SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                  For the Fiscal Year Ended December 31, 1998.

                             UNITED BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

                                     0-25976
                           (Registrant's file number)

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

                    714 Market Street, Philadelphia, PA 19106
          (Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (215)829-2265

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
                                (Title of Class)

Indicate by check mark whether the 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 12 months ( or for such shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                   YES __X__     NO _____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [_]

There is no market for the Common Stock.  None of the shares of the Registrant's
stock were sold within 60 days of the filing of this Form 10-K.  As of March 15,
1999 the  aggregate  number  of the  shares  of the  Registrant's  Common  Stock
outstanding was 913,490.

<PAGE>


Registrant also has 500,000  authorized  shares of Series  Preferred  Stock. The
Board of  Directors  of United  Bancshares,  Inc.  designated  one series of the
Series Preferred Stock (the "Series A Preferred  Stock") of which 132,999 shares
were  outstanding  as of March 31,  1999.  The Board of  Directors  designated a
subclass of the common  stock,  designated  Class B Common  Stock,  by filing of
Articles of Amendment with the  Commonwealth  of  Pennsylvania  on September 30,
1998.  Of the  2,000,000  shares of Common Stock  authorized,  250,000 have been
designated Class B Common Stock. As of March 31, 1999, 166,666 shares of Class B
Common Stock were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  following  documents  are  incorporated  by  reference  as  filed  with the
Registrant's 1998 Form 10-K


1.   Consolidated  Statements  of  Operations  for the years ended  December 31,
     1996.

2.   Consolidated  Statements  of  Shareholders'  Equity  for  the  years  ended
     December 31, 1996.

3.   Consolidated  Statements  of Cash Flows for the years  ended  December  31,
     1996.

4.   Articles of Incorporation of the Bank and UBS

5.   Bylaws of the Bank and UBS

6.   Voting Trust Agreements

7.   Long Term Incentive Compensation Plan

8.   Lease Agreements for the Bank's premises.

9.   Employment Agreement among Registrant, the Bank and Dr. Emma C. Chappell

                                     PART I

ITEM 1 BUSINESS

United Bancshares, Inc.

United Bancshares,  Inc. ("Registrant" or "UBS") is a holding company for United
Bank of Philadelphia  (the "Bank").  UBS was incorporated  under the laws of the
Commonwealth of  Pennsylvania  on April 8, 1993. The Registrant  became the Bank
Holding  Company of the Bank,  pursuant to the Bank Holding Company Act of 1956,
as amended, on October 14, 1994.

The Bank commenced  operations on March 23, 1992. UBS provides  banking services
through  the  Bank.  The  principal  executive  offices  of UBS and the Bank are
located at 714 Market Street, Philadelphia, Pennsylvania 19106. The Registrant's
telephone number is (215) 829-2265.

As of March 31, 1999, UBS and the Bank had a total of 75 employees.


                                       1
<PAGE>


United Bank of Philadelphia

The Bank, an African-American  -controlled,  state-chartered  member bank of the
Federal  Reserve  System is regulated by both the Federal  Reserve Board and the
Commonwealth  of  Pennsylvania  Department  of Banking (the  "Department").  The
deposits  held  by the  Bank  are  insured  by  the  Federal  Deposit  Insurance
Corporation ("FDIC").

The Bank conducts all its banking  activities through its six offices located as
follows: (i) Main Branch 714 Market Street,  Philadelphia,  PA; (ii) Center City
Branch Two Penn Center, Philadelphia,  PA; (iii) West Philadelphia Branch 37th &
Lancaster Avenues,  Philadelphia, PA; (iv) Mount Airy Branch 1562 East Wadsworth
Avenue,   Philadelphia,   PA;  (v)  Frankford  Branch  4806  Frankford   Avenue,
Philadelphia,  PA;  and  (vi)  West  Girard  Branch  2820  West  Girard  Avenue,
Philadelphia,  PA.  Through  these  locations,  the Bank offers a broad range of
commercial  and consumer  banking  services.  At December 31, 1998, the Bank had
total deposits  aggregating  approximately $57.2 million and had total net loans
outstanding of approximately  $109 million.  Although the Bank's primary service
area for Community  Reinvestment  Act purposes is Philadelphia  County,  it also
services,  generally,  the  Delaware  Valley,  which  consists  of  portions  of
Montgomery,  Bucks,  Chester, and Delaware Counties in Pennsylvania;  New Castle
County in  Delaware;  and Camden,  Burlington,  and  Gloucester  Counties in New
Jersey. The city of Philadelphia is comprised of 353 census tracts and, based on
1990 census data, 204 or 58% of these are  designated as low to  moderate-income
tracts while 105 or 30% are  characterized  both as low to  moderate-income  and
minority  tracts.  The Bank's  primary  service area consists of a population of
1,577,815, which includes a minority population of 752,309.

The Bank engages in the commercial  banking business,  serving the banking needs
of its customers  with a particular  focus on, and  sensitivity  to, groups that
have been traditionally under-served, including Blacks, Hispanics and women. The
Bank  offers a wide  range of deposit  products,  including  checking  accounts,
interest-bearing NOW accounts,  money market accounts,  certificates of deposit,
savings accounts and Individual Retirement Accounts.

