628		393		3,734
Commercial real estate:
Commercial mortgages		-		12,678		1,322		-		403		317		14,721
SBA Loans		-		621		-		-		-		-		621
Construction		-		2,767		-		-		631		-		3,398
Religious organizations		-		8,183		3,623		162		674		-		12,642
		-		24,349		4,945		162		1,708		317		31,381
Total commercial loans	$	250	$	26,249	$	5,085	$	485	$	2,336	$	710	$	33,115
					Residential Mortgage and Consumer Loans December 31, 2012
	Performing				Nonperforming				Total
Consumer Real Estate:
Home equity	$	1,390			$	63			$	1,453
Home equity line of credit		26				-				26
1-4 family residential mortgages		2,914				226				3,140
		4,330				289				4,619
Consumer Other:
Consumer Installment		30				-				30
Student loans		1,588				-				1,588
Other		150				-				150
		1,768				-				1,768
Total  consumer loans	$	6,098			$	289			$	6,387
Total loans													$	41,502

Impaired Loans. The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank.   If these factors do not exist, the Bank will record interest payments on the cost recovery basis.

In accordance with guidance provided by ASC 310-10, Accounting by Creditors for Impairment of a Loan, management employs one of three methods to determine and measure impairment: the Present Value of Future Cash Flow Method; the Fair Value of Collateral Method; or the Observable Market Price of a Loan Method.  To perform an impairment analysis, the Company reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented. Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.

The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss.  To date, these charge-offs have only included the unguaranteed portion of Small Business Administration (“SBA”) loans.  Specific reserves are allocated to cover “other-than-permanent”impairment for which the underlying collateral value may fluctuate with market conditions. During the three months ended March 31, 2013 and 2012, there were no partial charge-offs of impaired loans.

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Consumer real estate and other loans are not individually evaluated for impairment, but collectively evaluated, because they are pools of smaller balance homogeneous loans.

Impaired loans as of March 31, 2013 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment		Recorded Investment		Total
	Principal		With No		With		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance
Commercial and industrial:
Commercial	$	531	$	78	$	453	$	531	$	353
SBA  loans		49		-		49		49		49
Asset-based		132		-		132		132		132
Total commercial and industrial		712		78		634		712		534
Commercial real estate:
Commercial mortgages		644		644		-		644		-
Religious organizations		666		666		-		666		-
Total commercial real estate		1,310		1,310		-		1,310		-
Total loans	$	2,022	$	1,388	$	634	$	2,022	$	534

Impaired loans as of December 31, 2012 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment		Recorded Investment		Total
	Principal		With No		With		Recorded		Related
	Balance		Allowance		Allowance		Investment		Allowance
Commercial and industrial:
Commercial	$	873	$	78	$	795	$	873	$	695
SBA loans		49		-		49		49		49
Asset-based		99		-		99		99		99
Total commercial and industrial		1,021		78		943		1,021		843
Commercial real estate:
Commercial mortgages		649		649		-		649		-
Religious organizations		674		674		-		674		-
Total commercial real estate		1,323		1,323		-		1,323		-
Total loans	$	2,344	$	1,401	$	943	$	2,344	$	843

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The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank.   If these factors do not exist, the Bank will record interest payments on the cost recovery basis. The following tables present additional information about impaired loans for the three months ended March 31, 2013 and 2012.

	Three Months Ended				Three Months Ended
(In 000's)	March 31, 2013				March 31, 2012
	Average		Interest recognized		Average		Interest recognized
	Recorded		on impaired		Recorded		on impaired
	Investment		loans		Investment		loans
Commercial and industrial:
Commercial	$	749	$	1	$	481	$	-
SBA  loans		49		1		-		-
Asset-based		110		-		101		-
Total commercial and industrial		908		2		582		-
Commercial real estate:
Commercial mortgages		642		4		675		-
SBA loans		-		-		-		-
Religious organizations		571		-		410		-
Total commercial real estate		1,213		4		1,085		-
Total loans	$	2,121	$	6	$	1,667	$	-

Troubled debt restructurings (“TDRs”).  TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal.  The terms of these loans do not include any financial concessions and are consistent with the current market.  Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties).  Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring.  Therefore, the Company had no troubled debt restructurings at March 31, 2013 and December 31, 2012.

6. Other Real Estate Owned

Other real estate owned (“OREO”) consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense.

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Activity in other real estate owned for the periods was as follows:

(in 000's)	Three Months Ended			Three Months Ended
	March 31, 2013			March 31, 2012
Beginning balance	$	775		$	1,284
Additions, transfers from loans		-			75
Proceeds from sales		(27	)		-
		748			1,359
Less: write-downs		(30	)		(15	)
Ending Balance	$	718		$	1,344

The following schedule reflects the components of other real estate owned:

(in 000's)	March 31,  2013		December 31, 2012
Commercial real estate		206		206
Residential real estate		512		569
Total	$	718	$	775

The following table details the components of net expense of other real estate owned:

	Three Months Ended		Three Months Ended
(in 000's)	March 31, 2013		March 31, 2012
Insurance	$	6	$	7
Professional fees		-		3
Real estate taxes		6		3
Utilities		2		6
Transfer-in write-up		-		(43	)
Impairment charges (net)		30		15
Total	$	44	$	(9	)

7.  Fair Value

Fair Value Measurement

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

The fair value guidance in FASB ASC 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1

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

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Level 2

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

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

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

Level 3

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

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

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

Fair Value on a Recurring Basis

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

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

(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities            available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	760	$	-	$	760	$	-
Money Market Funds		129		129		-		-
Total	$	889		129	$	760	$	-

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(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities            available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	898	$	-	$	898	$	-
Money Market Funds		129		129		-		-
Total	$	1,027		129	$	898	$	-

The fair value of the Bank’s AFS securities portfolio was approximately $889,000 and $1,027,000 at March 31, 2013, and December 31, 2012, respectively.  Approximately 85% of the portfolio consisted of residential mortgage-backed securities, which had a fair value of $760,000 at March 31, 2013.  All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”).  The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States.  The majority of the AFS securities were classified as level 2 assets at March 31, 2013.  The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar instruments and all relevant information.  There were no transfers between Level 1 and Level 2 assets during the period ended March 31, 2013 and year ended December 31, 2012.

Fair Value on a Nonrecurring Basis

Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of March 31, 2013 and December 31, 2012, for which a nonrecurring change in fair value has been recorded during the three months ended March 31, 2013 and year ended December 31, 2012.

Carrying Value at March 31, 2013:

(in 000’s)	Total		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total fair value gain (loss) during 3 months ended March 31, 2013
Impaired loans	$	-		-		-	$	-	$	(34	)
Other real estate owned (“OREO”)		743		-		-		743		(5	)

Carrying Value at December 31, 2012:

(in 000’s)	Total		Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total fair value gain (loss) during 3 months ended December 31, 2012
Impaired loans	$	$ 1,501		-		-	$	$ 1,501	$	(843	)
Other real estate owned (“OREO”)		775		-		-		775		(233	)

The measured impairment for collateral dependent of impaired loans is determined by the fair value of the collateral less estimated liquidation costs.  Collateral values for loans and OREO are determined by annual or more frequent appraisals if warranted by volatile market conditions, which may be discounted up to 10% based upon management’s review and the estimated cost of liquidation. These appraisals may utilize a single valuation approach or a combination of

23

approaches including comparable sales and the income approach.  Adjustments are routinely made on the appraisal process by the appraisers for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation allowance for impaired loans is adjusted as necessary based on changes in the value of collateral as well as the cost of liquidation.  It is included in the allowance for loan losses in the consolidated statements of condition. The valuation allowance for impaired loans at March 31, 2013 was approximately $500,000.  The valuation allowance for impaired loans at December 31, 2012 was approximately $843,000.

Fair Value of Financial Instruments

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

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

Cash and cash equivalents: The carrying amounts reported in the statement of condition for cash and cash equivalents approximate those assets’ fair values.

Investment securities: Fair values for investment securities available-for-sale are as described above.  Investment securities held-to-maturity are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans: The fair value of loans was estimated using a discounted cash flow analysis, which considered estimated pre­payments, amortizations, and non performance risk.  Prepayments and discount rates were based on current marketplace estimates and pricing.  Residential mortgage loans were discounted at the current effective yield, including fees, of conventional loans, adjusted for their maturities with a spread to the Treasury yield curve.   The fair value for nonperforming/impaired loans is determined by using discounted cashflow analysis or underlying collateral values, where applicable.

 Accrued interest receivable:  The carrying amount of accrued interest receivable approximates fair value.

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

Accrued interest payable:  The carrying amounts of accrued interest payable approximate fair value.

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

The fair value of assets and liabilities are depicted below:

		March 31, 2013				December 31, 2012
(in 000’s)	Level in	Carrying		Fair		Carrying		Fair
	Value Hierarchy	Amount		Value		Amount		Value
(Dollars in thousands)
Assets:
Cash and cash equivalents	Level 1	$	8,361	$	8,361	$	10,236	$	10,236
Available for sale securities	(1)		889		889		1,027		1,027
Held to maturity securities	Level 2		10,931		11,462		11,895		12,486
Loans, net of allowance for loan losses	(2)		40,041		40,256		40,298		40,325
Accrued interest receivable	Level 2		291		291		310		310
Liabilities:
Demand deposits	Level 2		27,341		27,341		29,851		29,851
Savings deposits	Level 2		14,409		14,408		14,239		14,239
Time deposits	Level 2		16,407		16,419		16,886		16,902
Accrued interest payable	Level 2		32		32		31		31

(1) Level 1 for money market funds; Level 2 for all other securities.

(2) Level 2 for non-impaired loans; Level 3 for impaired loans.

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8. Regulatory

On January 31, 2012, the Bank entered into stipulations consenting to the issuance of Consent Orders with the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“Department”).  The material terms of the Consent Orders are identical.  The requirements and status of items included in the Consent Orders are as follows:

Requirement	Status
Increase participation of the Bank’s board of directors in the Bank’s affairs by having the board assume full responsibility for approving the Bank’s policies and objectives and for supervising the Bank’s management;	Board participation has been improved with attendance at board and committee meetings.
Have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers;	A management assessment was completed in June 2012 in conjunction with the required management review and written management plan with benchmarks for recommended enhancements.
Retain a bank consultant acceptable to the FDIC and the Department to develop a written analysis and assessment of the Bank’s management needs and thereafter formulate a written management plan;	An engagement letter from a qualified consultant was received and approved by the Bank’s regulators.  Upon acceptance, the review commenced in May 2012 and was completed in June 2012.
Formulate and implement written profit and budget plans for each year during which the orders are in effect;	Profit and budget plans have been prepared and submitted to regulators as required annually.
Develop and implement a strategic plan for each year during which the orders are in effect, to be revised annually;	An annual comprehensive strategic plan was prepared and submitted to regulators as required.
Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period;	A capital plan with quarterly benchmarks was prepared and submitted to regulators as required annually.
Formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its regulatory examination;	A classified asset reduction plan with quarterly benchmarks measured against capital was prepared and submitted as required.
Requirement	Status
Eliminate all assets classified as “Loss” at its current regulatory examination;	All assets classified as “Loss” have been eliminated.
Revise the Bank’s loan policy to establish and monitor procedures for adherence to the loan policy and to eliminate credit administration and underwriting deficiencies identified at its current regulatory examination;	The Bank’s loan policy has been revised to include enhanced monitoring procedures and submitted to regulators for review in April 2012.
Develop a comprehensive policy and methodology for determining the allowance for loan and lease losses;	The ALLL policy and methodology for determining the allowance for loan losses were submitted to regulators for review in April 2012.
Develop an interest rate risk policy and procedures to identify, measure, monitor and control the nature and amount of interest rate risk the Bank takes;	The Bank’s interest rate risk policy and procedures were submitted to regulators for review in April 2012.
Revise its liquidity and funds management policy and update and review the policy annually;	The Bank’s liquidity policy and contingency plan were submitted to regulators for review in April 2012.
Refrain from accepting any brokered deposits;	The Bank did not accept brokered deposits.
Refrain from paying cash dividends without prior approval of the FDIC and the Department;	The Bank did not pay cash dividends.
Establish an oversight committee of the board of directors of the Bank with the responsibility to ensure the Bank’s compliance with the orders, and	An oversight committee consisting of three outside directors and one inside director was established and meets periodically to ensure compliance with the orders.
Prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the orders.	Quarterly reports were prepared and submitted   as required.

The Orders will remain in effect until modified or terminated by the FDIC and the Department and do not restrict the Bank from transacting its normal banking business.  The Bank will continue to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions.  Customer deposits remain fully insured to the highest limits set by the FDIC.  The FDIC and the Department did not impose or recommend any monetary penalties in connection with the Consent Orders.

 As of March 31, 2013 and December 31, 2012, the Bank’s tier one leverage capital ratio was 5.67% and 6.00%, respectively, and its total risk based capital ratio was 10.41% and 11.16%, respectively. Capital declined as a result of continued operating losses.  Management has developed and submitted a Capital Plan that focuses on the following:

1.   Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital.

2.   Sale of investment securities for a gain—approximately $7.5 million of the Bank’s investment portfolio will be sold to generate a gain of approximately $381,000 in May 2013.

3.   External equity investments—Potential investors will be sought in 2013 to generate a minimum investment of $1 million.

As a result of the above actions, management believes that the Bank has and will continue to attempt to comply with the terms and conditions of the Orders and will continue to operate as a going concern and an independent financial institution for the foreseeable future.

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

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

Special Cautionary Notice Regarding Forward-looking Statements

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

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

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Overview

The Company reported a net loss of approximately $339,000 ($0.32 per common share) for the quarter ended March 31, 2013 compared to a net loss of approximately $238,000 ($0.22 per common share) for the quarter ended March 31, 2012. Management is committed to improving the Company’s operating performance by implementing more effective strategies to achieve and sustain profitability, augment capital, and manage loan and other real estate portfolios. The following actions are crucial to enhancing the Company’s future financial performance:

Increase Capital.  The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood; however, capital continues to decline as a result of operating losses.  Going forward, a concentrated effort will be made to stabilize and strengthen the Bank’s capital by the following:

·   Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital.  Refer to the Earnings Enhancement discussion below.

·   Sale of investment securities for a gain to increase capital.

·   External equity investments—Potential investors will be sought in 2013 to generate a minimum investment of $1 million.

Manage asset quality to minimize credit losses and reduce collection costs.  Asset quality trends deteriorated somewhat during the quarter ended March 31, 2013 with an increase in the level of delinquencies. Management has intensified its collection efforts to combat further deterioration in credit quality.  While some progress has been made in the Bank’s underwriting, and customer relationship management practices, additional efforts are necessary to ensure improvement in asset quality trends. Management will continue to proactively identify and manage emerging problem credits to minimize additions to its classified assets through its Asset Quality Committee discussions.

In conjunction with its regulatory orders, management has developed a Classified Asset Reduction Plan that is being utilized in an attempt to reduce the level of non-performing loans and non-performing assets. Forbearance, foreclosure and/or other appropriate collection methods will be used as necessary.  These activities will likely result in additional expenses, including loan collection and other real estate related costs that will continue to affect reported earnings as the Bank diligently works to reduce the outstanding investment in these assets.

Earnings enhancement plan. Management recognizes the challenges it continues to face in achieving profitability.  Increased interest income on loans and gains on the sale of loans are targeted as the primary drivers of earnings enhancement.  Specifically, the Bank will seek to originate SBA loans for which the guaranteed portion will be sold in the secondary market for a gain.  In 2013, management expanded its business banking focus to increase the Bank’s commercial lending activity including the addition of a business development officer who was hired in January 2013.

While there was some reduction in overhead expense for the quarter ended March 31, 2013 compared to 2012, the Bank’s noninterest expense continues to be elevated.  The sale of a bank-owned branch in December 2012 resulted in reduced occupancy expense.  However, unlike other similar-sized community banks, the Bank continues to incur a higher level of professional service fees (audit and legal) because of its SEC filing requirements as a result of having in excess of 1,200 shareholders. Further savings and efficiencies, where possible, including the following:

1.   Review and re-negotiation of significant contracts (i.e. data processing, credit card, EFT services, etc.)

2.   Sale and/or other disposition of Other Real Estate properties to reduce carrying costs

The amortization of the Bank’s core deposit intangible related to a premium paid for a branch acquisition will be complete in September 2013.  The completion of this amortization will reduce the Bank’s noninterest expense by $180,000 annually beginning in 2014.

Another challenge to increased earnings continues to be margin compression. Margin compression has been created by the lack of significant loan growth as well as the continued low interest rate environment that has resulted in lower yields on loans, federal funds sold and investment securities. There is also rate competition from money center banks for creditworthy small business loan customers. While management actively manages the rates paid on deposit products to “average” market rates in attempt to mitigate the effect of the reduction in yield on earning assets, deposit rates have generally “bottomed out”. Management will continue to focus on growing the Bank’s loan portfolio and reducing the level of nonaccrual loans to increase net interest income.