The focus of the Bank's lending  activities is on the origination of commercial,
consumer and residential  loans. A broad range of credit products are offered to
the businesses and consumers in the Bank's  service area,  including  commercial
loans,  mortgage  loans,  student loans,  home  improvement  loans,  auto loans,
personal loans,  home equity loans and home equity lines of credit. At March 31,
1999 the Bank's  maximum legal lending limit was  approximately  $1,838,000  per
borrower.  However, the Bank's internal Loan Policy limits the Bank's lending to
$500,000  per borrower in order to diversify  the loan  portfolio.  The Bank has
established  relationships with correspondent banks to participate in loans that
exceed  the Bank's  internal  policies  or legal  lending  limits.  The Board of
Directors of the Bank maintains the ability to waive its internal  lending limit
upon  consideration  of a loan.  The Board of Directors has exercised this power
with respect to loans and participants on occasion.  However, the Bank maintains
no credit that exceeds its legal lending limit.

The Bank also offers  commercial and retail products.  In the area of commercial
loans,  the Bank has  flexibility  to develop  loan  arrangements  targeted at a
customer's objectives. Typically, these loans are term loans or revolving credit
arrangements with interest rate,  collateral and repayments terms, varying based
upon the type of credit,  and various  factors used to evaluate  risk.  The Bank
participates in the  government-sponsored  Small Business Administration ("SBA")
lending program and when the Bank deems it  appropriate,  obtains SBA guarantees
for up to 90% of the loan amount.  This guaranty  effectively reduces the Bank's
exposure  to  loss  in its  commercial  loan  portfolio.  Commercial  loans  are
typically  made of the basis of cash flow to support  repayment  with  secondary
reliance placed on the underlying collateral.

The Bank's consumer loan program includes installment loans for home improvement
and the purchase of consumer goods and automobiles,  student loans,  home equity
and VISA secured and unsecured revolving lines of credit, and checking overdraft
protection.  The Bank also offers  residential  mortgage loans to its customers.
The Bank's  concentration in the retail area is in the category of student loans
where it can minimize its risk of non-payment with government guaranties.

In  addition,  the Bank offers safe  deposit  boxes,  travelers'  checks,  money
orders, direct deposit of payroll and Social Security checks, wire transfers and
access  to  regional  and  national   automated   teller  networks  as  well  as
international and trust services through correspondent institutions.

The  management  and  Board  of the Bank are  very  active  in their  respective
communities, allowing the Bank to closely


                                       2
<PAGE>


monitor the needs of individuals  and businesses in the  communities in which it
operates.  The Bank  continually  focuses on developing  programs to serve those
needs. To this end, the Bank has been instrumental in establishing  Philadelphia
United Community Development Corporation  ("Philadelphia United").  Philadelphia
United  is  a  non-profit  corporation   incorporated  in  the  Commonwealth  of
Pennsylvania.   In  1997,  the  Bank  received   certification  as  a  Community
Development  Financial  Institution  from the  Department of Treasury  Community
Development Financial Institution ("CDFI") Fund. Additionally, the CDFI Fund has
agreed to provide  Philadelphia  United  with $500  thousand  for the purpose of
carrying  out  community  development  efforts.  The Bank  has also  implemented
programs   aimed  at  counseling   individuals   and   businesses  on  financial
responsibility  and credit repair.  Much of this education and training  service
provided  by the Bank has been  assumed  by  Philadelphia  United.  Philadelphia
United's  programs will give  individuals and businesses,  located  primarily in
Philadelphia's  enterprise  zones,  access to sophisticated  planning skills and
abilities.

Competition

There is substantial  competition  among  financial  institutions  in the Bank's
service area.  The Bank competes  with local,  regional and national  commercial
banks, as well as savings banks and savings and loan associations. Many of these
banks and financial  institutions  have an amount of capital that allows them to
do more  advertising and promotion and to provide a greater range of services to
customers.  To date,  the Bank has  attracted,  and believes it will continue to
attract its customers from the deposit base of such existing banks and financial
institutions  largely due to the Bank's  mission to service groups of people who
have  traditionally  been  under-served  and by  its  devotion  to  personalized
customer  service.  The Bank's  strategy has been,  and will  continue to be, to
emphasize personalized services with special sensitivity to the needs of Blacks,
Hispanics and women and to offer competitive rates to borrowers and depositors.

In order to compete,  the Bank relies upon  personal  contacts by the  officers,
directors,  advisory  board and  employees of the Bank to establish and maintain
relationships with Bank customers.  The Bank focuses its efforts on the needs of
individuals  and  small and  medium-sized  businesses.  In the  event  there are
customers whose loan demands exceed the Bank's lending limit, the Bank will seek
to  arrange  for such  loans  on a  participation  basis  with  other  financial
institutions  and  intermediaries.  The Bank will also  assist  those  customers
requiring  other  services not offered by the Bank to obtain such  services from
its correspondent banks.

Registrant  believes that a portion of the Bank's  customer base is derived from
customers  who were  dissatisfied  with the level of service  provided at larger
financial  institutions.  While some of such customers have followed officers of
those institutions who were hired by the Bank, others were attracted to the Bank
by calling programs of its officers and referrals from other customers. The Bank
has sought, in the past, and intends to continue in the future, to hire customer
contact officers who have good  relationships  with desirable  customers.  These
personal  relationships,  provision  of a high level of customer  services,  and
referrals from  satisfied  customers,  form the basis of the Bank's  competitive
approach,  as opposed to  advertising,  rate  competition or the  development of
proprietary banking products, services or programs.

In the past,  the principal  competition  for deposits and loans have been other
depository  institutions.  However,  now  the  Bank  also  competes  with  other
financial  intermediaries  such as brokerage houses offering investment vehicles
to the general public. Other entities, both public and private, seeking to raise
capital  through the  issuance  and sale of debt or equity  securities  are also
competitors  with banks and savings and loan  associations in the acquisition of
deposits. In order to address the risk of deposit reduction due to investment in
non-bank  alternatives,  the Bank has  established a relationship  with American
Express Financial Advisors  ("AEFA").  AEFA provides the Bank with two certified
financial  advisors  who consult with the Bank's  customers  wishing to consider
alternative  investments.  These  advisors  maintain  their  offices in the Main
Branch and Wadsworth  Branch of the Bank.  The Bank receives  compensation  from
AEFA for each  securities  purchase made through these  advisors,  thus yielding
additional fee income.


                                       3
<PAGE>


ITEM 2 - Properties

Main Branch

The Bank's  principal  office is located  on the first  floor of a  multi-tenant
retail and commercial office building in Center City, Philadelphia, Pennsylvania
located  at 714  Market  Street,  Philadelphia,  PA  19106.  The  Bank  occupies
approximately  5,700 square feet of space  pursuant to a lease which  expires on
February 28, 2002. The lease has renewal  options for two five-year  periods and
is  subject to  escalation  clauses.  The space is  occupied  by UBS,  the Bank.
Philadelphia  United  subleases a portion of this  facility  from the Bank.  The
first  floor  contains  a banking  lobby,  the  vault,  customer  service  area,
executive  and  administrative  offices,  as well as the Bank's  compliance  and
marketing  groups.  The Bank's  finance,  branch  administrative  and operations
functions are located on the second floor of the same  building,  where the Bank
leases an additional space on a month-to-month basis. The aggregate monthly rent
for this location is 8,629.39.

Mt. Airy Branch
North Philadelphia Branch

The Bank  operates  a branch  at 1562 East  Wadsworth  Avenue,  in the Mt.  Airy
section of  Philadelphia.  This  facility,  comprising a retail  banking  lobby,
teller  area,  offices,  vault and storage  space is  currently  leased from the
Federal Deposit Insurance Corporation ("FDIC") at a monthly rental of $1675.00.

Center City Branch

The Bank  operates a branch  location  at Two Penn  Center,  15th Street and JFK
Boulevard,  Philadelphia, PA. The Bank leases approximately 4,769 square feet at
its Two Penn Center location.  The space includes lobby,  teller area,  customer
service area,  primary  lending area and  administrative  offices,  as well as a
vault. The aggregate monthly rent for this location is $13,114.75.

Frankford Branch

In 1995, the Bank purchased a branch facility at 4806 Frankford Avenue. The main
floor of the facility  houses teller and customer  service  areas.  The basement
houses administrative offices.

West Girard Branch

In 1994,  the Bank purchased a branch  facility at 2820 West Girard Avenue.  The
facility is comprised of a teller area,  customer service area, lobby, vault and
administrative offices.

West Philadelphia Branch

On July 22, 1996, the Bank acquired a branch  location at 3750 Lancaster  Avenue
from PNC Bank. The facility is comprised of approximately 3,000 square feet. The
main floor houses teller and customer  service areas, a drive-up teller facility
and automated  teller machine.  The basement  provides storage for the facility.
The aggregate  monthly  rental is  approximately  $2,500.00  exclusive of taxes,
insurance, utilities and janitorial service.

ITEM 3 - Legal Proceedings

Other than the following,  no material claims have been instituted or threatened
by or against UBS or its affiliates other than in the normal course of business.


                                       4
<PAGE>


ITEM 4 - Submission of Matters to Vote of Security Holders

Not  Applicable.  No matters were submitted to a vote of  Registrant's  security
holders since the Registrant's last periodic filing.

                                     PART II

ITEM 5 - Market for the Registrant's Common Stock.

Common Stock

As of March 31,  1999 there were 3,177  shareholders  of record of UBS's  Common
Stock.

The Common Stock is not traded on any national  exchange or otherwise  traded in
any  recognizable  market.  Prior to December  31,  1993,  the Bank  conducted a
limited offering (the "Offering") pursuant to a registration  exemption provided
in  Section  3(a)(2) of the  Securities  Exchange  Act of 1933 (the  "Securities
Act").  The  price-per-share  during  the  Offering  was  $12.00.  Prior  to the
Offering,  the Bank  conducted  an initial  offering  of the  Common  Stock (the
"Initial  Offering")  at $10.00  per  share  pursuant  to the same  registration
exemption.