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Significant Accounting Policies

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented.  Therefore, actual results could differ from these estimates.

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

The Company’s significant accounting policies are presented in Note 1 to the  Company’s audited consolidated financial statements filed as part of the 2012 Annual Report on Form 10-K and in the footnotes to the Company’s unaudited financial statements filed as part of this Form 10-Q.

Selected Financial Data

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

(Thousands of dollars, except per share data)	Quarter ended March 31, 2013			Quarter ended March 31, 2012
Statement of operations information:
Net interest income	$	694		$	760
Provision for loan losses		70			30
Noninterest income		195			194
Noninterest expense		1,158			1,162
Net loss		(339	)		(238	)
Net loss per share-basic and diluted		(0.32	)		(0.22	)
Balance Sheet information:	March 31, 2013			December 31, 2012
Total assets	$	62,313		$	65,616
Loans, net	$	40,041		$	40,298
Investment securities	$	11,820		$	12,922
Deposits	$	58,157		$	60,977
Shareholders' equity	$	3,895		$	4,240
Ratios*:	Quarter ended March 31, 2013			Quarter ended March 31, 2012
Return on assets		(2.04	%)		(1.26	%)
Return on equity		(32.29	%)		(19.41	%)

*annualized

Financial Condition

Sources and Uses of Funds

The financial condition of the Bank can be evaluated in terms of trends in its sources and uses of funds.  The comparison of average balances in the following table indicates how the Bank has managed these elements. Average funding uses declined approximately $725,000, or 1.13% during the quarter ended March 31, 2013 compared to the quarter ended December 31, 2012. Average funding sources decreased approximately $1,689,000, or 2.67%, during the quarter ended March 31, 2013 compared to the quarter ended December 31, 2012.

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Sources and Uses of Funds Trends

(Thousands of Dollars, except

percentages)	March 31, 2013								December 31, 2012
	Average		Increase (Decrease)			Increase (Decrease)			Average
	Balance		Amount			%			Balance
Funding uses:
Loans	$	41,532	$	488			1.19	%	$	41,044
Investment securities
Held-to-maturity		11,887		(373	)		(3.04	)		12,260
Available-for-sale		916		(95	)		(9.40	)		1,011
Federal funds sold		8,513		(745	)		(8.05	)		9,258
Balances with other banks		306		-			-			306
Total  uses	$	63,154	$	(725	)		(1.13	)%	$	63,879
Funding sources:
Demand deposits
Noninterest-bearing	$	15,454		(436	)		(2.74	)	$	15,890
Interest-bearing		15,261		(577	)		(3.64	)		15,838
Savings deposits		14,260		(223	)		(1.54	)		14,483
Time deposits		16,622		(453	)		(2.65	)		17,075
Total sources	$	61,597	$	(1,689	)		(2.67	)%	$	63,286

Loans

Average loans increased by approximately $488,000, or 1.19%, during the quarter ended March 31, 2013. While the Bank funded more than $700,000 in loans during the quarter, there were several commercial loan payoffs as a result of increased market competition from money center banks in the region for quality performing loans.  In addition, the consumer portfolio continues to decline as a result of residential mortgages and home equity repayment activity as consumers refinance to take advantage of the continued low interest rate environment.  The Bank does not originate residential mortgage loans and made a strategic shift in its lending program in 2012 to phase out consumer lending, including home equity loans and lines of credit.

The Bank’s commercial loan pipeline is growing as a result of the adoption of a business banking focus, specifically targeting SBA loans.  This strategy is designed to generate fee income as well as build loan volume.  Although there were no SBA loan originations during the quarter, several are included in the pipeline with anticipated closings in the quarter ended June 30, 2013. A new business development officer was hired during the quarter to focus on small business banking including SBA or other loan guaranty programs that may be available to mitigate credit risk.   In addition, loan participations will be used to supplement the Bank’s lending activities.

The Bank’s loan portfolio continues to be concentrated in commercial real estate loans that comprise approximately $31 million, or 76%, of total loans at March 31, 2013 of which approximately $15.4 million are owner occupied.  The Bank continues to have a strong niche in lending to religious organizations for which total loans at March 31, 2013 were approximately $11.7 million, or 38%, of the commercial real estate portfolio.   Management closely monitors this concentration to proactively identify and manage credit risk in light of the current high level of unemployment that could impact the level of tithes and offerings that provide cash flow for repayment.  The composition of the net loans is as follows:

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	March 31,		December 31,
(In 000's)	2013		2012
Commercial and industrial:
Commercial	$	1,195	$	1,462
SBA loans		124		125
Asset-based		2,443		2,147
Total commercial and industrial		3,762		3,734
Commercial real estate:
Commercial mortgages		14,912		14,720
SBA loans		618		621
Construction		3,755		3,398
Religious organizations		11,690		12,642
Total commercial real estate		30,975		31,381
Consumer real estate:
Home equity loans		1,408		1,453
Home equity lines of credit		25		26
1-4 family residential mortgages		3,094		3,140
Total consumer real estate		4,527		4,619
Total real estate		35,502		36,000
Consumer and other:
Consumer installment		26		30
Student loans		1,476		1,588
Other		212		150
Total consumer and other		1,714		1,768
Loans, net	$	40,978	$	41,502

Allowance for Loan Losses

The allowance for loan losses reflects management’s continuing evaluation of the loan portfolio, the diversification and size of the portfolio, and adequacy of collateral. Provisions are made to the allowance for loan losses in accordance with a detailed periodic analysis.  This analysis includes specific reserves allocated to impaired loans based on underlying recovery values as well as a general reserve based on charge-off history and various qualitative factors including delinquency trends, loan terms, regulatory environment, economic conditions, concentrations of credit risk and other relevant data.  The Bank utilizes an eight rolling quarter historical loss factor as management believes this best represents the current trends and market conditions.  The allowance for loan losses as a percentage of total loans was 2.29% at March 31, 2013 and 2.90% at December 31, 2012.  During the three months ended March 31, 2013, provisions for loan losses totaled approximately $70,000.  Net charge-offs during the period totaled approximately $337,000 and were primarily related to one commercial and industrial loan for which the related receivable collateral became impaired.

Loans deemed “impaired” are those for which borrowers are no longer able to pay in accordance with the terms of their loan agreements.  The Bank’s source of repayment is generally the net liquidation value of the underlying collateral.  Impaired loans totaled approximately $2,022,000 at March 31, 2013 compared to $2,344,000 at December 31, 2012. The decrease is related to the charge-off of the one commercial and industrial loan totaling approximately $340,000. The valuation allowance associated with impaired loans was approximately $534,000 and $843,000, at March 31, 2013 and December 31, 2012, respectively. The decline is again primarily related to the one loan for which there was a specific reserve that was charged-off during the quarter.  Management continues to work to reduce the level of classified and impaired loans. Forbearance, foreclosure and/or other appropriate collection methods will be used as necessary.

At March 31, 2013 and December 31, 2012, loans to religious organizations represented approximately $666,000 and $674,000, respectively, of total impaired loans. Management continues to work closely with its attorneys and the leadership of these organizations in an attempt to develop suitable repayment plans to avoid foreclosure.  In general, loans to religious organizations are being monitored closely to proactively identify potential weaknesses in this area of high concentration.

30

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

The percentage of allowance to nonperforming loans decreased from 46.59% at December 31, 2012 to 40.81% at March 31, 2013 primarily as a result of charge-off activity.  Loans more than 90 days past due that are still in the process of collection for which the full payment of principal and interest can reasonably be expected are not considered nonperforming.  The following table sets forth information concerning nonperforming loans and nonperforming assets.

(In 000's)	March 31, 2013			December 31, 2012
Commercial and industrial:
Commercial	$	531		$	873
Asset-based		132			99
Total commercial and industrial		663			873
Commercial real estate:
Commercial mortgages		644			649
Religious organizations		666			674
Total commercial real estate		1,310			1,323
Consumer real estate:
Home equity loans		81			63
1-4 family residential mortgages		242			226
Total consumer real estate		323			289
Total real estate		1,633			1,612
Total nonperforming loans	$	2,296		$	2,584
OREO		718			775
Total nonperforming assets	$	3,014		$	3,359
Nonperforming loans to total loans		5.60	%		6.23	%
Nonperforming assets to total loans and OREO		7.23	%		8.12	%
Nonperforming assets to total assets		4.84	%		5.10	%
Allowance for loan losses as a percentage of:
Total Loans		2.29	%		2.90	%
Total nonperforming loans		40.81	%		46.59	%

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The following table sets forth information related to loans past due 90 days or more and still accruing interest.

(In 000's)	March 31, 2013		December 31,  2012
Consumer real estate:
Home equity loans	$	44	$	44
Total consumer real estate		44		44
Consumer and other:
Student loans		82		141
Total consumer and other		82		141
Total	$	126	$	185

Investment Securities and Other Short-term Investments

Average investment securities decreased by approximately $468,000, or 3.53%, during the quarter ended March 31, 2013. The decrease was primarily related to the paydowns in mortgage-backed security portfolio and calls of higher yielding securities in the current low interest rate environment.

The yield on the investment portfolio declined to 2.72% at March 31, 2013 compared to 2.84% at December 31, 2012 as a result of the call activity during the period.  The duration of the portfolio has extended to 3.4 years at March 31, 2013 compared to 3.2 years at December 31, 2012 as a result of the 15 and 20 year government sponsored enterprises (GSE) mortgage-backed pass-through securities included in the portfolio that serve to generate monthly cash flow.   The payments of principal and interest on these pools of GSE loans are guaranteed by these entities that bear the risk of default.  The Bank’s risk is prepayment risk when defaults accelerate the repayment activity.  These loans have longer-term con­tractual maturities but are sometimes paid off/down before maturity or have repricing characteristics that occur before final maturity.  Amortizing GSE mortgage-backed securities approximate 77% of the portfolio. Management’s goal is to maintain a portfolio with a short duration to allow for adequate cash flow to fund loan origination activity and to manage interest rate risk.

Deposits

During the quarter ended March 31, 2013, average deposits decreased approximately $1,689,000, or 2.67%, concentrated in the category of interest-bearing demand deposits.   In March 2013, the City of Philadelphia closed a $2.3 million money market account for which funds had been earmarked for a construction project.   This decline was somewhat offset by one significant depository relationship for which the balances increased in conjunction with contract funding it received.  These deposits are expected to fluctuate widely based on required payment activity related to projects completed by this customer through June 30, 2013.

In addition, certificates of deposit declined approximately $453,000, or 2.65%, as the result of the non-renewal of several corporate deposits for which higher rates were being sought.

Commitments and Lines of Credit

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

Many of the commitments are expected to expire without being drawn upon. The total commitment amounts do not necessarily represent future cash requirements.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Management believes the Bank has adequate liquidity to support the funding of unused commitments.  The Bank's financial instrument commitments are summarized below:

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	March 31, 2013		December 31, 2012
Commitments to extend credit	$	9,723,000	$	9,484,000
Standby letters of credit		1,243,000		1,173,000

The level of commitments at March 31, 2013 increased as a result of the approval of several construction loans/lines of credit including one significant SBA qualified loan.  More than $4 million of the Bank’s outstanding commitments consist of unused lines of credit with Fortune 500 corporations for which the Bank leads and/or participates in syndications that are not expected to be drawn upon.

Liquidity

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

By policy, the Bank’s minimum level of liquidity is 6.00% of total assets.  At March 31, 2013, the Bank had total short-term liquidity, including cash and federal funds sold, of approximately $8.4 million, or 13.41% of total assets, compared to $10.2 million, or 15.60%, at December 31, 2012. The closure of the City of Philadelphia deposit referenced above in Deposits is the primary reason for the reduction in liquidity.  Although reduced, liquidity levels remain strong and above policy limits.

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. The portion of the Bank’s investment portfolio classified as available-for-sale could also provide liquidity. However, some of these securities are pledged as collateral for deposits of governmental/quasi-governmental agencies as well as the Discount Window at the Federal Reserve Bank.  Therefore, they are restricted from use to fund loans or to meet other liquidity requirements. The reduction in governmental deposits referenced above resulted in the release of approximately $2.5 million of pledged collateral.

Other types of assets such as federal funds sold, as well as maturing loans, are also sources of liquidity.  Approximately $11.3 million in loans are scheduled to mature within one year.

To ensure the ongoing adequacy of liquidity, the following contingency strategies will be utilized in order of priority, if necessary:

·   Seek non-public deposits from existing private sector customers; specifically, additional deposits from members of the National Bankers Association will be considered a potential source.

·   Sell participations of existing commercial credits to other financial institutions in the region and/or NBA member banks based on participation agreements.

The Bank’s contingent funding sources  include the Discount Window at the Federal Reserve Bank for which it currently has $750,000 in securities pledged that result in borrowing capacity of approximately $638,000. In light of the Bank’s regulatory Orders and “Troubled Bank” designation, liquidity will continue to be closely monitored and managed to minimize risk and ensure that adequate funds are available to meet daily customer requirements and loan demand.

Interest rate sensitivity

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

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At March 31, 2013, a positive gap position is maintained on a cumulative basis through 1 year of 10.39% that is within the Bank’s policy guidelines of +/- 15% on a cumulative 1-year basis and represents a decline from the December 31, 2012 positive gap position of 11.62%. This decrease resulted from the reduction in Federal Funds Sold created by a decline in deposit balances.  This position makes the Bank’s net interest income more favorable in a rising interest rate environment. The most recent economic forecast suggests no further decline in rates but rather increases beginning in 2014. Therefore, management does not believe the interest rate risk associated with the Bank’s current position to be significant.  Management will continue review and monitor the structure and rates on investment purchases, new loan originations and renewals to manage the interest rate risk profile within acceptable limits.

While using the interest sensitivity gap analysis is a useful management tool as it considers the quantity of assets and liabilities subject to repricing in a given time period, it does not consider the relative sensitivity to market interest rate changes that are characteristic of various interest rate-sensitive assets and liabilities.  A simulation model is used to estimate the impact of various changes, both upward and downward, in market interest rates and volumes of assets and liabilities on the net income of the Bank.  This model produces an interest rate exposure report that forecasts changes in the market value of portfolio equity under alternative interest rate environments.  The market value of portfolio equity is defined as the present value of the Company’s existing assets, liabilities and off-balance-sheet instruments.  At March 31, 2013,the change in the market value of equity in a +200 basis point interest rate change is -4.2%, within the Bank’s policy limit of 25%, and -36.30 % in a +400 basis point interest rate change, within the policy limit of 50%.  Management will continue to mitigate this risk by originating more variable rate loans and purchasing variable rate MBS securities, when available.  Based on these models, interest-rate exposure is not considered significant and is within the policy limits of the Bank on all measures at March 31, 2013.

Capital Resources

Total shareholders' equity decreased approximately $345,000 compared to December 31, 2012 as a result of the net loss during the quarter ended March 31, 2013 and other comprehensive loss related to a decrease in the unrealized gain on the securities classified as available-for-sale.

The critical importance of establishing and maintaining capital levels to support the Bank’s risk profile and growth is understood.  A concentrated effort will be made to stabilize and strengthen the Bank’s capital through the generation of core profitability from Bank operations and external investment.  The Bank will seek to raise $1,000,000 in equity investment from potential prospects in 2013.

Federal and state banking laws impose on financial institutions such as USB and the Bank certain minimum requirements for capital adequacies.  The Company and the Bank are each generally required to maintain a minimum ratio of total capital to risk rated assets of 8%.  At least half of the total capital must be composed of “Tier I Capital” which is defined as common equity, retained earnings and qualified perpetual preferred stock, less certain intangibles.  The remainder may consist of “Tier II Capital” which is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of loan loss allowance.  Also, federal banking regulatory agencies have established minimum leverage capital requirements for banking organizations.  Under these requirements, banking organizations must maintain a minimum of Tier I Capital to adjusted average quarterly assets equal to 3% to 5%, subject to bank regulatory evaluation of an organization’s overall safety and soundness.  Under the federal banking regulations, a financial institution would be deemed to “adequately capitalized” or better if it exceeds the minimum federal regulatory capital requirements.  A financial institution would be deemed “undercapitalized” if it fails to meet the minimum capital requirements and significantly undercapitalized if it has a total risk based capital ratio that is less than 6%, Tier I risk based capital ratio is less than 3%, or a leverage ratio that is less than 3% and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to less than 2%.  USB and the Bank are “well-capitalized” for regulatory capital purposes based upon the most recent notification under regulatory framework for prompt corrective action.