Beginning  April 24, 1995,  Registrant  commenced a private  offering  solely to
existing stockholders of 250,000 shares of its common stock and 750,000 warrants
to purchase a share of the common stock.  18,465 shares and 55,395 warrants have
been sold  pursuant  to this  offering.  Each unit,  consisting  of one share of
common stock and three warrants to purchase one share of common stock in each of
three  subsequent  years (total 3 shares),  were issued at $12.00 per unit.  The
warrant  exercise  price was $8.00 per share for the 1996  Warrant was $9.00 per
share for the 1997  Warrant,  and will be $10.00 per share for the 1998 Warrant.
The exercise  price of the warrants may be adjusted to avoid dilution of warrant
holders.  The units were  offered  pursuant to an  exemption  from  registration
contained in section 4(2) and 3(a)(5) of the Act. No underwriters  were used and
no commissions  were paid as a result of this offering.  The offering  closed on
December  31, 1995.  In December  1995,  the  Registrant  sold 41,666  shares of
Registrant's  common stock in an offering exempt from  registration  pursuant to
section 4(2) of the Act at a purchase  price of $12.00 per share.  This sale was
accomplished  pursuant to a commitment to purchase  these  securities  issued in
December 1994.

Beginning  May 10,  1996,  Registrant  commenced  a private  offering  solely to
existing  stockholders of 250,000 shares of its common stock.  6,934 shares were
sold pursuant to this offering.  The stock was offered  pursuant to an exemption
from  registration  contained in 4(2) and 3(a)(5) of the Act.  During 1996,  the
Registrant  received,  $55,536  and issued  6,942  shares as a result of warrant
exercises  by  shareholders  to  purchase  common  stock at a price of $8.00 per
share.  Beginning  May 19,  1997,  Registrant  commenced  an offering  solely to
existing  stockholders  of 250,000  shares of its common  stock,  initially on a
pro-rata basis. 3,550 shares were sold pursuant to this offering.  The stock was
offered  pursuant  to an  exemption  contained  in 4(2) and  3(a)(5) of the Act.
During 1997, the Registrant received $34,710 and issued 3,856 shares as a result
of exercise of the 1997  warrants at $9.00 per share.  During  1998,  Registrant
received  $14,922 as a result of the exercise of the 1998 Warrants at $10.00 per
share and sold 6,492 shares of common  stock as a result to its offering  solely
to  stockholders  of record.  This offering was exempt  pursuant to an exemption
from registration contained in sections 4(2) and 3(a)(5) of the Act. As of March
31, 1999,  there were no warrants  outstanding  to purchase  common stock of the
Bank.

Class B Common Stock

On  September  30,  1998,  the  Registrant  filed  Articles of  Amendment to its
Articles of  Incorporation  with the Secretary of State of the  Commonwealth  of
Pennsylvania. The filing amended the Articles of Incorporation of the Registrant
to designate a sub-class of ist Common Stock as Class B Common  Stock.  Pursuant
to the terms of the  amendment,  holders  of the Class B Common  Stock  have all
rights of Common Stockholders, with the exception of voting rights.

Effective  October 9, 1999,  the  Registrant  sold 83,333  shares of its Class B
Common Stock to First Union Corporation  ("First Union") for a purchase price of
$12 per share. The sale was exempt from  registration  requirements  pursuant to
section 4(2) of the Securities Exchange Act of 1933 (the "Act

Effective  February 8, 1999,  the  Registrant  sold 83,333 shares of its Class B
Common Stock to First Union for a purchase


                                       5
<PAGE>


price of $12 per  share.  The sale was  exempt  from  registration  requirements
pursuant to section 4(2) of the Securities Exchange Act of 1933 (the "Act").

Series A Preferred Stock

Registrant  has  engaged in the sale of Series A  Preferred  Stock which has the
characteristics  identified in the UBS Articles of Incorporation incorporated by
reference  as an Exhibit  hereto  pursuant  to an  exemption  from  registration
contained  in  Section  4(2) of the  Securities  Act.  On  July  23,  1998,  the
Registrant  sold 39,849  shares of its Series A  Preferred  Stock to the Federal
National Mortgage Association at a purchase price of $20 per share.

Dividends

Registrant has not, during the three most recent fiscal periods 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 of the net earnings of the bank for the period since the end of the last
fiscal year or any shorter period since the  declaration  of a dividend.  If the
surplus of a bank is less than 50% of the amount of its capital, no dividend may
be declared or paid by the Bank without the prior  approval of the  Pennsylvania
Department of Banking.

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

The Federal Deposit Insurance Act generally  prohibits all payments of dividends
by a bank which is in default of any assessment to the FDIC.


                                       6
<PAGE>


ITEM 6 - SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                            -----------------------------------------------------------------------
                                                 1998         1997           1996           1995          1994
                                            -----------------------------------------------------------------------
                                                          (Dollars in thousands, except per share data)
<S>                                           <C>         <C>             <C>           <C>           <C>
Net interest income                           $ 5,241     $     4,744     $    4,259    $    4,012    $    3,766
Provision for loan losses                         351              97             85            78           385
Noninterest income                              1,816           1,517          1,118           741           940
Noninterest expense                             6,696           5,983          6,123         5,454         5,068
Net income (loss)                                  10             181           (832)         (779)         (747)
Net income (loss) per share - basic/diluted       .01            0.22          (1.03)        (1.04)        (1.01)
Balance sheet totals:
  Total assets                               $121,983        $108,914      $  96,769     $  92,635     $  95,255
  Net loans                                    57,271          73,694         69,097        61,696        63,043
  Investment securities                        43,196          18,253         14,460        16,739        18,944
  Deposits                                    109,063          99,427         88,761        84,228        87,451
  Shareholders' equity                          8,904           7,059          6,759         7,470         6,799
  Ratios:
    Equity to assets                             6.40%          6.61%           7.45 %        7.36 %        6.54 %
    Return on assets                              .01%          0.18%          (0.89)%       (0.87)%       (0.83)%
    Return on equity                              .14%          2.69%         (12.02)%      (11.83)%      (12.69)%
</TABLE>