On January 31, 2012, the Bank entered into a Consent Order with its primary regulators that requires the development of a written capital plan ("Capital Plan") that details the manner in which the Bank will meet and maintain a Leverage Ratio of at least 8.50% and a Total Risk-Based Capital Ratio of at least 12.50%.  At a minimum, the Capital Plan must include specific benchmark Leverage Ratios and Total Risk-Based Capital Ratios to be met at each calendar quarter-end, until the required capital levels are achieved.

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As indicated in table below, the Bank’s risk-based capital ratios are above the general minimum requirements but below those required by the Consent Orders.    Management has developed a Capital Plan that includes profitability and external investment to improve its capital ratios.   The Company and the Bank do not anticipate paying dividends in the near future.

The Bank’s risk-based capital ratios are above the general minimum requirements but below those required by the Consent Orders.  The Company and the Bank’s actual capital amounts and ratios are as follows:

(In 000’s)	Actual					For capital Adequacy purposes					To be well capitalized under Prompt corrective actions provisions
March 31, 2013	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Consolidated	$	4,282		10.41	%	$	3,292		8.00	%		N/A
Bank		4,282		10.41	%		3,292		8.00	%	$	4,115		10.00	%
Tier I capital to risk-weighted assets:
Consolidated		3,763		9.14	%		1,646		4.00	%		N/A
Bank		3,763		9.14	%		1,646		4.00	%	$	2,469		6.00	%
Tier I capital to average assets:
Consolidated		3,763		5.67	%		2,655		4.00	%		N/A
Bank		3,763		5.67	%		2,655		4.00	%	$	3,319		5.00	%

	Actual					For capital Adequacy purposes					To be well capitalized under Prompt corrective actions provisions
December 31, 2012	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets:
Consolidated	$	4,584		11.16	%	$	3,287		8.00	%		N/A
Bank		4,584		11.16	%		3,287		8.00	%	$	4,109		10.00	%
Tier I capital to risk-weighted assets:
Consolidated		4,070		9.91	%		1,644		4.00	%		N/A
Bank		4,070		9.91	%		1,644		4.00	%	$	2,465		6.00	%
Tier I capital to average assets:
Consolidated		4,070		6.00	%		2,715		4.00	%		N/A
Bank		4,070		6.00	%		2,715		4.00	%	$	3,394		5.00	%

Results of Operations

Summary

The Company reported a net loss of approximately $339,000 ($0.32 per common share) for the quarter ended March 31, 2013 compared to a net loss of approximately $238,000 ($0.22 per common share) for the same quarter in 2012. A detailed explanation of each component of operations is included in the sections below.

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 (b) 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.

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Average Balances, Rates, and Interest Income and Expense Summary

	Three months ended March 31, 2013							Three months ended March 31, 2012
(in 000’s)	Average Balance		Interest		Yield/Rate			Average Balance		Interest		Yield/Rate
Assets:
Interest-earning assets:
Loans	$	41,532	$	628		6.05	%	$	41,523		660		6.36	%
Investment securities-HTM		11,887		81		2.73			17,544		128		2.93
Investments securities-AFS		916		6		2.62			1,209		9		2.98
Federal funds sold		8,513		4		0.19			11,126		5		0.18
Interest bearing balances with other banks		306		-		-			305		1		0.25
Total interest-earning assets		63,154		719		4.55			71,707		803		4.48
Interest-bearing liabilities
Demand deposits		15,261		8		0.21			16,773		13		0.31
Savings deposits		14,260		2		0.06			14,677		2		0.05
Time deposits		16,622		15		0.36			24,680		28		0.46
Total interest-bearing liabilities		46,143		25		0.22			55,830		43		0.31
Net interest income			$	694						$	760
Net yield on interest-earning assets						4.40	%						4.24	%

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

Net interest income declined approximately $66,000, or 8.67%, for the quarter ended March 31, 2013 compared to the quarter ended March 31, 2012. However, the net yield on interest-earning assets improved compared to 2012 primarily as a result of a reduction in the cost of funds because of rate reductions made on the Bank’s deposit products to follow market conditions. Also, the early redemption of approximately $8 million in jumbo certificates of deposit in 2012 served to reduce the Bank’s cost of funds as well as the level of investment in lower yielding Federal Funds Sold; thereby, boosting the net yield.

Rate-Volume Analysis of Changes in Net Interest Income

	Three months ended March 31, 2013 compared to 2012
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Net
Interest earned on:
Loans	$	-		$	(32	)	$	(32	)
Investment securities held-to-maturity		(44	)		(2	)		(46	)
Investment securities available-for-sale		(2	)		(2	)		(4	)
Interest-bearing deposits with other banks		-			-			-
Federal funds sold		(1	)		-			(1	)
Total Interest-earning assets		(47	)		(36	)		(83	)
Interest paid on:
Demand deposits		(1	)		(4	)		(5	)
Savings deposits		-			-			-
Time deposits		(8	)		(4	)		(12	)
Total interest-bearing liabilities		(9	)		(9	)		(17	)
Net interest income	$	(38	)	$	(27	)	$	(66	)

For the quarter ended March 31, 2013 compared to the same period in 2012, there was a decrease in net interest income of approximately $38,000 due to changes in volume and an increase of approximately $27,000 due to changes in rate.

Average earning assets decreased compared to the same period in 2012; however, the reduction in lower yielding federal funds sold minimized the negative impact on the Bank’s net interest income.   Management’s focus continues to be on building loan volume to enhance net interest income.

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Provision for Loan Losses

The provision for loan losses was $70,000 for the quarter ended March 31, 2013 compared to $30,000 for the same quarter in 2012. In general, provision requirements are based on credit losses inherent in the loan portfolio and the review and analysis of the loan portfolio in accordance with the Bank’s Allowance for Loan Loss policies and procedures. (Refer to Allowance for Loan Losses above for discussion and analysis of credit quality.)

Noninterest Income

The amount of the Bank's noninterest income generally reflects the volume of the transactional and other accounts handled by the Bank and includes such fees and charges as low balance account fees, overdrafts, account analysis, ATM fees and other customer service fees.  Noninterest income increased approximately $1,000, or 0.64%, for the quarter ended March 31, 2013 compared to the same quarter in 2012.

Customer service fees improved by approximately $3,000, or 3.56%, for the quarter ended March 31, 2013 compared to 2012.  ATM fees were relatively unchanged as transaction volume appears to have stabilized.

Noninterest Expense

Salaries and benefits decreased approximately $36,000, or 8.72%, for the quarter ended March 31, 2013 compared to 2012.  The reduction resulted from the severance of several personnel in the lending/credit administration area of the Bank as well as 2012 branch staff attrition. However, a business development officer was hired in January 2013 to support the shift to business banking.  In conjunction with a review required by the Consent Orders, management continues to review the organizational structure to maximize efficiencies, increase utilization/productivity and increase business development activity.

Occupancy and equipment expense decreased approximately $31,000, or 11.24%, for the quarter ended March 31, 2013 compared to 2012.   The reduction is a result of the sale of the Bank’s former 38th and Lancaster Avenue branch in December 2012 and lower depreciation expense related to fully depreciated equipment.

Marketing and public relations expense increased approximately $11,000, or 243.73%, for the quarter ended March 31, 2013 compared to 2012.  In 2013, the Company increased its business banking marketing to support the shift in strategy away from consumer banking.

Professional services expense decreased approximately $2,000, or 3.28%, for the quarter ended March 31, 2013 compared to 2012.  In 2012, the Bank incurred increased legal and consulting expenses in conjunction with its Consent Orders.

Data processing expenses decreased approximately $6,000, or 4.68%, for the quarter ended March 31, 2013 compared to 2012.  In May 2012, management successfully negotiated a reduction in its core processing cost in conjunction with contract renewal.  Further reductions will be sought in processing costs associated with other vendors.

Federal deposit insurance assessments increased approximately $36,000 for the quarter ended March 31, 2013 compared to 2012.  Assessments are based on many factors including the Bank’s deposit size and composition and its current regulatory ratings.   The Consent Orders also resulted in an estimated increase of $60,000 in the annual insurance premiums.

During the quarter ended March 31, 2013 compared to 2012, the net other real estate expenses increased approximately $53,000 as a result of net write-downs totaling approximately $30,000 of other real estate properties in 2013.

Loan and collection expenses decreased approximately $9,000, or 30.60%, for the quarter ended March 31, 2013 compared to 2012. The decrease is directly related to a reduction in the level of foreclosure activity.

Dividend Restrictions

The Company has never declared or paid any cash or stock dividends.  The Pennsylvania Banking Code of 1965, as amended, provides that cash dividends may be declared and paid only from accumulated net earnings and that, prior to the declaration of any dividend, if the surplus of a bank is less than the amount of its capital, the bank shall, until surplus is equal to such amount, transfer to surplus an amount which is at least ten percent (10%) of the net earnings of the bank for the period since the end of the last fiscal year or any shorter period since the declaration of a dividend.  If the surplus

37

of a bank is less than fifty percent (50%) of the amount of its capital, no dividend may be declared or paid by the Bank without the prior approval of the Pennsylvania Department of Banking.

Under the Federal Reserve Act, the Federal Reserve Board has the power to prohibit the payment of cash dividends by a bank holding company if it determines that such a payment would be an unsafe or unsound practice or constitutes a serious risk to the financial soundness or stability of the subsidiary bank.  As a result of these laws and regulations, the Bank, and therefore the Company, whose only source of income is dividends from the Bank, will be unable to pay any dividends while an accumulated deficit exists.  The Company does not anticipate that dividends will be paid for the foreseeable future.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.  Controls and Procedures

As of March 31, 2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”). The Company had previously reported that, as of December 31, 2012, it had identified material weaknesses in its internal control in connection with the identification and assessment of impaired loans and the valuation of certain other real estate owned as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  While the Company made progress in remediating the deficiencies in its internal controls over financial reporting relating to the weaknesses noted in its 2012 Annual Report, there was an insufficient period of time to determine whether those processes that were implemented were operating effectively as of March 31, 2013. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.

To address the material weaknesses, we have established the following policies:  (1) our current foreclosed real estate policy is to obtain annual valuations, through either appraisals or valuations on foreclosed properties in accordance with regulatory guidance.  We have revised our policy to require updated valuations, when necessary, based on information received when a foreclosed property is sold and require the prompt recording of any loss on the sale of foreclosed property.  When performing updates to valuations, we will use a discount to offset or adjust all valuations appropriately.  The valuation adjustments will be based on the age of the last valuation in the file and known market conditions, and (2) in addition to the existing third party external review and asset quality meetings, Management will enhance its review to a level of precision necessary to identify impaired loans and make any needed adjustments for loan losses.  Management believes that these changes will contribute significantly to the remediation of the material weaknesses in the financial controls that was in existence as of December 31, 2012. Additional changes will be implemented as determined necessary.

Although our remediation efforts are well underway and are expected to be completed in the near future, our material weaknesses will not be considered remediated until new internal controls are operational for a period of time and are tested, and management concludes that these controls are operating effectively.

The Company continually seeks to improve the effectiveness and efficiency of its internal control over financial reporting.  Except for remediation efforts to correct the weaknesses identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, there have been no changes to the Company’s internal control over financial reporting during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Bank is a defendant in certain claims and legal actions arising in the ordinary course of business.  In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.

Item 1A. Risk Factors.

There have not been any material changes to the risk factors disclosed in the Company’s 2012 Annual Report on Form 10-K except as disclosed below.  The risk factors disclosed in the Company’s 2012 Annual Report on Form 10-K are not the only risks that we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Failure to Comply with the FDIC and Pennsylvania Department of Banking Consent Orders

The Bank has entered into Consent Orders with the FDIC and the Department which, among other provisions, require the Bank to increase its tier one leverage capital ratio to 8.5% and its total risk based capital ratio to 12.5%.  As of March 31, 2013, the Bank’s tier one leverage capital ratio was 5.67% and its total risk based capital ratio was 10.41%.  See the Regulatory Orders section.  The Bank’s failure to comply with the terms of the Consent Orders could result in additional regulatory supervision and/or actions.  The ability of the Bank to continue as a going concern is dependent on many factors, including achieving required capital levels, earnings and fully complying with the Consent Orders.  The Consent Orders raise substantial doubt about the Bank’s ability to continue as a going concern.

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

 None

Item 3.  Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5.  Other Information.

None

Item 6. Exhibits.

a)           Exhibits.

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

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

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

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

39

Signatures

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

UNITED BANCSHARES, INC.

Date:  May 31, 2013	/s/ Evelyn F. Smalls
	Evelyn F. Smalls
	President & Chief Executive Officer
Date: May 31, 2013	/s/ Brenda M. Hudson-Nelson
	Brenda Hudson-Nelson
	Executive Vice President/Chief Financial Officer

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Index to Exhibits-FORM 10-Q

Exhibit 31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

41

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Evelyn F. Smalls, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of United Bancshares, Inc.;

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

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

4.           The registrant’s other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the registrant and have:

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

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

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

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

/s/ Evelyn F. Smalls

Evelyn F. Smalls

Chief Executive Officer

May 31, 2013

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Brenda M. Hudson-Nelson, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of United Bancshares, Inc.;

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

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

4.           The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the registrant and have:

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

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

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

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter, (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

/s/ Brenda M. Hudson-Nelson

Brenda M. Hudson-Nelson

Chief Financial Officer

May 31, 2013

EX-32.1

Exhibit 32.1

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

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

In connection with the Quarterly Report of United Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Evelyn F. Smalls, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. '1350, as adopted pursuant to '906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

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

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

/s/ Evelyn F. Smalls

Evelyn F. Smalls

Chief Executive Officer

May 31, 2013

EX-32.2

Exhibit 32.2

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

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

In connection with the Quarterly Report of United Bancshares, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brenda M. Hudson-Nelson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. '1350, as adopted pursuant to '906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

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

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

/s/ Brenda M. Hudson-Nelson

Brenda M. Hudson-Nelson

Chief Financial Officer

May 31, 2013

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1. Significant Accounting Policies: Non-accrual and Past Due Loans (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Non-accrual and Past Due Loans

Non-accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have not been received 30 days as of the date such payments were due.  The Bank generally places a loan on non-accrual status when interest or principal is past due 90 days or more.  If it otherwise appears doubtful that the loan will be repaid, management may place the loan on nonaccrual status before the lapse of 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection.  When a loan is placed on nonaccrual status, previously accrued and unpaid interest is reversed out of income.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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7. Fair Value: Schedule of Fair Value of Assets and Liabilities (Details) (USD $)	Mar. 31, 2013		Dec. 31, 2012		Mar. 31, 2012	Dec. 31, 2011
Cash and cash equivalents at beginning of period	$ 8,360,797		$ 10,236,199		$ 7,419,373	$ 14,497,329
Available-for-sale, at fair value	889,044		1,027,293
Available-for-sale Securities, Fair Value Disclosure	889,000		1,027,000		1,027,000
Held-to-maturity, at amortized cost (fair value of $11,461,715 and $12,485,687 at March 31, 2013 and December 31, 2012, respectively)	10,931,336		11,895,037
Held-to-maturity Securities, Fair Value Disclosure	11,462,000		12,486,000
Loans, net of unearned discounts and deferred fees	40,978,079		41,501,555
Accrued interest receivable	291,306		309,971
Savings deposits	14,408,563		14,239,216
Accrued interest payable	31,541		30,500
Carrying Amount
Cash and cash equivalents at beginning of period	8,361,000	[1]	10,236,000	[1]
Available-for-sale, at fair value	889,000	[2]	1,027,000	[2]
Held-to-maturity, at amortized cost (fair value of $11,461,715 and $12,485,687 at March 31, 2013 and December 31, 2012, respectively)	10,931,000	[3]	11,895,000	[3]
Loans, net of unearned discounts and deferred fees	40,041,000	[4]	40,298,000	[4]
Accrued interest receivable	291,000	[3]	310,000	[3]
Demand Deposit Accounts	27,341,000	[3]	29,851,000	[3]
Savings deposits	14,409,000	[3]	14,239,000	[3]
Time Deposits	16,407,000	[3]	16,886,000	[3]
Accrued interest payable	32,000	[3]	31,000	[3]
Fair Value
Cash and Cash Equivalents, Fair Value Disclosure	8,361,000	[1]	10,236,000	[1]
Available-for-sale Securities, Fair Value Disclosure	889,000	[2]	1,027,000	[2]
Held-to-maturity Securities, Fair Value Disclosure	11,462,000	[3]	12,486,000	[3]
Loans Receivable, Fair Value Disclosure	40,256,000	[4]	40,325,000	[4]
Accrued interest receivable	291,000	[3]	310,000	[3]
Demand Deposit Accounts	27,341,000	[3]	29,851,000	[3]
Savings deposits	14,408,000	[3]	14,239,000	[3]
Time Deposits	16,419,000	[3]	16,902,000	[3]
Accrued Liabilities, Fair Value Disclosure	$ 32,000	[3]	$ 31,000	[3]

[1] Level in Value Hierarchy - Level 1.