ITEM 7 - MANAGEMENT  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
OF OPERATIONS

     In April 1993, the  shareholders of United Bank of Philadelphia  (the Bank)
voted in favor of the formation of a bank holding  company,  United  Bancshares,
Inc.  (the  Company).  Accordingly,  in October  1994 the Company  became a bank
holding  company  in  conjunction  with the  issuance  of its  common  shares in
exchange for the common shares of the Bank. Since 1994, the financial statements
are prepared on a consolidated  basis to include the accounts of the Company and
the Bank. Financial data for prior periods are presented for the Bank only.

     The purpose of this discussion is to focus on information  about the Bank's
financial  condition and results of operations  which is not otherwise  apparent
from the consolidated  financial statements included in this annual report. This
discussion  and  analysis  should  be read in  conjunction  with  the  financial
statements presented elsewhere in this report.

                              RESULTS OF OPERATIONS

Summary

     The  Company  recorded  net  income of  $10,000  ($.01 per  share) for 1998
compared  to net  income of  $181,000  ($0.22  per  share) in 1997 and a loss of
$832,000  ($1.03 per share) in 1996.  The  decline in  earnings  during  1998 is
primarily  attributable to an increase in the provision for loan losses.  A more
detailed  explanation for each component of earnings is included in the sections
below.

     Management continues to recognize the need to grow the Bank's deposit level
to generate  operating  economies of scale and net interest  income to cover the
cost of operations. During 1998, average-earning assets increased


                                       7
<PAGE>

approximately  $9.6 million,  or 10.1%,  while the net yield on average interest
earning  assets  increased  slightly  to 5.03%.  The result was an  increase  of
$497,000 in net interest income from 1997 to 1998

     The allowance for loan losses as a percentage of total loans increased from
0.63% in 1997 to 1.17% in 1998.  This  increase is primarily  attributable  to a
specific provision of approximately  $200,000 for one commercial loan as well as
a $16 million decline in total loans outstanding at year-end.

TABLE 1 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE SUMMARY

<TABLE>
<CAPTION>
                                                                               December 31,
                                        -------------------------------------------------------------------------------------------
                                                        1998                                  1997                     1996
                                        --------------------------------------    ---------------------------   -------------------
                                        Average              Yield/   Average                Yield/   Average                Yield/
                                        balance   Interest    rate    balance     Interest    rate    balance    Interest     rate
                                        -------   --------   ------   --------    --------   ------   -------    --------    ------
                                                                         (Dollars in thousands)
<S>                                     <C>         <C>       <C>     <C>          <C>        <C>     <C>         <C>         <C>
Assets:
Interest-earning assets:
  Loans                                  71,338     6,270     8.79%   $ 68,887     $5,913     8.58%   $65,243     $5,567      8.53%
  Investment securities
    held-to-maturity                     11,436       746     6.52      10,222        659     6.45      8,110        502      6.19
  Investment securities
    available-for-sale                    8,392       557     6.63       6,252        434     6.94      8,319        495      5.95
  Federal funds sold                     12,959       688     5.31       9,187        483     5.26      4,350        225      5.17
                                                                      --------    --------   ------   -------    --------    ------
      Total interest-earning
        assets                          104,125     8,261     7.93      94,548      7,489     7.92     86,022      6,789      7.89
Noninterest-earning assets:
  Cash and due from banks                 4,646                          4,271                          3,671
  Premises and equipment, net             1,760                          1,846                          1,657
  Other assets                            3,576                          1,564                          2,129
  Less allowance for loan losses           (565)                          (468)                          (506)
                                        -------                       --------                        -------
      Total                             113,542                       $101,761                        $92,973
                                        =======                       ========                        =======
Liabilities and shareholders' equity:
Interest-bearing liabilities:
  Demand deposits                        22,622       620     2.74%   $ 14,812        379     2.56%   $13,072        294      2.25%
  Savings deposits                       23,283       428     1.84      23,277        459     1.97     24,046        506      2.10
  Time deposits                          37,365      1899     5.08      37,627      1,852     4.92     34,806      1,651      4.74
  Other borrowed funds                    1,521        73     4.85       1,262         55     4.36      1,821         79      4.34
                                                                      --------    --------   ------   -------    --------    ------
      Total interest-bearing
        liabilities                      84,791     3,020     3.56      76,978      2,745     3.57     73,745      2,530      3.43
Noninterest-bearing liabilities:
  Demand deposits                        19,740                         15,905                         11,197
  Other                                   1,747                          2,153                          1,107

Shareholders' equity                      7,264                          6,725                          6,924
                                        -------                       --------                        -------
      Total                             113,542                       $101,761                        $92,973
                                        =======                       ========                        =======
Net interest earnings                               5,241                          $4,744                         $4,259
Net yield on interest-earning assets                          5.03%                           5.01%                           4.95%
</TABLE>

For  purposes  of  computing  the  average  balance,  loans are not  reduced for
nonperforming loans.