[2] Level 1 for money market funds; Level 2 for all other securities.

[3] Level in Value Hierarchy - Level 2.

[4] Level 2 for non-impaired loans; Level 3 for impaired loans.

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest income:
Interest and fees on loans	$ 628,176	$ 659,691
Interest on investment securities	86,618	137,189
Interest on federal funds sold	4,394	5,592
Interest on time deposits with other banks	230	174
Total interest income	719,418	802,646
Interest expense:
Interest on time deposits	15,207	28,233
Interest on demand deposits	8,744	13,053
Interest on savings deposits	1,734	1,802
Total interest expense	25,685	43,088
Net interest income	693,733	759,558
Provision for loan losses	70,137	30,000
Net interest income after provision for loan losses	623,596	729,558
Noninterest income:
Customer service fees	100,608	97,146
ATM fee income	79,648	79,779
Loss on sale of other real estate	(396)
Other income	15,619	17,314
Total noninterest income	195,479	194,239
Noninterest expense:
Salaries, wages and employee benefits	377,464	413,537
Occupancy and equipment	243,899	274,777
Office operations and supplies	78,355	74,405
Marketing and public relations	15,980	4,649
Professional services	70,834	73,238
Data processing	120,865	126,806
Other real estate expense	43,505	(9,414)
Loan and collection costs	19,903	28,680
Deposit insurance assessments	36,999	1,215
Other operating	150,058	173,713
Total noninterest expense	1,157,862	1,161,606
Net loss before income taxes	(338,787)	(237,809)
Net loss	(338,787)	(237,809)
Net loss per common share-basic and diluted	$ (0.32)	$ (0.22)
Weighted average number of common shares	1,068,588	1,068,588
Comprehensive Loss
Net loss	(338,787)	(237,809)
Unrealized losses on available for sale securities	(6,141)	359
Total comprehensive loss	$ (344,928)	$ (237,450)

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5. Loans and Allowance For Loan Losses

3 Months Ended

Mar. 31, 2013

Notes

5. Loans and Allowance For Loan Losses

5. Loans and Allowance for Loan Losses

The composition of the Bank’s loan portfolio is as follows:

(Dollars in thousands)	March 31, 2013	December 31, 2012
Commercial and industrial	$3,762	$3,734
Commercial real estate	30,975	31,381
Consumer real estate	4,527	4,619
Consumer loans other	1,714	1,768
Total loans	$40,978	$41,502

The determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance is the accumulation of three components that are calculated based on various independent methodologies that are based on management’s estimates.  The three components are as follows:

·         Specific Loan Evaluation Component – Includes the specific evaluation of impaired loans.  

·         Historical Charge-Off Component – Applies an eight-quarter rolling historical charge-off rate to all pools of non-classified loans.

• Qualitative Factors Component – The loan portfolio is broken down into multiple homogenous sub classifications, upon which multiple factors (such as delinquency trends, economic conditions, concentrations, growth/volume trends, and management/staff ability) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Qualitative Factors Component.

All of these factors may be susceptible to significant change.   There was an increase in the qualitative factor for commercial real estate loans because of an escalation in delinquencies during the quarter.  There were no other changes in qualitative factors during period.  In addition, the average historical loss factor for commercial and industrial loans increased as a result of a $340,000 charge-off during the quarter. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.   

The following table presents an analysis of the allowance for loan losses.

(in 000's)		For the Three months ended March 31, 2013
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Beginning balance	$                    891		$                       308	$                    5	$                       -	$                 1,204
Provision for loan losses	62		(33)	41	-	70
Charge-offs	(340)		-	-	-	(340)
Recoveries	1		-	2	-	3
Net charge-offs	(339)		-	2	-	(337)
Ending balance	$                    614		$                       275	$                    48	$                   -	$                   937

(in 000’s)		For the three months ended March 31, 2012
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Beginning balance	$                       387		$                       412	$                  68	$                       -	$                       867
Provision for loan losses	30		-	-	-	30
Charge-offs	-		-	(38)	(3)	(41)
Recoveries	-		-	5	3	8
Net charge-offs	-		-	(33)	-	(33)
Ending balance	$                       417		$                      412	$                  35	$                       -	$                       864

(in 000's)		March 31, 2013
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$                    534		$                            -	$                 -	$                   -	$                   534
Loans collectively  evaluated for impairment	80		275	48	-	403
	$                    614		$                       275	$                48	$                   -	$                   937
Loans, ending balance:
Loans indivdually evaluated for impairment	$                    712		$                     1,310	$                 -	$                   -	$                 2,022
Loans collectively  evaluated for impairment	3,050		29,665	4,527	1,714	38,956
Total	$                 3,762		$                 30,975	$          4,527	$            1,714	$               40,978

(in 000's)		December 31, 2012
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$                       843		$                           -	$                    -	$                       -	$                       843
Loans collectively  evaluated for impairment	48		308	5	-	361
	$                       891		$                       308	$                         5	$                           -	$                       1,204
Loans, ending balance:
Loans indivdually evaluated for impairment	$                    1,021		$                    1,323	$                    -	$                       -	$                   2,344
Loans collectively  evaluated for impairment	2,713		30,058	4,619	1,768	39,158
Total	$                   3,734		$               31,381	$             4,619	$                1,768	$                  41,502

Nonperforming and Nonaccrual and Past Due Loans

An age analysis of past due loans, segregated by class of loans, as of March 31, 2013 is as follows:

		Accruing
	Loans	Loans 90 or
(In 000's)	30-89 Days	More Days		Total Past	Current
	Past Due	Past Due	Nonaccrual	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$                 -	$             -	$              531	531	$             664	$             1,195
SBA loans	48	-	-	48	76	124
Asset-based	179	-	132	311	2,132	2,443
Total Commercial and industrial	227	-	663	890	2,872	3,762
Commercial real estate:
Commercial mortgages	1,483	-	644	2,127	12,785	14,912
SBA loans	341	-	-	341	277	618
Construction	-	-	-	-	3,755	3,755
Religious organizations	-	-	666	666	11,024	11,690
Total Commercial real estate	1,824	-	1,310	3,134	27,841	30,975
Consumer real estate:
Home equity loans	169	44	81	294	1,114	1,408
Home equity lines of credit	-	-	-	-	25	25
1-4 family residential mortgages	55	-	242	297	2,797	3,094
Total consumer real estate	224	44	323	591	3,936	4,527
Total real estate	2,048	44	1,633	3,725	31,777	35,502
Consumer and other:
Consumer installment	-	-	-	-	26	26
Student loans	140	82	-	222	1,254	1,476
Other	1	-	-	1	211	212
Total consumer and other	141	82	-	223	1,491	1,714
Total loans	$           2,416	$          126	$           2,296	$         4,838	$        36,140	$           40,978

An age analysis of past due loans, segregated by class of loans, as of December 31, 2012 is as follows:

		Accruing
	Loans	Loans 90 or
	30-89 Days	More Days		Total Past	Current
(In 000's)	Past Due	Past Due	Nonaccrual	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$              15	$           -	$            873	888	$            574	$            1,462
SBA loans	-	-	-	-	125	125
Asset-based	83	-	99	182	1,965	2,147
Total Commercial and industrial	98	-	972	1,070	2,664	3,734
Commercial real estate:
Commercial mortgages	306	-	649	955	13,765	14,720
SBA loans	-	-	-	-	621	621
Construction	-	-	-	-	3,398	3,398
Religious organizations	-	-	674	674	11,968	12,642
Total Commercial real estate	306	-	1,323	1,629	29,752	31,381
Consumer real estate:
Home equity loans	274	44	63	381	1,072	1,453
Home equity lines of credit	-	26	-	26	-	26
1-4 family residential mortgages	69	-	226	295	2,845	3,140
Total consumer real estate	343	70	289	702	3,917	4,619
Total real estate	649	70	1,612	2,331	33,669	36,000
Consumer and other:
Consumer installment	-	-	-	-	30	30
Student loans	87	141	-	228	1,360	1,588
Other	5	-	-	5	145	150
Total consumer and other	92	141	-	233	1,535	1,768
Total loans	$          839	$         211	$          2,584	$        3,634	$       37,867	$          41,502

Loan Origination/Risk Management.  The Bank has lending policies and procedures in place to maximize loan income within an acceptable level of risk.  Management reviews and approves these policies and procedures on a regular basis.  A reporting system supplements the review process by providing management with periodic reports related to loan origination, asset quality, concentrations of credit, loan delinquencies and non-performing and emerging problem loans.  Diversification in the portfolio is a means of managing risk with fluctuations in economic conditions.

Credit Quality Indicators.  For commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality.  Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating.  The Bank uses a 1 through 8 loan grading system that follows regulatory accepted definitions as follows:

·         Risk ratings of “1” through “3” are used for loans that are performing and meet and are expected to continue to meet all of the terms and conditions set forth in the original loan documentation and are generally current on principal and interest payments.  Loans with these risk ratings are reflected as “Good/Excellent” and “Satisfactory” in the following table.

·         Risk ratings of “4” are assigned to “Pass/Watch” loans which may require a higher degree of regular, careful attention.  Borrowers may be exhibiting weaker balance sheets and positive but inconsistent cash flow coverage. Borrowers in this classification generally exhibit a higher level of credit risk and are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Loans with this rating would not normally be acceptable as new credits unless they are adequately secured and/or carry substantial guarantors. Loans with this rating are reflected as “Pass” in the following table. 

·         Risk ratings of “5” are assigned to “Special Mention” loans that do not presently expose the Bank to a significant degree of risks, but have potential weaknesses/deficiencies deserving Management’s closer attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. No loss of principal or interest is envisioned.  Borrower is experiencing adverse operating trends, which potentially could impair debt, services capacity and may necessitate restructuring of credit.  Secondary sources of repayment are accessible and considered adequate to cover the Bank's exposure. However, a restructuring of the debt should result in repayment.  The asset is currently protected, but is potentially weak.  This category may include credits with   inadequate loan agreements, control over the collateral or an unbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized but exceptions are considered material. These borrowers would have limited ability to obtain credit elsewhere.

·         Risk ratings of “6” are assigned to “Substandard” loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets must have a well-defined weakness. They are characterized by the distinct possibility that some loss is possible if the deficiencies are not corrected. The borrower’s recent performance indicated an inability to repay the debt, even if restructured. Primary source of repayment is gone or severely impaired and the Bank may have to rely upon the secondary source. Secondary sources of repayment (e.g., guarantors and collateral) should be adequate for a full recovery. Flaws in documentation may leave the bank in a subordinated or unsecured position when the collateral is needed for the repayment.

·         Risk ratings of “7” are assigned to “Doubtful” loans which have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weakness makes the collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.  The borrower's recent performance indicates an inability to repay the debt.  Recovery from secondary sources is uncertain.  The possibility of a loss is extremely high, but because of certain important and reasonably- specific pending factors, its classification as a loss is deferred.

·         Risk rating of “8” are assigned to “Loss” loans which are considered non-collectible and do not warrant classification as active assets.  They are recommended for charge-off if attempts to recover will be long term in nature.  This classification does not mean that an asset has no recovery or salvage value, but rather, that it is not practical or desirable to defer writing off the loss, although a future recovery may be possible.  Loss should always be taken in the period in which they surface and are identified as non-collectible as a result there is no tabular presentation.

For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality.  Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt.  These credit quality indicators are updated on an ongoing basis.  A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan, but no later than 90 days past due.

The tables below detail the Bank’s loans by class according to their credit quality indictors discussed above.

(In 000's)			Commercial Loans March 31, 2013
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$             250	$            182	$                    220	$            12	$         138	$      393	$       1,195
SBA loans	-	27	-	48	49	-	124
Asset-based	-	2,133	125	53	132	-	2,443
	250	2,342	345	113	319	393	3,762
Commercial real estate:
Commercial mortgages	-	12,893	1,305	-	624	90	14,912
SBA Loans	-	618	-	-	-	-	618
Construction	-	3,124	-	-	631	-	3,755
Religious organizations	-	8,426	2,439	159	666	-	11,690
	-	25,061	3,744	159	1,921	90	30,975
Total commercial loans	$             250	$       27,403	$                 4,089	$          272	$      2,240	$      483	$     34,737

			Residential Mortgage and Consumer Loans March 31, 2013
	Performing	Nonperforming		Total
Consumer Real Estate:
Home equity	$          1,327	$                     81		$      1,408
Home equity line of credit	25	-		25
1-4 family residential mortgages	2,852	242		3,094
	4,204	323		4,527
Consumer Other:
Consumer Installment	26	-		26
Student loans	1,476	-		1,476
Other	212	-		212
	1,714	-		1,714
Total  consumer loans	$          5,918	$                    323		$      6,241
Total loans					$     40,978

(In 000's)			Commercial Loans, December 31, 2012
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$    250	$         104	$           15	$        220	$          480	$      393	$   1,462
SBA loans	-	27	-	49	49	-	125
Asset-based	-	1,869	125	54	99	-	2,147
	250	2,000	140	323	628	393	3,734
Commercial real estate:
Commercial mortgages	-	12,678	1,322	-	403	317	14,721
SBA Loans	-	621	-	-	-	-	621
Construction	-	2,767	-	-	631	-	3,398
Religious organizations	-	8,183	3,623	162	674	-	12,642
	-	24,349	4,945	162	1,708	317	31,381
Total commercial loans	$    250	$    26,249	$    5,085	$        485	$        2,336	$      710	$ 33,115

		Residential Mortgage and Consumer Loans December 31, 2012
	Performing	Nonperforming	Total
Consumer Real Estate:
Home equity	$ 1,390	$       63	$        1,453
Home equity line of credit	26	-	26
1-4 family residential mortgages	2,914	226	3,140
	4,330	289	4,619
Consumer Other:
Consumer Installment	30	-	30
Student loans	1,588	-	1,588
Other	150	-	150
	1,768	-	1,768
Total  consumer loans	$ 6,098	$       289	$        6,387
Total loans				$ 41,502

Impaired Loans. The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank.   If these factors do not exist, the Bank will record interest payments on the cost recovery basis.

In accordance with guidance provided by ASC 310-10, Accounting by Creditors for Impairment of a Loan, management employs one of three methods to determine and measure impairment: the Present Value of Future Cash Flow Method; the Fair Value of Collateral Method; or the Observable Market Price of a Loan Method.  To perform an impairment analysis, the Company reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented. Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.  

The Company makes partial charge-offs of impaired loans when the impairment is deemed permanent and is considered a loss.  To date, these charge-offs have only included the unguaranteed portion of Small Business Administration (“SBA”) loans.  Specific reserves are allocated to cover “other-than-permanent” impairment for which the underlying collateral value may fluctuate with market conditions. During the three months ended March 31, 2013 and 2012, there were no partial charge-offs of impaired loans.   

Consumer real estate and other loans are not individually evaluated for impairment, but collectively evaluated, because they are pools of smaller balance homogeneous loans.  

Impaired loans as of March 31, 2013 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment	Recorded Investment	Total
	Principal		With No	With	Recorded	Related
	Balance		Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial		$      531	$       78	$    453	$     531	$     353
SBA loans		49	-	49	49	49
Asset-based		132	-	132	132	132
Total commercial and industrial		712	78	634	712	534
Commercial real estate:
Commercial mortgages		644	644	-	644	-
Religious organizations		666	666	-	666	-
Total commercial real estate		1,310	1,310	-	1,310	-
Total loans		$    2,022	$    1,388	$   634	$2,022	$     534

Impaired loans as of December 31, 2012 are set forth in the following table.

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial	$          873	$           78	$         795	$      873	$       695
SBA loans	49	-	49	49	49
Asset-based	99	-	99	99	99
Total commercial and industrial	1,021	78	943	1,021	843
Commercial real estate:
Commercial mortgages	649	649	-	649	-
Religious organizations	674	674	-	674	-
Total commercial real estate	1,323	1,323	-	1,323	-
Total loans	$        2,344	$       1,401	$        943	$     2,344	$       843

The Bank recognizes interest income on impaired loans under the cash basis when the collateral on the loan is sufficient to cover the outstanding obligation to the Bank.   If these factors do not exist, the Bank will record interest payments on the cost recovery basis. The following tables present additional information about impaired loans for the three months ended March 31, 2013 and 2012.