                                       8
<PAGE>


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.

Net interest income for 1998 totaled $5.2 million,  an increase of $497,000,  or
10.5%,  compared to 1997. Net interest  income in 1997 totaled $4.7 million,  an
increase of $485,000, or 11.4%, compared to 1996.

        TABLE 2 - RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
                                    1998 compared to 1997            1997 compared to 1996
                                 ---------------------------      ---------------------------
                                  Increase (decrease) due to       Increase (decrease) due to
                                 ---------------------------      ---------------------------
                                 Volume     Rate        Net       Volume     Rate        Net
                                 -----      -----      -----      -----      -----      -----
                                                   (Dollars in thousands)
<S>                              <C>        <C>        <C>        <C>        <C>        <C>
Interest earned on:
  Loans ....................     $ 221      $ 136      $ 357      $ 245      $ 101      $ 346
  Investment securities
    held-to-maturity .......        81          6         87        136         21        157
  Investment securities
    available-for-sale .....       175        (52)       123       (144)        83        (61)
  Federal funds sold .......       203          2        205        254          4        258
                                 -----      -----      -----      -----      -----      -----
      Total interest-earning
        assets .............       680         92        772        491        209        700
                                 -----      -----      -----      -----      -----      -----
Interest paid on:
  Demand deposits ..........       218         23        241         76          9         85
  Savings deposits .........         2        (33)       (31)        13        (60)       (47)
  Time deposits ............        (9)        56         47         68        133        201
  Other borrowed funds .....         9          9         18        (98)        74        (24)
                                 -----      -----      -----      -----      -----      -----
      Total interest-bearing
        liabilities ........       220         55        275         59        156        215
                                 -----      -----      -----      -----      -----      -----
      Net interest income ..     $ 460      $  37      $ 497      $ 432      $  53      $ 485
                                 =====      =====      =====      =====      =====      =====
</TABLE>

Changes in interest  income or expense not arising  solely as a result of volume
or  rate  variances  are  allocated  to  rate  variances  due  to  the  interest
sensitivity of consolidated assets and liabilities.

     In 1998,  there was an increase in net  interest  income of $460,000 due to
changes in volume and an increase  of $37,000  due to changes in rate.  In 1997,
there was an  increase  in net  interest  income of  $432,000  due to changes in
volume and a decrease of $53,000 due to changes in rate.


                                       9
<PAGE>


     Average  earning  assets  increased  from  $94.5  million in 1997 to $104.1
million  in 1998 and from $86  million in 1996 to $94.5  million  in 1997.  This
growth in earning  assets is  primarily  attributed  to an  increase  in average
interest-bearing demand deposit balances. In December 1997, the Bank implemented
a new  deposit  transfer  ("sweep")  product  for its  nonprofit  and  municipal
customers  which provides for the overnight  transfer of available  funds from a
noninterest-bearing  account to an interest-bearing  account.  In addition,  new
"Prestige"  checking products were developed in April 1998. These products offer
premiums such as life  insurance,  discount  shopping,  premium  certificate  of
deposit rates,  etc. While  benefiting  customers,  these products also serve as
means of  generating  low cost funds for the Bank as well as a source of service
charge income from monthly membership, low balance and overdraft fees.

The Bank's net  interest  margin  increased  slightly  to 5.03% in 1998 and 1997
compared to 4.95% in 1996.  The prime rate increased 50 basis points during 1998
from 8.25% to 8.75%,  the Bank did not experience a similar increase in yield on
its loan  portfolio.  This is because much of the Bank's loan portfolio is fixed
rate in nature and not related to prime.

     During 1998,  the average  federal funds rate  increased  slightly to 5.31%
compared to 5.26% in 1997 and 5.17% in 1996. During 1998, the average investment
in federal funds  increased by $3.8 million as a result of an increased level of
deposits in the Bank's  "sweep"  checking  account which  represent high balance
short-term deposits. In addition,  during 1998, the Bank experienced high levels
of  payoffs/paydowns  in its mortgage and purchased  automobile loan portfolios.
Funds were  temporarily  placed in federal  funds  sold until  other  loans were
originated and/or purchased.

   
     The yield on the investment  portfolio decreased 6 basis points to 6.57% in
1998  compared to 6.63% in 1997 and 6.07% in 1996.  The decline in yield  during
1998 was due to call  options  in  certain  higher  yielding  Government  Agency
securities  that were exercised  during year. The Bank was not able to place the
proceeds from these premature  maturities into securities with comparable yields
due to a lower rate environment.
    

     The cost of  interest-bearing  deposits  remained  relatively  unchanged at
3.56% in 1998 compared to 3.57% in 1997 and 3.41% in 1996. During 1998 and 1997,
interest  rates paid on deposits  remained  relatively  constant.  The  increase
during  1997 was  primarily  related to the  introduction  of a fourth  tier for
balances in excess of  $250,000 on the Bank's  Business  Money  Market  Account,
which  earns a higher  interest  rate.  This  product  was  designed  to attract
customers with larger deposit balances.

Provision for Loan Losses

     The  provision is based on  management's  estimate of the amount  needed to
maintain an adequate  allowance  for loan losses.  This estimate is based on the
review of the loan  portfolio,  the level of net credit  losses,  past loan loss
experience,  the general economic outlook and other factors management feels are
appropriate.