		Three Months Ended		Three Months Ended
(In 000's)		March 31, 2013		March 31, 2012
	Average	Interest recognized	Average	Interest recognized
	Recorded	on impaired	Recorded	on impaired
	Investment	loans	Investment	loans
Commercial and industrial:
Commercial	$   749	$     1	$    481	$      -
SBA  loans	49	1	-	-
Asset-based	110	-	101	-
Total commercial and industrial	908	2	582	-
Commercial real estate:
Commercial mortgages	642	4	675	-
SBA loans	-	-	-	-
Religious organizations	571	-	410	-
Total commercial real estate	1,213	4	1,085	-
Total loans	$  2,121	$     6	$1,667	$      -

Troubled debt restructurings (“TDRs”).  TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. The Company made modifications to certain loans in its commercial loan portfolio that included the term out of lines of credit to begin the amortization of principal.  The terms of these loans do not include any financial concessions and are consistent with the current market.  Management reviews all loan modifications to determine whether the modification qualifies as a troubled debt restructuring (i.e. whether the creditor has been granted a concession or is experiencing financial difficulties).  Based on this review and evaluation, none of the modified loans met the criteria of a troubled debt restructuring.  Therefore, the Company had no troubled debt restructurings at March 31, 2013 and December 31, 2012.

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5. Loans and Allowance For Loan Losses: Allowance for Credit Losses on Financing Receivables (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Allowance for Credit Losses on Financing Receivables

The following table presents an analysis of the allowance for loan losses.

(in 000's)		For the Three months ended March 31, 2013
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Beginning balance	$                    891		$                       308	$                    5	$                       -	$                 1,204
Provision for loan losses	62		(33)	41	-	70
Charge-offs	(340)		-	-	-	(340)
Recoveries	1		-	2	-	3
Net charge-offs	(339)		-	2	-	(337)
Ending balance	$                    614		$                       275	$                    48	$                   -	$                   937

(in 000’s)		For the three months ended March 31, 2012
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Beginning balance	$                       387		$                       412	$                  68	$                       -	$                       867
Provision for loan losses	30		-	-	-	30
Charge-offs	-		-	(38)	(3)	(41)
Recoveries	-		-	5	3	8
Net charge-offs	-		-	(33)	-	(33)
Ending balance	$                       417		$                      412	$                  35	$                       -	$                       864

(in 000's)		March 31, 2013
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$                    534		$                            -	$                 -	$                   -	$                   534
Loans collectively  evaluated for impairment	80		275	48	-	403
	$                    614		$                       275	$                48	$                   -	$                   937
Loans, ending balance:
Loans indivdually evaluated for impairment	$                    712		$                     1,310	$                 -	$                   -	$                 2,022
Loans collectively  evaluated for impairment	3,050		29,665	4,527	1,714	38,956
Total	$                 3,762		$                 30,975	$          4,527	$            1,714	$               40,978

(in 000's)		December 31, 2012
	Commercial and industrial		Commercial real estate	Consumer real estate	Consumer and other loans	Total
Period-end amount allocated to:
Loans indivdually evaluated for impairment	$                       843		$                           -	$                    -	$                       -	$                       843
Loans collectively  evaluated for impairment	48		308	5	-	361
	$                       891		$                       308	$                         5	$                           -	$                       1,204
Loans, ending balance:
Loans indivdually evaluated for impairment	$                    1,021		$                    1,323	$                    -	$                       -	$                   2,344
Loans collectively  evaluated for impairment	2,713		30,058	4,619	1,768	39,158
Total	$                   3,734		$               31,381	$             4,619	$                1,768	$                  41,502

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1. Significant Accounting Policies: Income Taxes (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Income Taxes

Income Taxes

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

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

Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

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6. Other Real Estate Owned: Schedule of Components of Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Commercial Real Estate
Other Real Estate, Foreclosed Assets, and Repossessed Assets	$ 206	$ 206
Residential Real Estate
Other Real Estate, Foreclosed Assets, and Repossessed Assets	512	569
Real Estate
Other Real Estate, Foreclosed Assets, and Repossessed Assets	$ 718	$ 775

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4. Investment Securities (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	May 01, 2013 Subsequent Event
Book value of securities to be sold	$ 11,461,715	$ 12,485,687	$ 7,400,000
Gain that will be recognized upon sale			$ 381,000

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5. Loans and Allowance For Loan Losses: Impaired Financing Receivables (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Impaired Financing Receivables

Impaired loans as of March 31, 2013 are set forth in the following table.

(In 000's)	Unpaid Contractual		Recorded Investment	Recorded Investment	Total
	Principal		With No	With	Recorded	Related
	Balance		Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial		$      531	$       78	$    453	$     531	$     353
SBA loans		49	-	49	49	49
Asset-based		132	-	132	132	132
Total commercial and industrial		712	78	634	712	534
Commercial real estate:
Commercial mortgages		644	644	-	644	-
Religious organizations		666	666	-	666	-
Total commercial real estate		1,310	1,310	-	1,310	-
Total loans		$    2,022	$    1,388	$   634	$2,022	$     534

Impaired loans as of December 31, 2012 are set forth in the following table.

(In 000's)	Unpaid Contractual	Recorded Investment	Recorded Investment	Total
	Principal	With No	With	Recorded	Related
	Balance	Allowance	Allowance	Investment	Allowance
Commercial and industrial:
Commercial	$          873	$           78	$         795	$      873	$       695
SBA loans	49	-	49	49	49
Asset-based	99	-	99	99	99
Total commercial and industrial	1,021	78	943	1,021	843
Commercial real estate:
Commercial mortgages	649	649	-	649	-
Religious organizations	674	674	-	674	-
Total commercial real estate	1,323	1,323	-	1,323	-
Total loans	$        2,344	$       1,401	$        943	$     2,344	$       843

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5. Loans and Allowance For Loan Losses: Schedule of Bank's Loans by Class To Their Credit Quality Indictors (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Bank's Loans by Class To Their Credit Quality Indictors

The tables below detail the Bank’s loans by class according to their credit quality indictors discussed above.

(In 000's)			Commercial Loans March 31, 2013
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$             250	$            182	$                    220	$            12	$         138	$      393	$       1,195
SBA loans	-	27	-	48	49	-	124
Asset-based	-	2,133	125	53	132	-	2,443
	250	2,342	345	113	319	393	3,762
Commercial real estate:
Commercial mortgages	-	12,893	1,305	-	624	90	14,912
SBA Loans	-	618	-	-	-	-	618
Construction	-	3,124	-	-	631	-	3,755
Religious organizations	-	8,426	2,439	159	666	-	11,690
	-	25,061	3,744	159	1,921	90	30,975
Total commercial loans	$             250	$       27,403	$                 4,089	$          272	$      2,240	$      483	$     34,737

			Residential Mortgage and Consumer Loans March 31, 2013
	Performing	Nonperforming		Total
Consumer Real Estate:
Home equity	$          1,327	$                     81		$      1,408
Home equity line of credit	25	-		25
1-4 family residential mortgages	2,852	242		3,094
	4,204	323		4,527
Consumer Other:
Consumer Installment	26	-		26
Student loans	1,476	-		1,476
Other	212	-		212
	1,714	-		1,714
Total  consumer loans	$          5,918	$                    323		$      6,241
Total loans					$     40,978

(In 000's)			Commercial Loans, December 31, 2012
	Good/ Excellent	Satisfactory	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial:
Commercial	$    250	$         104	$           15	$        220	$          480	$      393	$   1,462
SBA loans	-	27	-	49	49	-	125
Asset-based	-	1,869	125	54	99	-	2,147
	250	2,000	140	323	628	393	3,734
Commercial real estate:
Commercial mortgages	-	12,678	1,322	-	403	317	14,721
SBA Loans	-	621	-	-	-	-	621
Construction	-	2,767	-	-	631	-	3,398
Religious organizations	-	8,183	3,623	162	674	-	12,642
	-	24,349	4,945	162	1,708	317	31,381
Total commercial loans	$    250	$    26,249	$    5,085	$        485	$        2,336	$      710	$ 33,115

		Residential Mortgage and Consumer Loans December 31, 2012
	Performing	Nonperforming	Total
Consumer Real Estate:
Home equity	$ 1,390	$       63	$        1,453
Home equity line of credit	26	-	26
1-4 family residential mortgages	2,914	226	3,140
	4,330	289	4,619
Consumer Other:
Consumer Installment	30	-	30
Student loans	1,588	-	1,588
Other	150	-	150
	1,768	-	1,768
Total  consumer loans	$ 6,098	$       289	$        6,387
Total loans				$ 41,502

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5. Loans and Allowance For Loan Losses: Impaired Loans, additional information (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Impaired Financing Receivable, Average Recorded Investment	$ 2,121	$ 1,667
Impaired Financing Receivable, Interest Income, Accrual Method	6
Commercial And Industrial
Impaired Financing Receivable, Average Recorded Investment	908	582
Impaired Financing Receivable, Interest Income, Accrual Method	2
Commercial And Industrial | Commercial
Impaired Financing Receivable, Average Recorded Investment	749	481
Impaired Financing Receivable, Interest Income, Accrual Method	1
Commercial And Industrial | SBA Loans
Impaired Financing Receivable, Average Recorded Investment	49
Impaired Financing Receivable, Interest Income, Accrual Method	1
Commercial And Industrial | Asset Based Loans
Impaired Financing Receivable, Average Recorded Investment	110	101
Commercial Real Estate
Impaired Financing Receivable, Average Recorded Investment	1,213	1,085
Impaired Financing Receivable, Interest Income, Accrual Method	4
Commercial Real Estate | Commercial Mortgages
Impaired Financing Receivable, Average Recorded Investment	642	675
Impaired Financing Receivable, Interest Income, Accrual Method	4
Commercial Real Estate | Religious Organizations
Impaired Financing Receivable, Average Recorded Investment	$ 571	$ 410

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7. Fair Value: Schedule of Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Fair Value of Assets and Liabilities

	Level in	March 31, 2013		December 31, 2012
	Value	Carrying	Fair	Carrying	Fair
Assets:	Hierarchy	Amount	Value	Amount	Value
Cash and cash equivalents	Level 1	$8,361	$8,361	$10,236	$10,236
Available for sale securities	(1)	889	889	1,027	1,027
Held to maturity securities	Level 2	10,931	11,462	11,895	12,486
Loans, net of allowance for loan losses	(2)	40,041	40,256	40,298	40,325
Accrued Interest receivable	Level 2	291	291	310	310
Liabilities:
Demand deposits	Level 2	27,341	27,341	29,851	29,851
Savings deposits	Level 2	14,409	14,408	14,239	14,239
Time deposits	Level 2	16,407	16,419	16,886	16,902
Accrued Interest Payable	Level 2	32	32	31	31

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5. Loans and Allowance For Loan Losses: Schedule of Bank's Loan portfolio (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Details
Loans Receivable, Gross, Commercial and Industrial	$ 3,762	$ 3,734
Loans Receivable, Gross, Commercial, Real Estate	30,975	31,381
Loans and Leases Receivable, Gross, Consumer, Real Estate	4,527	4,619
Loans and Leases Receivable, Gross, Consumer	1,714	1,768
Loans Receivable, Net	$ 40,978	$ 41,502

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6. Other Real Estate Owned: Schedule of Components of Net Expense of Other Real Estate (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Professional services	$ 70,834	$ 73,238
Other Real Estate, Valuation Adjustments	(30,000)	(15,000)
Other Real Estate, Disposals	(27,000)
Other Real Estate
Real Estate Insurance	6,000	7,000
Professional services		3,000
Real Estate Tax Expense	6,000	3,000
Utilities Costs	2,000	6,000
Other Real Estate, Valuation Adjustments		(43,000)
Other Real Estate, Disposals	30,000	15,000
Other Real Estate Revenue	$ 44,000	$ (9,000)

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6. Other Real Estate Owned: Schedule of Components of Net Expense of Other Real Estate (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Components of Net Expense of Other Real Estate

The following table details the components of net expense of other real estate owned:

	Three  Months Ended	Three  Months Ended
(in 000's)	March 31, 2013	March 31, 2012
Insurance	$6	$7
Professional fees	-	3
Real estate taxes	6	3
Utilities	2	6
Transfer-in write-up	-	(43)
Impairment charges (net)	30	15
Total	$44	$(9)

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5. Loans and Allowance For Loan Losses: Past Due Financing Receivables (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, 30-89 Days Past Due	$ 2,416	$ 839
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	126	211
Financing Receivable, Recorded Investment, Nonaccrual Status	2,296	2,584
Financing Receivable, Recorded Investment, Past Due	4,838	3,634
Financing Receivable, Recorded Investment, Current	36,140	37,867
Total Loans	40,978	41,502
Commercial And Industrial
Financing Receivable, Recorded Investment, 30-89 Days Past Due	227	98
Financing Receivable, Recorded Investment, Nonaccrual Status	663	972
Financing Receivable, Recorded Investment, Past Due	890	1,070
Financing Receivable, Recorded Investment, Current	2,872	2,664
Total Loans	3,762	3,734
Commercial And Industrial | Commercial
Financing Receivable, Recorded Investment, 30-89 Days Past Due		15
Financing Receivable, Recorded Investment, Nonaccrual Status	531	873
Financing Receivable, Recorded Investment, Past Due	531	888
Financing Receivable, Recorded Investment, Current	664	574
Total Loans	1,195	1,462
Commercial And Industrial | SBA Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	48
Financing Receivable, Recorded Investment, Past Due	48
Financing Receivable, Recorded Investment, Current	76	125
Total Loans	124	125
Commercial And Industrial | Asset Based Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	179	83
Financing Receivable, Recorded Investment, Nonaccrual Status	132	99
Financing Receivable, Recorded Investment, Past Due	311	182
Financing Receivable, Recorded Investment, Current	2,132	1,965
Total Loans	2,443	2,147
Commercial Real Estate Portfolio Segment
Financing Receivable, Recorded Investment, 30-89 Days Past Due	1,824	306
Financing Receivable, Recorded Investment, Nonaccrual Status	1,310	1,323
Financing Receivable, Recorded Investment, Past Due	3,134	1,629
Financing Receivable, Recorded Investment, Current	27,841	29,752
Total Loans	30,975	31,381
Commercial Real Estate Portfolio Segment | SBA Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	341
Financing Receivable, Recorded Investment, Past Due	341
Financing Receivable, Recorded Investment, Current	277	621
Total Loans	618	621
Commercial Real Estate Portfolio Segment | Commercial Mortgages
Financing Receivable, Recorded Investment, 30-89 Days Past Due	1,483	306
Financing Receivable, Recorded Investment, Nonaccrual Status	644	649
Financing Receivable, Recorded Investment, Past Due	2,127	955
Financing Receivable, Recorded Investment, Current	12,785	13,765
Total Loans	14,912	14,720
Commercial Real Estate Portfolio Segment | Construction
Financing Receivable, Recorded Investment, Current	3,755	3,398
Total Loans	3,755	3,398
Commercial Real Estate Portfolio Segment | Religious Organizations
Financing Receivable, Recorded Investment, Nonaccrual Status	666	674
Financing Receivable, Recorded Investment, Past Due	666	674
Financing Receivable, Recorded Investment, Current	11,024	11,968
Total Loans	11,690	12,642
Consumer Real Estate
Financing Receivable, Recorded Investment, 30-89 Days Past Due	224	343
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	44	70
Financing Receivable, Recorded Investment, Nonaccrual Status	323	289
Financing Receivable, Recorded Investment, Past Due	591	702
Financing Receivable, Recorded Investment, Current	3,936	3,917
Total Loans	4,527	4,619
Consumer Real Estate | Home Equity Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	169	274
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	44	44
Financing Receivable, Recorded Investment, Nonaccrual Status	81	63
Financing Receivable, Recorded Investment, Past Due	294	381
Financing Receivable, Recorded Investment, Current	1,114	1,072
Total Loans	1,408	1,453
Consumer Real Estate | Home Equity Line of Credit
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due		26
Financing Receivable, Recorded Investment, Past Due		26
Financing Receivable, Recorded Investment, Current	25
Total Loans	25	26
Consumer Real Estate | Family Residential Mortgage
Financing Receivable, Recorded Investment, 30-89 Days Past Due	55	69
Financing Receivable, Recorded Investment, Nonaccrual Status	242	226
Financing Receivable, Recorded Investment, Past Due	297	295
Financing Receivable, Recorded Investment, Current	2,797	2,845
Total Loans	3,094	3,140
Total Real Estate
Financing Receivable, Recorded Investment, 30-89 Days Past Due	2,048	649
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	44	70
Financing Receivable, Recorded Investment, Nonaccrual Status	1,633	1,612
Financing Receivable, Recorded Investment, Past Due	3,725	2,331
Financing Receivable, Recorded Investment, Current	31,777	33,669
Total Loans	35,502	36,000
Consumer And Other Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	141	92
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	82	141
Financing Receivable, Recorded Investment, Past Due	223	233
Financing Receivable, Recorded Investment, Current	1,491	1,535
Total Loans	1,714	1,768
Consumer And Other Loans | Consumer Installment
Financing Receivable, Recorded Investment, Current	26	30
Total Loans	26	30
Consumer And Other Loans | Student Loans
Financing Receivable, Recorded Investment, 30-89 Days Past Due	140	87
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	82	141
Financing Receivable, Recorded Investment, Past Due	222	228
Financing Receivable, Recorded Investment, Current	1,254	1,360
Total Loans	1,476	1,588
Consumer And Other Loans | Other
Financing Receivable, Recorded Investment, 30-89 Days Past Due	1	5
Financing Receivable, Recorded Investment, Past Due	1	5
Financing Receivable, Recorded Investment, Current	211	145
Total Loans	$ 212	$ 150