     The provision and allowance  for loan losses  charged  against  earnings in
1998 was $350,500  compared to $97,000 in 1997 and $85,000 in 1996. The increase
in 1998 is primarily related to one community development  construction loan for
which there was a specific provision allocated of $200,000. In addition,  during
1998,  there was an  increased  level of loans for  which  there was no  related
government  guaranteeCpurchased  automobile  loans and commercial  loans.  Also,
although the Bank has not  charged-off  loans in its  residential  mortgage loan
portfolio, there was an increased level of  delinquencies/classifications.  As a
result of the  increased  credit risk in the  portfolio,  a higher level of loan
loss provision was made. Management believes the level of the allowance for loan
losses was adequate as of December 31, 1998.


                                       10
<PAGE>


Noninterest Income

     Noninterest  income  increased  $299,000  in 1998  compared  to  1997.  The
increase was  primarily  related to an increased  level of fees on deposits as a
result  of the  elimination  of the  Bank's  "free  checking"  product  and  the
introduction of a new premium checking  product--"Prestige  checking".  This new
product offers premiums such as discount shopping,  bonus certificate of deposit
rates,  insurance,  etc. to customers but also has a minimum balance and monthly
membership fee requirements. In addition, the Bank's ATM fees increased $142,000
during 1998 as a result of increased volume at its machines as well as growth in
the  ATM  network  from  26  to  28  machines.  Finally,  the  Bank  sold  loans
approximately $13.2 million in loans during 1998 for a gain of $200,000.

     Noninterest  income  increased  $399,000  in 1997  compared  to  1996.  The
increase was  primarily a result of increased ATM  surcharge  fees  ($418,000 in
1997  compared  to $150,000  in 1996) due to a full year of ATM  surcharge  fees
compared to two quarters in 1996,  an increase in the ATM  surcharge  from $0.90
per  transaction in 1996 to $1.00 in 1997, and growth in the ATM network from 15
to 23 machines.  In addition,  continued  growth in the number of demand deposit
accounts to which activity charges apply and the implementation of a low-balance
charge on "free checking" accounts when the balance falls below $100 resulted in
a $113,000 increase in demand  deposit-related fee  income--including  overdraft
fees, low balance fees,  and activity  charges.  Finally,  during 1997, the Bank
sold approximately $9.7 million student loans for a gain of $187,000.

Noninterest Expense

   
     Noninterest expense increased  $713,000,  or 11.9%, in 1998 to $6.7 million
compared to $6 million in 1997 and $6.1 million in 1996.

     Salaries and benefits  increased  $158,000,  or 6%, in 1998  compared to an
increase  of  $142,000,   or  6.3%,  in  1997.  In  addition  to  normal  salary
adjustments,  the  increase  during  1998  came as a result  of an  increase  in
staffing  levels to handle  increased  work  volumes due to growth in the Bank's
deposit  levels  during the year. In addition,  during 1997 the chief  executive
officer's  employment  contract  was  amended  to  provide  her  with a  defined
contribution  retirement plan, which resulted in a $48,000 expense for both 1998
and 1997.  Also,  during 1998, the chief executive  officer  received  incentive
compensation totaling approximately $28,000.
    

     Occupancy and equipment expense increased  approximately  $260,000, or 26%,
during 1998  compared  to an increase of  $117,000,  or 13%,  during  1997.  The
increase during 1998 was primarily  attributable to annual  escalations in lease
payments,  a July 1998 expiration of a "free rent" agreement with the RTC on the
Bank's  Wadsworth Avenue branch,  and increased  maintenance cost to service the
Bank's growing ATM network.  The Bank negotiated a  month-to-month  extension of
its lease with the Federal Deposit  Insurance  Corporation  (previously RTC) for
$1,875 per month. Purchase of this branch is currently under consideration. Upon
appropriate  evaluation  and review of the current  appraised  value, a decision
will be made as to whether the Bank continues to lease or purchase the branch.

     Data processing  expenses increased by $25,000, or 3%, during 1998 compared
to $32,000, or 4%, in 1997. The bulk of the Bank's data processing is outsourced
to  third-party  processors.  These expenses are reflective of the high level of
low-balance  accounts being serviced for which the Bank is charged a per-account
charge by processors.  The increase  during 1998 was primarily  attributable  to
growth in  deposit  levels as well as  increased  charges by  vendors.  The Bank
continues  to study  methods by which it may reduce its data  processing  costs,
including, but not limited to, a consolidation of servicers, in-house processing
versus  outsourcing,  and the possible  renegotiation of existing contracts with
servicers. In an effort to reduce these costs during 1998, the Bank continues to
sell its  student  loan  portfolio  and  replace  it with  commercial  and other
consumer loans with lower servicing costs.

     Marketing and public  relations  expense  increased by $49,000,  or 28%, in
1998 compared to an increase of $36,000,  or 28%, in 1997.  The increase in 1998
was primarily related to the introduction of the new "Prestige checking" product
for  which the Bank  pays an  outside  vendor to  provide  premiums  (i.e.  life
insurance, discount


                                       11
<PAGE>


shopping, etc.).