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5. Loans and Allowance For Loan Losses: Past Due Financing Receivables (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Past Due Financing Receivables

An age analysis of past due loans, segregated by class of loans, as of March 31, 2013 is as follows:

		Accruing
	Loans	Loans 90 or
(In 000's)	30-89 Days	More Days		Total Past	Current
	Past Due	Past Due	Nonaccrual	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$                 -	$             -	$              531	531	$             664	$             1,195
SBA loans	48	-	-	48	76	124
Asset-based	179	-	132	311	2,132	2,443
Total Commercial and industrial	227	-	663	890	2,872	3,762
Commercial real estate:
Commercial mortgages	1,483	-	644	2,127	12,785	14,912
SBA loans	341	-	-	341	277	618
Construction	-	-	-	-	3,755	3,755
Religious organizations	-	-	666	666	11,024	11,690
Total Commercial real estate	1,824	-	1,310	3,134	27,841	30,975
Consumer real estate:
Home equity loans	169	44	81	294	1,114	1,408
Home equity lines of credit	-	-	-	-	25	25
1-4 family residential mortgages	55	-	242	297	2,797	3,094
Total consumer real estate	224	44	323	591	3,936	4,527
Total real estate	2,048	44	1,633	3,725	31,777	35,502
Consumer and other:
Consumer installment	-	-	-	-	26	26
Student loans	140	82	-	222	1,254	1,476
Other	1	-	-	1	211	212
Total consumer and other	141	82	-	223	1,491	1,714
Total loans	$           2,416	$          126	$           2,296	$         4,838	$        36,140	$           40,978

An age analysis of past due loans, segregated by class of loans, as of December 31, 2012 is as follows:

		Accruing
	Loans	Loans 90 or
	30-89 Days	More Days		Total Past	Current
(In 000's)	Past Due	Past Due	Nonaccrual	Due Loans	Loans	Total Loans
Commercial and industrial:
Commercial	$              15	$           -	$            873	888	$            574	$            1,462
SBA loans	-	-	-	-	125	125
Asset-based	83	-	99	182	1,965	2,147
Total Commercial and industrial	98	-	972	1,070	2,664	3,734
Commercial real estate:
Commercial mortgages	306	-	649	955	13,765	14,720
SBA loans	-	-	-	-	621	621
Construction	-	-	-	-	3,398	3,398
Religious organizations	-	-	674	674	11,968	12,642
Total Commercial real estate	306	-	1,323	1,629	29,752	31,381
Consumer real estate:
Home equity loans	274	44	63	381	1,072	1,453
Home equity lines of credit	-	26	-	26	-	26
1-4 family residential mortgages	69	-	226	295	2,845	3,140
Total consumer real estate	343	70	289	702	3,917	4,619
Total real estate	649	70	1,612	2,331	33,669	36,000
Consumer and other:
Consumer installment	-	-	-	-	30	30
Student loans	87	141	-	228	1,360	1,588
Other	5	-	-	5	145	150
Total consumer and other	92	141	-	233	1,535	1,768
Total loans	$          839	$         211	$          2,584	$        3,634	$       37,867	$          41,502

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1. Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Notes

1. Significant Accounting Policies

1. Significant Accounting Policies

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

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission.  Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2012 when reviewing this Form 10-Q.  Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of March 31, 2013 and December 31, 2012 and the consolidated results of its operations and its cash flows for the three months ended March 31, 2013 and 2012.

Management’s Use of Estimates

The preparation of the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities, the determination of the allowance for loan losses, valuation allowance for deferred tax assets, the carrying value of other real estate owned, the determination of other than temporary impairment for securities and consideration of impairment of other intangible assets.

Commitments

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

Contingencies

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

 Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses.  Loans that are determined to be uncollectible are charged against the allowance account, and subsequent recoveries, if any, are credited to the allowance.  When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically include changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans, current economic conditions which may affect borrowers’ ability to repay, and other factors which may warrant current recognition.  Such periodic assessments may, in management’s judgment, require the Bank to recognize additions or reductions to the allowance. 

Various regulatory agencies periodically review the adequacy of the Bank’s allowance for loan losses as an integral part of their examination process.  Such agencies may require the Bank to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination.  It is reasonably possible that the above factors may change significantly and, therefore, affects management’s determination of the allowance for loan losses in the near term.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical charge-off experience, other qualitative factors, and adjustments made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.  The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Bank will identify and assess loans that may be impaired through any of the following processes:

• During regularly scheduled meetings of the Asset Quality Committee
• During regular reviews of the delinquency report
• During the course of routine account servicing, annual review, or credit file update
• Upon receipt of verifiable evidence of a material reduction in the value of collateral to a level that creates a less than desirable LTV ratio

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller, homogeneous loans, including consumer installment and home equity loans, 1-4 family residential mortgages, and student loans are evaluated collectively for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Non-accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have not been received 30 days as of the date such payments were due.  The Bank generally places a loan on non-accrual status when interest or principal is past due 90 days or more.  If it otherwise appears doubtful that the loan will be repaid, management may place the loan on nonaccrual status before the lapse of 90 days. Interest on loans past due 90 days or more ceases to accrue except for loans that are well collateralized and in the process of collection.  When a loan is placed on nonaccrual status, previously accrued and unpaid interest is reversed out of income.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Income Taxes

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

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

Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

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3. New Authoritative Accounting Guidance

3 Months Ended

Mar. 31, 2013

Notes

3. New Authoritative Accounting Guidance

3. New Authoritative Accounting Guidance

In December 2011, the FASB issued Accounting Standards Update ASU 2011-11: Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This Update affects all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information is intended to enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company’s adoption of this guidance for the quarter ended March 31, 2013 did not have an impact on its financial statements.

In February 2013, the FASB issued an update (ASU 2013-02 – Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income) which requires entities to disclose, for items reclassified out of accumulated other comprehensive income (“AOCI”) and into net income in their entirety, the effect of the reclassification on each affected net income line item and, for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012; early adoption is allowed. The Company’s adoption of this guidance for the quarter ended March 31, 2013 did not have an impact on its financial statements.

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6. Other Real Estate Owned

3 Months Ended

Mar. 31, 2013

Notes

6. Other Real Estate Owned

6. Other Real Estate Owned

Other real estate owned (“OREO”) consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense.

Activity in other real estate owned for the periods was as follows: 

(in 000's)	Three  Months Ended	Three Months Ended
	March 31, 2013	March 31, 2012
Beginning balance	$775	$1,284
Additions, transfers from loans	-	75
Proceeds from sales	(27)	-
	748	1,359
Less: write-downs	(30)	(15)
Ending Balance	$718	$1,344

The following schedule reflects the components of other real estate owned:

(in 000's)	March 31, 2013	December 31, 2012
Commercial real estate	206	206
Residential real estate	512	569
Total	$718	$775

The following table details the components of net expense of other real estate owned:

	Three  Months Ended	Three  Months Ended
(in 000's)	March 31, 2013	March 31, 2012
Insurance	$6	$7
Professional fees	-	3
Real estate taxes	6	3
Utilities	2	6
Transfer-in write-up	-	(43)
Impairment charges (net)	30	15
Total	$44	$(9)

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4. Investment Securities

3 Months Ended

Mar. 31, 2013

Notes

4. Investment Securities

4.  Investment Securities

The following is a summary of the Company's investment portfolio as of March 31, 2013: 

(In 000’s)	March 31, 2013
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	Cost	gains	losses	value
Available-for-sale:
Government Sponsored Enterprises  residential mortgage-backed securities	$   718	$  42	$  -	$  760
Investments in money market funds	129	-	-	129
	$   847	$  42	$  -	$  889

Held-to-maturity:
U.S. Government agency securities	$ 3,105	$ 149	$ (5)	$ 3,249
Government Sponsored Enterprises residential mortgage-backed securities	7,826	394	(7)	8,213
	$ 10,931	$ 543	$  (12)	$ 11,462

	December 31, 2012
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	Cost	gains	losses	Value
Available-for-sale:
Government Sponsored Enterprises         residential mortgage-backed securities	$   847	$ 51	$      -	$   898
Investments in money market funds	129	-	-	129
	$   976	$ 51	$      -	$1,027

Held-to-maturity:
U.S. Government agency securities	$ 3,605	$159	$   (4)	$  3,760
Government Sponsored Enterprises residential mortgage-backed securities	8,290	437	(1)	8,726
	$11,895	$596	$    (5)	$12,486

The amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity, by contractual maturity, as of March 31, 2013, are as follows:

(In 000’s)	Amortized Cost				Fair Value
Available-for-Sale
Due in one year	$	-	$	-
Due after one year through five years		-		-
Due after five years through ten years		-		-
Government Sponsored Enterprises residential mortgage-backed securities		718		760
Total debt securities		718		760
Investments in money market funds		129		129
	$	847	$	889
Held-to-maturity
Due in one year	$	-		-
Due after one year through five years		250		268
Due after five years through ten years		2,855		2,981
Government Sponsored Enterprises residential mortgage-backed securities		7,826		8,213
	$	10,931	$	11,462

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

In May 2013, The Bank transferred its entire held to maturity portfolio to available for sale. This transfer was made to improve capital ratios and liquidity by allowing for the disposition of securities, if necessary. In May 2013, the Bank committed to sell securities with a book value totaling approximately $7.4 million, for which a gain of approximately $381,000 will be recognized.    Proceeds from the sale will be reinvested in new securities.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2013:

	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	securities	Value	Losses	value	losses	value	losses
U.S. Government
agency securities	3	$ 745	$   (5)	$    -	$  -	$ 745	$   (5)
Government Sponsored Enterprises
residential mortgage-backed securities	3	$ 491	$   (7)	$   -	$  -	$ 491	$   (7)
Total temporarily
Impaired investment
securities	6	$ 1,236	$ (12)	$ -	$ -	$ 1,236	$ (12)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2012:

	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	securities	Value	Losses	value	losses	value	losses
U.S. Government
agency securities	3	$ 746	$   (4)	$    -	$  -	$ 746	$   (4)
Government Sponsored Enterprises
residential mortgage-backed securities	2	$ 253	$   (1)	$   -	$  -	$ 253	$   (1)
Total temporarily
Impaired investment
securities	5	$ 999	$ (5)	$ -	$ -	$ 999	$ (5)

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

U.S. Government and Agency Securities. Unrealized losses on the Company's investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2013 and December 31, 2012.

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

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5. Loans and Allowance For Loan Losses (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Provision for loan losses	$ 70,137	$ 30,000
Commercial And Industrial
Provision for loan losses	$ 340,000

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5. Loans and Allowance For Loan Losses: Impaired Loans, additional information (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Impaired Loans, additional information

		Three Months Ended		Three Months Ended
(In 000's)		March 31, 2013		March 31, 2012
	Average	Interest recognized	Average	Interest recognized
	Recorded	on impaired	Recorded	on impaired
	Investment	loans	Investment	loans
Commercial and industrial:
Commercial	$   749	$     1	$    481	$      -
SBA  loans	49	1	-	-
Asset-based	110	-	101	-
Total commercial and industrial	908	2	582	-
Commercial real estate:
Commercial mortgages	642	4	675	-
SBA loans	-	-	-	-
Religious organizations	571	-	410	-
Total commercial real estate	1,213	4	1,085	-
Total loans	$  2,121	$     6	$1,667	$      -

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7. Fair Value: Schedule of Fair Value of Assets on a Recurring Basis (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Fair Value of Assets on a Recurring Basis

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

(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2013	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$760	-	$760	-
Money Market Funds	129	129	-	-
Total	$889	129	$760	-

(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2012	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$898	-	$898	-
Money Market Funds	129	129	-	-
Total	$1,027	129	$898	-

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4. Investment Securities: Contractual Maturities of Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Available-for-sale Securities, Amortized Cost Basis	$ 847	$ 976
Available-for-sale Securities, Fair Value Disclosure	889	1,027	1,027
Available-for-sale Debt Securities, Amortized Cost Basis	718
Available-for-sale Securities, Debt Securities	760
Held-to-maturity Securities, Debt Maturities, within One Year, Net Carrying Amount	250
Held-to-maturity Securities, Debt Maturities, Rolling Year Two Through Five, Fair Value	268
Held-to-maturity Securities, Debt Maturities, after Five Through Ten Years, Net Carrying Amount	2,855
Held-to-maturity Securities, Debt Maturities, Rolling Year Six Through Ten, Fair Value	2,981
Held-to-maturity Securities, Amortized Cost before Other than Temporary Impairment	10,931	11,895
Held-to-maturity Securities, Fair Value Disclosure	11,462	12,486
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
Available-for-sale Securities, Amortized Cost Basis	718	847
Available-for-sale Securities, Fair Value Disclosure	760	898	898
Held-to-maturity Securities, Amortized Cost before Other than Temporary Impairment	7,826	8,290
Held-to-maturity Securities, Fair Value Disclosure	8,213	8,726
Money Market Funds
Available-for-sale Securities, Amortized Cost Basis	129	129
Available-for-sale Securities, Fair Value Disclosure	$ 129	$ 129	$ 129

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7. Fair Value: Schedule of Fair Value of Assets on a Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Available-for-sale Securities, Fair Value Disclosure	$ 889	$ 1,027	$ 1,027
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
Available-for-sale Securities, Fair Value Disclosure	760	898	898
Money Market Funds
Available-for-sale Securities, Fair Value Disclosure	129	129	129
Fair Value, Inputs, Level 1
Available-for-sale Securities, Fair Value Disclosure	129		129
Fair Value, Inputs, Level 1 | Money Market Funds
Available-for-sale Securities, Fair Value Disclosure	129		129
Fair Value, Inputs, Level 2
Available-for-sale Securities, Fair Value Disclosure	760		898
Fair Value, Inputs, Level 2 | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
Available-for-sale Securities, Fair Value Disclosure	$ 760		$ 898

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5. Loans and Allowance For Loan Losses: Impaired Financing Receivables (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Impaired Financing Receivable, Unpaid Principal Balance	$ 2,022,000	$ 2,344,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,388,000	1,401,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment	634,000	943,000
Impaired Financing Receivable, Recorded Investment	2,022,000	2,344,000
Impaired Financing Receivable, Related Allowance	534,000	843,000
Commercial And Industrial
Impaired Financing Receivable, Unpaid Principal Balance	712,000	1,021,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	78,000	78,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment	634,000	943,000
Impaired Financing Receivable, Recorded Investment	712,000	1,021,000
Impaired Financing Receivable, Related Allowance	534,000	843,000
Commercial And Industrial | Commercial
Impaired Financing Receivable, Unpaid Principal Balance	531,000	873,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	78,000	78,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment	453,000	795,000
Impaired Financing Receivable, Recorded Investment	531,000	873,000
Impaired Financing Receivable, Related Allowance	353,000	695,000
Commercial And Industrial | SBA Loans
Impaired Financing Receivable, Unpaid Principal Balance	49,000	49,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment	49,000	49,000
Impaired Financing Receivable, Recorded Investment	49,000	49,000
Impaired Financing Receivable, Related Allowance	49,000	49,000
Commercial And Industrial | Asset Based Loans
Impaired Financing Receivable, Unpaid Principal Balance	132,000	99,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment	132,000	99,000
Impaired Financing Receivable, Recorded Investment	132,000	99,000
Impaired Financing Receivable, Related Allowance	132,000	99,000
Commercial Real Estate
Impaired Financing Receivable, Unpaid Principal Balance	1,310,000	1,323,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,310,000	1,323,000
Impaired Financing Receivable, Recorded Investment	1,310,000	1,323,000
Commercial Real Estate | Commercial Mortgages
Impaired Financing Receivable, Unpaid Principal Balance	644,000	649,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	644,000	649,000
Impaired Financing Receivable, Recorded Investment	644,000	649,000
Commercial Real Estate | Religious Organizations
Impaired Financing Receivable, Unpaid Principal Balance	666,000	674,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	666,000	674,000
Impaired Financing Receivable, Recorded Investment	$ 666,000	$ 674,000

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Held-to-maturity, fair value	$ 11,461,715	$ 12,485,687
Preferred stock, dividend rate	6.00%	6.00%
Preferred stock, par value per share	$ 0.01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	136,842	136,842
Preferred stock, shares outstanding	136,842	136,842
Common stock, par value per share	$ 0.01	$ 0.01
Common stock, shares authorized	2,000,000	2,000,000
Common stock, shares issued	876,921	876,921
Common stock, shares outstanding	876,921	876,921
Class B Non-voting common stock
Common stock, par value per share	$ 0.01	$ 0.01
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	191,667	191,667
Common stock, shares outstanding	191,667	191,667

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1. Significant Accounting Policies: Management's Use of Estimates (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Management's Use of Estimates

Management’s Use of Estimates

The preparation of the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of investment securities, the determination of the allowance for loan losses, valuation allowance for deferred tax assets, the carrying value of other real estate owned, the determination of other than temporary impairment for securities and consideration of impairment of other intangible assets.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net loss	$ (338,787)	$ (237,809)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for loan losses	70,137	30,000
Loss on sale of other real estate	396
Amortization of premiums on investments	23,043	32,666
Amortization of core deposit intangible	44,519	44,520
Depreciation on fixed assets	38,526	58,606
Write-down of other real estate owned	30,538	15,148
Increase in accrued interest receivable and other assets	(31,591)	(54,298)
Decrease in accrued interest payable and other liabilities	(137,857)	(126,948)
Net cash used in operating activities	(301,076)	(238,115)
Cash flows from investing activities:
Purchase of held-to-maturity investment securities	(754,054)	(3,249,311)
Proceeds from maturity and principal reductions of available-for-sale investment securities	131,161	56,275
Proceeds from maturity and principal reductions of held-to-maturity investment securities	1,695,657	3,811,848
Proceeds from the sale of other real estate owned	26,606
Net decrease (increase) in loans	186,522	(74,579)
Purchase of bank premises and equipment	(40,114)	(11,469)
Net cash provided by investing activities	1,245,778	532,764
Cash flows from financing activities:
Net decrease in deposits	(2,820,104)	(7,372,605)
Net cash used in financing activities	(2,820,104)	(7,373,605)
Net decrease in cash and cash equivalents	(1,875,402)	(7,077,956)
Cash and cash equivalents at beginning of period	10,236,199	14,497,329
Cash and cash equivalents at end of period	8,360,797	7,419,373
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	24,644	53,348
Noncash transfer of loans to other real estate owned		$ 74,800

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)	Mar. 31, 2013		Dec. 31, 2012
Assets:
Cash and due from banks	$ 2,168,537		$ 2,363,166
Interest-bearing deposits with banks	306,260		306,033
Federal funds sold	5,886,000		7,567,000
Cash and cash equivalents	8,360,797		10,236,199
Investment securities:
Available-for-sale, at fair value	889,044		1,027,293
Held-to-maturity, at amortized cost (fair value of $11,461,715 and $12,485,687 at March 31, 2013 and December 31, 2012, respectively)	10,931,336		11,895,037
Loans, net of unearned discounts and deferred fees	40,978,079		41,501,555
Less allowance for loan losses	(937,125)		(1,203,942)
Net loans	40,040,954		40,297,613
Bank premises and equipment, net	564,317		562,729
Accrued interest receivable	291,306		309,971
Other real estate owned	717,869		775,407
Intangible assets	91,214		135,733
Prepaid expenses and other assets	425,780		375,524
Total assets	62,312,617		65,615,506
Liabilities:
Demand deposits, noninterest-bearing	14,661,300		14,324,970
Demand deposits, interest-bearing	12,679,860		15,526,344
Savings deposits	14,408,563		14,239,216
Time deposits, under $100,000	7,114,575		7,243,593
Time deposits, $100,000 and over	9,292,341		9,642,620
Total deposits	58,156,639		60,976,743
Accrued interest payable	31,541		30,500
Accrued expenses and other liabilities	229,380		368,278
Total liabilities	58,417,560		61,375,521
Shareholders' equity:
Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares authorized; 136,842 issued and outstanding	1,368		1,368
Common Stock	8,769		8,769
Common Stock
Shareholders' equity:
Common Stock	8,769	[1]	8,769	[1]
Class B Non-voting common stock
Shareholders' equity:
Common Stock	1,917	[2]	1,917	[2]
Additional paid-in-capital	14,749,852		14,749,852
Accumulated deficit	(10,894,865)		(10,556,078)
Accumulated other comprehensive income	28,016		34,157
Total shareholders' equity	3,895,057		4,239,985
Total liabilities and shareholders' equity	$ 62,312,617		$ 65,615,506

[1] Common stock, $0.01 par value; 2,000,000 shares authorized; 876,921 issued and outstanding

[2] Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value; 191,667 issued and outstanding

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7. Fair Value: Schedule of Fair Value of Assets on a Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring		$ 1,501
Other Real Estate Owned
Assets, Fair Value Disclosure, Nonrecurring	743	775
Fair Value, Option, Changes in Fair Value, Gain (Loss)	(5)	(233)
Fair Value, Inputs, Level 3 | Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring		1,501
Fair Value, Inputs, Level 3 | Other Real Estate Owned
Assets, Fair Value Disclosure, Nonrecurring	$ 743	$ 775

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6. Other Real Estate Owned: Other Real Estate Owned (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Other Real Estate Owned

Activity in other real estate owned for the periods was as follows: 

(in 000's)	Three  Months Ended	Three Months Ended
	March 31, 2013	March 31, 2012
Beginning balance	$775	$1,284
Additions, transfers from loans	-	75
Proceeds from sales	(27)	-
	748	1,359
Less: write-downs	(30)	(15)
Ending Balance	$718	$1,344

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5. Loans and Allowance For Loan Losses: Schedule of Bank's Loan portfolio (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Bank's Loan portfolio

The composition of the Bank’s loan portfolio is as follows:

(Dollars in thousands)	March 31, 2013	December 31, 2012
Commercial and industrial	$3,762	$3,734
Commercial real estate	30,975	31,381
Consumer real estate	4,527	4,619
Consumer loans other	1,714	1,768
Total loans	$40,978	$41,502

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5. Loans and Allowance For Loan Losses: Schedule of Bank's Loans by Class To Their Credit Quality Indictors (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Loans Receivable, Gross, Commercial, Real Estate	$ 30,975	$ 31,381
Loans and Leases Receivable, Gross, Consumer, Real Estate	4,527	4,619
Loans and Leases Receivable, Gross, Consumer	1,714	1,768
Loans Receivable, Net	40,978	41,502
Good Excellent
Loans and Leases Receivable, Gross, Commercial	250	250
Good Excellent | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	250	250
Good Excellent | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	250	250
Satisfactory
Loans and Leases Receivable, Gross, Commercial	27,403	26,249
Satisfactory | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	2,342	2,000
Satisfactory | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	182	104
Satisfactory | Commercial And Industrial | SBA Loans
Loans and Leases Receivable, Gross, Commercial	27	27
Satisfactory | Commercial And Industrial | Asset Based
Loans and Leases Receivable, Gross, Commercial	2,133	1,869
Satisfactory | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	25,061	24,349
Satisfactory | Commercial Real Estate | SBA Loans
Loans Receivable, Gross, Commercial, Real Estate	618	621
Satisfactory | Commercial Real Estate | Commercial Mortgages
Loans Receivable, Gross, Commercial, Real Estate	12,893	12,678
Satisfactory | Commercial Real Estate | Construction
Loans Receivable, Gross, Commercial, Real Estate	3,124	2,767
Satisfactory | Commercial Real Estate | Religious Organizations
Loans Receivable, Gross, Commercial, Real Estate	8,426	8,183
Pass
Loans and Leases Receivable, Gross, Commercial	4,089	5,085
Pass | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	345	140
Pass | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	220	15
Pass | Commercial And Industrial | Asset Based
Loans and Leases Receivable, Gross, Commercial	125	125
Pass | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	3,744	4,945
Pass | Commercial Real Estate | Commercial Mortgages
Loans Receivable, Gross, Commercial, Real Estate	1,305	1,322
Pass | Commercial Real Estate | Religious Organizations
Loans Receivable, Gross, Commercial, Real Estate	2,439	3,623
Special Mention
Loans and Leases Receivable, Gross, Commercial	272	485
Special Mention | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	113	323
Special Mention | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	12	220
Special Mention | Commercial And Industrial | SBA Loans
Loans and Leases Receivable, Gross, Commercial	48	49
Special Mention | Commercial And Industrial | Asset Based
Loans and Leases Receivable, Gross, Commercial	53	54
Special Mention | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	159	162
Special Mention | Commercial Real Estate | Religious Organizations
Loans Receivable, Gross, Commercial, Real Estate	159	162
Substandard
Loans and Leases Receivable, Gross, Commercial	2,240	2,336
Substandard | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	319	628
Substandard | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	138	480
Substandard | Commercial And Industrial | SBA Loans
Loans and Leases Receivable, Gross, Commercial	49	49
Substandard | Commercial And Industrial | Asset Based
Loans and Leases Receivable, Gross, Commercial	132	99
Substandard | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	1,921	1,708
Substandard | Commercial Real Estate | Commercial Mortgages
Loans Receivable, Gross, Commercial, Real Estate	624	403
Substandard | Commercial Real Estate | Construction
Loans Receivable, Gross, Commercial, Real Estate	631	631
Substandard | Commercial Real Estate | Religious Organizations
Loans Receivable, Gross, Commercial, Real Estate	666	674
Doubtful
Loans and Leases Receivable, Gross, Commercial	483	710
Doubtful | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	393	393
Doubtful | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	393	393
Doubtful | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	90	317
Doubtful | Commercial Real Estate | Commercial Mortgages
Loans Receivable, Gross, Commercial, Real Estate	90	317
Total
Loans and Leases Receivable, Gross, Commercial	34,737	33,115
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,714	1,768
Loans and Leases Receivable, Gross, Consumer	6,241	6,387
Total | Commercial And Industrial
Loans and Leases Receivable, Gross, Commercial	3,762	3,734
Total | Commercial And Industrial | Commercial
Loans and Leases Receivable, Gross, Commercial	1,195	1,462
Total | Commercial And Industrial | SBA Loans
Loans and Leases Receivable, Gross, Commercial	124	125
Total | Commercial And Industrial | Asset Based
Loans and Leases Receivable, Gross, Commercial	2,443	2,147
Total | Commercial Real Estate
Loans Receivable, Gross, Commercial, Real Estate	30,975	31,381
Loans and Leases Receivable, Gross, Consumer, Real Estate	4,527	4,619
Total | Commercial Real Estate | SBA Loans
Loans Receivable, Gross, Commercial, Real Estate	618	621
Total | Commercial Real Estate | Commercial Mortgages
Loans Receivable, Gross, Commercial, Real Estate	14,912	14,721
Total | Commercial Real Estate | Construction
Loans Receivable, Gross, Commercial, Real Estate	3,755	3,398
Total | Commercial Real Estate | Religious Organizations
Loans Receivable, Gross, Commercial, Real Estate	11,690	12,642
Total | Home Equity | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,408	1,453
Total | Home Equity Line Of Credit | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	25	26
Total | 14 Family Residential Mortgages | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	3,094	3,140
Total | Consumer Installment | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	26	30
Total | Student Loans | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,476	1,588
Total | Other | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	212	150
Performing
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,714	1,768
Loans and Leases Receivable, Gross, Consumer	5,918	6,098
Performing | Commercial Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	4,204	4,330
Performing | Home Equity | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,327	1,390
Performing | Home Equity Line Of Credit | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	25	26
Performing | 14 Family Residential Mortgages | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	2,852	2,914
Performing | Consumer Installment | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	26	30
Performing | Student Loans | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	1,476	1,588
Performing | Other | Consumer Other
Loans and Leases Receivable, Gross, Consumer, Real Estate	212	150
Nonperforming
Loans and Leases Receivable, Gross, Consumer	323	289
Nonperforming | Commercial Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	323	289
Nonperforming | Home Equity | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	81	63
Nonperforming | 14 Family Residential Mortgages | Consumer Real Estate
Loans and Leases Receivable, Gross, Consumer, Real Estate	$ 242	$ 226

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8. Regulatory (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Details
Description of Regulatory Requirements, Prompt Corrective Action	Sale of investment securities for a gain—approximately $7.5 million of the Bank’s investment portfolio will be sold to generate a gain of approximately $381,000 in May 2013. External equity investments—Potential investors will be sought in 2013 to generate a minimum investment of $1 million.	Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period; Formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its regulatory examination;
Tier One Leverage Capital to Average Assets	5.67%	6.00%
Capital to Risk Weighted Assets	10.41%	11.16%

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4. Investment Securities: Schedule of Unrealized Loss on Investments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	6	5
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 1,236	$ 999
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(12)	(5)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value	1,236	999
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses	(12)	(5)
US Government Agencies Debt Securities
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	3	3
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	745	746
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(5)	(4)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value	745	746
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses	(5)	(4)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
Held-to-maturity, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	3	2
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	491	253
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(7)	(1)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Fair Value	491	253
Held-to-maturity Securities, Continuous Unrealized Loss Position, Aggregate Losses	$ (7)	$ (1)

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2. Net Loss Per Share: Schedule of Earnings Per Shares Basic And Diluted (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Details
Net loss	$ (338,787)	$ (237,809)
Weighted Average Number of Shares Outstanding, Basic	1,068,588	1,068,588
Earnings Per Share, Basic	$ (0.32)	$ (0.22)
Weighted Average Number of Shares Outstanding, Diluted	1,068,588	1,068,588
Earnings Per Share, Diluted	$ (0.32)	$ (0.22)

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4. Investment Securities: Summary of Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Available-for-sale Securities, Amortized Cost Basis	$ 847	$ 976
Available-for-sale Securities, Gross Unrealized Gains	42	51
Available-for-sale Securities, Fair Value Disclosure	889	1,027	1,027
Held-to-maturity Securities, Amortized Cost before Other than Temporary Impairment	10,931	11,895
Held-to-maturity Securities, Unrecognized Holding Gain	543	596
Held-to-maturity Securities, Unrecognized Holding Loss	(12)	(5)
Held-to-maturity Securities, Fair Value Disclosure	11,462	12,486
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
Available-for-sale Securities, Amortized Cost Basis	718	847
Available-for-sale Securities, Gross Unrealized Gains	42	51
Available-for-sale Securities, Fair Value Disclosure	760	898	898
Held-to-maturity Securities, Amortized Cost before Other than Temporary Impairment	7,826	8,290
Held-to-maturity Securities, Unrecognized Holding Gain	394	437
Held-to-maturity Securities, Unrecognized Holding Loss	(7)	(1)
Held-to-maturity Securities, Fair Value Disclosure	8,213	8,726
Money Market Funds
Available-for-sale Securities, Amortized Cost Basis	129	129
Available-for-sale Securities, Fair Value Disclosure	129	129	129
US Government Agencies Debt Securities
Held-to-maturity Securities, Amortized Cost before Other than Temporary Impairment	3,105	3,605
Held-to-maturity Securities, Unrecognized Holding Gain	149	159
Held-to-maturity Securities, Unrecognized Holding Loss	(5)	(4)
Held-to-maturity Securities, Fair Value Disclosure	$ 3,249	$ 3,760

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8. Regulatory

3 Months Ended

Mar. 31, 2013

Notes

8. Regulatory

8. Regulatory  

On January 31, 2012, the Bank entered into stipulations consenting to the issuance of Consent Orders with the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“Department”).  The material terms of the Consent Orders are identical.  The requirements and status of items included in the Consent Orders are as follows:

Requirement	Status
Increase participation of the Bank’s board of directors in the Bank’s affairs by having the board assume full responsibility for approving the Bank’s policies and objectives and for supervising the Bank’s management;	Board participation has been improved with attendance at board and committee meetings.
Have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers;	A management assessment was completed in June 2012 in conjunction with the required management review and written management plan with benchmarks for recommended enhancements.
Retain a bank consultant acceptable to the FDIC and the Department to develop a written analysis and assessment of the Bank’s management needs and thereafter formulate a written management plan;	An engagement letter from a qualified consultant was received and approved by the Bank’s regulators.  Upon acceptance, the review commenced in May 2012 and was completed in June 2012.
Formulate and implement written profit and budget plans for each year during which the orders are in effect;	Profit and budget plans have been prepared and submitted to regulators as required annually.
Develop and implement a strategic plan for each year during which the orders are in effect, to be revised annually;	An annual comprehensive strategic plan was prepared and submitted to regulators as required.
Develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period; Formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its regulatory examination;	A capital plan with quarterly benchmarks was prepared and submitted to regulators as required annually.
	A classified asset reduction plan with quarterly benchmarks measured against capital was prepared and submitted as required.
Requirement	Status
Eliminate all assets classified as “Loss” at its current regulatory examination;	All assets classified as “Loss” have been eliminated.
Revise the Bank’s loan policy to establish and monitor procedures for adherence to the loan policy and to eliminate credit administration and underwriting deficiencies identified at its current regulatory examination;	The Bank’s loan policy has been revised to include enhanced monitoring procedures and submitted to regulators for review in April 2012.
Develop a comprehensive policy and methodology for determining the allowance for loan and lease losses;	The ALLL policy and methodology for determining the allowance for loan losses were submitted to regulators for review in April 2012.
Develop an interest rate risk policy and procedures to identify, measure, monitor and control the nature and amount of interest rate risk the Bank takes;	The Bank’s interest rate risk policy and procedures were submitted to regulators for review in April 2012.
Revise its liquidity and funds management policy and update and review the policy annually;	The Bank’s liquidity policy and contingency plan were submitted to regulators for review in April 2012.
Refrain from accepting any brokered deposits;	The Bank did not accept brokered deposits.
Refrain from paying cash dividends without prior approval of the FDIC and the Department;	The Bank did not pay cash dividends.
Establish an oversight committee of the board of directors of the Bank with the responsibility to ensure the Bank’s compliance with the orders, and	An oversight committee consisting of three outside directors and one inside director was established and meets periodically to ensure compliance with the orders.
Prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the orders.	Quarterly reports were prepared and submitted   as required.

The Orders will remain in effect until modified or terminated by the FDIC and the Department and do not restrict the Bank from transacting its normal banking business.  The Bank will continue to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions.  Customer deposits remain fully insured to the highest limits set by the FDIC.  The FDIC and the Department did not impose or recommend any monetary penalties in connection with the Consent Orders.

 As of March 31, 2013 and December 31, 2012, the Bank’s tier one leverage capital ratio was 5.67% and 6.00%, respectively, and its total risk based capital ratio was 10.41% and 11.16%, respectively. Capital declined as a result of continued operating losses.  Management has developed and submitted a Capital Plan that focuses on the following:

1. Core Profitability from Bank operations—Core profitability is essential to stop the erosion of capital.
2. Sale of investment securities for a gain—approximately $7.5 million of the Bank’s investment portfolio will be sold to generate a gain of approximately $381,000 in May 2013.
3. External equity investments—Potential investors will be sought in 2013 to generate a minimum investment of $1 million.

As a result of the above actions, management believes that the Bank has and will continue to attempt to comply with the terms and conditions of the Orders and will continue to operate as a going concern and an independent financial institution for the foreseeable future.

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6. Other Real Estate Owned: Schedule of Components of Other Real Estate Owned (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Components of Other Real Estate Owned

The following schedule reflects the components of other real estate owned:

(in 000's)	March 31, 2013	December 31, 2012
Commercial real estate	206	206
Residential real estate	512	569
Total	$718	$775

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5. Loans and Allowance For Loan Losses: Allowance for Credit Losses on Financing Receivables (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			3 Months Ended			3 Months Ended				3 Months Ended			3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Mar. 31, 2013 Commercial And Industrial	Mar. 31, 2012 Commercial And Industrial	Dec. 31, 2012 Commercial And Industrial	Mar. 31, 2013 Commercial Real Estate	Dec. 31, 2012 Commercial Real Estate	Mar. 31, 2012 Commercial Real Estate	Dec. 31, 2011 Commercial Real Estate	Mar. 31, 2013 Consumer Real Estate	Mar. 31, 2012 Consumer Real Estate	Dec. 31, 2012 Consumer Real Estate	Mar. 31, 2012 Consumer And Other Loans	Mar. 31, 2013 Consumer And Other Loans	Dec. 31, 2012 Consumer And Other Loans
Beginning balance	$ 1,204	$ 867		$ 891	$ 387		$ 308		$ 412	$ 412	$ 5	$ 68
Provision for loan losses	70	30		62	30		(33)				41
Charge-offs	(340)	(41)		(340)								(38)		(3)
Recoveries	3	8		1							2	5		3
Net charge-offs	(337)	(33)		(339)							2	(33)
Ending balance	937	864		614	417		275		412	412	48	35
Period-end amount allocated to loans individually evaluated for impairment	534		843	534		843
Period-end amount allocated to loans collectively evaluated for impairment	403		361	80		48	275	308			48		5
Total allocation	937	864		614	417		275		412	412	48	35
Loans, ending balance: Loans individually evaluated for impairment	2,022		2,344	712		1,021	1,310	1,323
Loans, ending balance: Loans collectively evaluated for impairment	38,956		39,158	3,050		2,713	29,665	30,058			4,527		4,619		1,714	1,768
Total	$ 40,978		$ 41,502	$ 3,762		$ 3,734	$ 30,975	$ 31,381			$ 4,527		$ 4,619		$ 1,714	$ 1,768

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1. Significant Accounting Policies: Allowance For Loan Losses (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Allowance For Loan Losses

 Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses.  Loans that are determined to be uncollectible are charged against the allowance account, and subsequent recoveries, if any, are credited to the allowance.  When evaluating the adequacy of the allowance, an assessment of the loan portfolio will typically include changes in the composition and volume of the loan portfolio, overall portfolio quality and past loss experience, review of specific problem loans, current economic conditions which may affect borrowers’ ability to repay, and other factors which may warrant current recognition.  Such periodic assessments may, in management’s judgment, require the Bank to recognize additions or reductions to the allowance. 

Various regulatory agencies periodically review the adequacy of the Bank’s allowance for loan losses as an integral part of their examination process.  Such agencies may require the Bank to recognize additions or reductions to the allowance based on their evaluation of information available to them at the time of their examination.  It is reasonably possible that the above factors may change significantly and, therefore, affects management’s determination of the allowance for loan losses in the near term.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical charge-off experience, other qualitative factors, and adjustments made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.  The Bank does not allocate reserves for unfunded commitments to fund lines of credit.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Bank will identify and assess loans that may be impaired through any of the following processes:

• During regularly scheduled meetings of the Asset Quality Committee
• During regular reviews of the delinquency report
• During the course of routine account servicing, annual review, or credit file update
• Upon receipt of verifiable evidence of a material reduction in the value of collateral to a level that creates a less than desirable LTV ratio

Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller, homogeneous loans, including consumer installment and home equity loans, 1-4 family residential mortgages, and student loans are evaluated collectively for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

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7. Fair Value

3 Months Ended

Mar. 31, 2013

Notes

7. Fair Value

7.  Fair Value 

Fair Value Measurement

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

The fair value guidance in FASB ASC 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:

Level 1    

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

Level 2

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

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

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

Level 3

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

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

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

Fair Value on a Recurring Basis

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

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

(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2013	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$760	-	$760	-
Money Market Funds	129	129	-	-
Total	$889	129	$760	-

(in 000’s)			Fair Value Measurements at Reporting Date Using:
	Assets Measured at Fair Value at March 31, 2012	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$898	-	$898	-
Money Market Funds	129	129	-	-
Total	$1,027	129	$898	-

The fair value of the Bank’s AFS securities portfolio was approximately $889,000 and $1,027,000 at March 31, 2013, and December 31, 2012, respectively.  Approximately 85% of the portfolio consisted of residential mortgage-backed securities, which had a fair value of $760,000 at March 31, 2013.  All the residential mortgage-backed securities were issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”).  The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States.  The majority of the AFS securities were classified as level 2 assets at March 31, 2013.  The valuation of AFS securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar instruments and all relevant information.  There were no transfers between Level 1 and Level 2 assets during the period ended March 31, 2013 and year ended December 31, 2012.

Fair Value on a Nonrecurring Basis

Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). 

The following table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of March 31, 2013 and December 31, 2012, for which a nonrecurring change in fair value has been recorded during the three months ended March 31, 2013 and year ended December 31, 2012.

 Carrying Value at March 31, 2013:

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total fair value gain (loss) during 3 months ended March 31, 2013
Impaired loans	-	-	-	-	(34)
Other real estate owned (“OREO”)	743	-	-	743	(5)

Carrying Value at December 31, 2012:

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total fair value gain (loss) during 3 months ended December 31, 2012
Impaired loans	$1,501	-	-	$1,501	(843)
Other real estate owned (“OREO”)	775	-	-	775	(233)

The measured impairment for collateral dependent of impaired loans is determined by the fair value of the collateral less estimated liquidation costs.  Collateral values for loans and OREO are determined by annual or more frequent appraisals if warranted by volatile market conditions, which may be discounted up to 10% based upon management’s review and the estimated cost of liquidation. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made on the appraisal process by the appraisers for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation allowance for impaired loans is adjusted as necessary based on changes in the value of collateral as well as the cost of liquidation.  It is included in the allowance for loan losses in the consolidated statements of condition. The valuation allowance for impaired loans at March 31, 2013 was approximately $500,000.  The valuation allowance for impaired loans at December 31, 2012 was approximately $843,000.  

Fair Value of Financial Instruments

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

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

      Cash and cash equivalents: The carrying amounts reported in the statement of condition for cash and cash equivalents approximate those assets’ fair values.

      Investment securities: Fair values for investment securities available-for-sale are as described above.  Investment securities held-to-maturity are based on quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. 

      Loans: The fair value of loans was estimated using a discounted cash flow analysis, which considered estimated pre­payments, amortizations, and non performance risk.  Prepayments and discount rates were based on current marketplace estimates and pricing.  Residential mortgage loans were discounted at the current effective yield, including fees, of conventional loans, adjusted for their maturities with a spread to the Treasury yield curve.   The fair value for nonperforming/impaired loans is determined by using discounted cashflow analysis or underlying collateral values, where applicable.

       Accrued interest receivable:  The carrying amount of accrued interest receivable approximates fair value.

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

Accrued interest payable:  The carrying amounts of accrued interest payable approximate fair value.

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

The fair value of assets and liabilities are depicted below:

	Level in	March 31, 2013		December 31, 2012
	Value	Carrying	Fair	Carrying	Fair
Assets:	Hierarchy	Amount	Value	Amount	Value
Cash and cash equivalents	Level 1	$8,361	$8,361	$10,236	$10,236
Available for sale securities	(1)	889	889	1,027	1,027
Held to maturity securities	Level 2	10,931	11,462	11,895	12,486
Loans, net of allowance for loan losses	(2)	40,041	40,256	40,298	40,325
Accrued Interest receivable	Level 2	291	291	310	310
Liabilities:
Demand deposits	Level 2	27,341	27,341	29,851	29,851
Savings deposits	Level 2	14,409	14,408	14,239	14,239
Time deposits	Level 2	16,407	16,419	16,886	16,902
Accrued Interest Payable	Level 2	32	32	31	31

(1) Level 1 for money market funds; Level 2 for all other securities.

(2) Level 2 for non-impaired loans; Level 3 for impaired loans.

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2. Net Loss Per Share

3 Months Ended

Mar. 31, 2013

Notes

2. Net Loss Per Share

2. Net Loss Per Share

The calculation of net loss income per share follows:

	Three Months Ended     March 31, 2013	Three Months Ended March 31, 2012
Basic:
Net loss available to common shareholders	($338,787)	($237,809)
Average common shares outstanding-basic	1,068,588	1,068,588
Net loss per share-basic	($0.32)	($0.22)
Diluted:
Average common shares-diluted	1,068,588	1,068,588
Net loss per share-diluted	($0.32)	($0.22)

The preferred stock is non cumulative and the Company is restricted from paying dividends.  Therefore, no effect of the preferred stock is included in the loss per share calculations.

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7. Fair Value (Details) (USD $)			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Maximum
Fair Value Inputs, Discount Rate			10.00%
Impaired Financing Receivable, Related Allowance	$ 534,000	$ 843,000

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6. Other Real Estate Owned: Other Real Estate Owned (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Details
Other Real Estate, Beginning Balance	$ 775,407	$ 1,284,000
SEC Schedule III, Real Estate, Other Additions		75,000
Other Real Estate, Disposals	(27,000)
Other Real Estate, Period Increase (Decrease)	748,000	1,359,000
Other Real Estate, Valuation Adjustments	(30,000)	(15,000)
Other Real Estate, Ending Balance	$ 717,869	$ 1,344,000

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7. Fair Value: Schedule of Fair Value of Assets on a Nonrecurring Basis (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Fair Value of Assets on a Nonrecurring Basis

The following table presents the assets carried on the consolidated balance sheet by level within the hierarchy as of March 31, 2013 and December 31, 2012, for which a nonrecurring change in fair value has been recorded during the three months ended March 31, 2013 and year ended December 31, 2012.

 Carrying Value at March 31, 2013:

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total fair value gain (loss) during 3 months ended March 31, 2013
Impaired loans	-	-	-	-	(34)
Other real estate owned (“OREO”)	743	-	-	743	(5)

Carrying Value at December 31, 2012:

(in 000’s)	Total	Quoted Prices in Active markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total fair value gain (loss) during 3 months ended December 31, 2012
Impaired loans	$1,501	-	-	$1,501	(843)
Other real estate owned (“OREO”)	775	-	-	775	(233)

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2. Net Loss Per Share: Schedule of Earnings Per Shares Basic And Diluted (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Earnings Per Shares Basic And Diluted

	Three Months Ended     March 31, 2013	Three Months Ended March 31, 2012
Basic:
Net loss available to common shareholders	($338,787)	($237,809)
Average common shares outstanding-basic	1,068,588	1,068,588
Net loss per share-basic	($0.32)	($0.22)
Diluted:
Average common shares-diluted	1,068,588	1,068,588
Net loss per share-diluted	($0.32)	($0.22)

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1. Significant Accounting Policies: Commitments & Contingencies (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Commitments & Contingencies

Commitments

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

Contingencies

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

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4. Investment Securities: Schedule of Unrealized Loss on Investments (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Unrealized Loss on Investments

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2013:

	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	securities	Value	Losses	value	losses	value	losses
U.S. Government
agency securities	3	$ 745	$   (5)	$    -	$  -	$ 745	$   (5)
Government Sponsored Enterprises
residential mortgage-backed securities	3	$ 491	$   (7)	$   -	$  -	$ 491	$   (7)
Total temporarily
Impaired investment
securities	6	$ 1,236	$ (12)	$ -	$ -	$ 1,236	$ (12)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2012:

	Number	Less than 12 months		12 months or longer		Total
Description of	of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	securities	Value	Losses	value	losses	value	losses
U.S. Government
agency securities	3	$ 746	$   (4)	$    -	$  -	$ 746	$   (4)
Government Sponsored Enterprises
residential mortgage-backed securities	2	$ 253	$   (1)	$   -	$  -	$ 253	$   (1)
Total temporarily
Impaired investment
securities	5	$ 999	$ (5)	$ -	$ -	$ 999	$ (5)

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4. Investment Securities: Summary of Investment Securities (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Summary of Investment Securities

(In 000’s)	March 31, 2013
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	Cost	gains	losses	value
Available-for-sale:
Government Sponsored Enterprises  residential mortgage-backed securities	$   718	$  42	$  -	$  760
Investments in money market funds	129	-	-	129
	$   847	$  42	$  -	$  889

Held-to-maturity:
U.S. Government agency securities	$ 3,105	$ 149	$ (5)	$ 3,249
Government Sponsored Enterprises residential mortgage-backed securities	7,826	394	(7)	8,213
	$ 10,931	$ 543	$  (12)	$ 11,462

	December 31, 2012
		Gross	Gross
	Amortized	unrealized	unrealized	Fair
	Cost	gains	losses	Value
Available-for-sale:
Government Sponsored Enterprises         residential mortgage-backed securities	$   847	$ 51	$      -	$   898
Investments in money market funds	129	-	-	129
	$   976	$ 51	$      -	$1,027

Held-to-maturity:
U.S. Government agency securities	$ 3,605	$159	$   (4)	$  3,760
Government Sponsored Enterprises residential mortgage-backed securities	8,290	437	(1)	8,726
	$11,895	$596	$    (5)	$12,486

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 14, 2013
Document and Entity Information:
Entity Registrant Name	UNITED BANCSHARES INC /PA
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Entity Central Index Key	0000944792
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		1,068,588
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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4. Investment Securities: Contractual Maturities of Investment Securities (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Contractual Maturities of Investment Securities

(In 000’s)	Amortized Cost				Fair Value
Available-for-Sale
Due in one year	$	-	$	-
Due after one year through five years		-		-
Due after five years through ten years		-		-
Government Sponsored Enterprises residential mortgage-backed securities		718		760
Total debt securities		718		760
Investments in money market funds		129		129
	$	847	$	889
Held-to-maturity
Due in one year	$	-		-
Due after one year through five years		250		268
Due after five years through ten years		2,855		2,981
Government Sponsored Enterprises residential mortgage-backed securities		7,826		8,213
	$	10,931	$	11,462