     Federal deposit insurance premiums were $82,000 in 1998 compared to $66,000
in 1997 and  $616,000  in 1996.  FDIC  insurance  premiums  are  applied  to all
financial  institutions based on a risk-based  premium assessment system.  Under
this system,  bank  strength is based on three  factors:  1) asset  quality,  2)
capital strength, and 3) management. Premium assessments are then assigned based
on the institution's overall rating, with the stronger institutions paying lower
rates.   During  1996,   there  was  a  one-time  SAIF  Special   Assessment  of
approximately   $485,000  resulting  from  legislation  passed  by  Congress  on
September 30, 1996 to recapitalize the SAIF. As a result, commercial banks, like
United Bank, which were members of the BIF and owned  SAIF-assessable  deposits,
were  required  to pay a  one-time  assessment  of 65.7  basis  points  of total
SAIF-assessable  deposits  on  November  27,  1996.  Because  the Bank  acquired
deposits of failed savings and loan  institutions from the RTC in 1993 and 1994,
approximately $71 million of its deposits are considered SAIF-assessable. Almost
immediately  following the  acquisitions,  a significant  amount of acquired RTC
savings and loan  deposits ran off,  leaving a balance of less than $20 million.
However,  the  legislation  did not make any provision for deposit  runoff.  The
assessment   during   1998  and  1997  was  based  on  1.29  basis   points  for
BIF-assessable deposits and 6.28 basis points for SAIF-assessable deposits.

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


                                       12
<PAGE>


                               FINANCIAL CONDITION

Sources and Uses of Funds

     The Bank's  financial  condition can be evaluated in terms of trends in its
sources  and uses of  funds.  The  comparison  of  average  balances  in Table 3
indicates  how the  Bank  has  managed  these  elements.  Average  funding  uses
increased  approximately  $9.6  million,  or 10.12%,  in 1998  compared  to $8.5
million, or 9.98%, in 1997.

                   TABLE 3 - SOURCES AND USES OF FUNDS TRENDS
<TABLE>
<CAPTION>
                                            1998                                1997                      1996
                              -------------------------------      -------------------------------       -------
                                           Increase                           Increase
                               Average    (decrease)               Average    (decrease)                 Average
                               balance      amount     Percent     balance      amount      Percent      balance
                              --------     -------      -----      -------      -------      -----       -------
                                                               (Dollars in thousands)
<S>                           <C>          <C>          <C>        <C>          <C>          <C>         <C>
Funding uses:
  Loans                       $ 71,338     $ 2,451       3.56%     $68,887      $ 3,644       5.59%      $65,243
  Investment securities:
    Held-to-maturity            11,436       1,214      11.88       10,222        2,112      26.04         8,110
    Available-for-sale           8,392       2,140      34.23        6,252       (2,067)    (24.85)        8,319
  Federal funds sold            12,959       3,772      41.06        9,187        4,837     111.20         4,350
                              --------     -------                 -------      -------                  -------
      Total uses              $104,125     $ 9,577                 $94,548      $ 8,526                  $86,022
                              ========     =======                 =======      =======                  =======
Funding sources:
  Demand deposits:
    Noninterest-bearing       $ 19,740     $ 3,835      24.11%     $15,905      $ 4,708      42.05%      $11,197
    Interest-bearing            22,622       7,810      52.73       14,812        1,740      13.31        13,072
  Savings deposits              23,283           6        .03       23,277         (769)     (3.20)       24,046
  Time deposits                 37,365        (262)      (.70)      37,627        2,821       8.11        34,806
  Other borrowed funds           1,521         259      20.52        1,262         (559)    (30.70)        1,821
                              --------     -------                 -------      -------                  -------
      Total sources           $104,531     $11,648                 $92,883      $ 7,941                  $84,942
                              ========     =======                 =======      =======                  =======
</TABLE>

*Includes held-to-maturity and available-for-sale securities

Investment Securities and other Short-Term Investments

     The Bank's investment portfolio is classified as either held-to-maturity or
available-for-sale.  Investments  classified as held-to-maturity  are carried at
amortized cost and are those securities the Bank has both the intent and ability
to hold to maturity.  Investments  classified  as  available-for-sale  are those
investments  the Bank intends to hold for an indefinite  amount of time, but not
necessarily  to  maturity,  and are carried at fair value,  with the  unrealized
holding gains and losses reported as a component of shareholders'  equity on the
balance sheet.

     Average  investment  securities  and federal funds sold, in the  aggregate,
increased by $7.1  million,  or 27.8%,  in 1998  compared to an increase of $4.9
million,  or  23.5%,  in 1997.  The  increase  during  1998 is a result of 12.4%
deposit growth and the temporary  investment of the proceeds from loan sales and
paydowns/payoffs  in the mortgage and purchased  automobile  loan  portfolios in
federal funds sold until loans were originated and/or purchased.

     The Bank's  investment  portfolio  primarily  consists  of  mortgage-backed
pass-through   agency   securities,   U.S.   Treasury   securities,   and  other
government-sponsored  agency  securities.  The Bank does not invest in high-risk
securities or complex structured notes.

     As reflected  in Table 4, the assumed  average  maturity of the  investment
portfolio was 3.59 years at year-end


                                       13
<PAGE>

1998.   Approximately   18.3%  of  the  portfolio  consists  of  mortgage-backed
pass-through  securities that have  longer-term  contractual  maturities but are
sometimes paid off/down before maturity or have repricing  characteristics  that
occur before final  maturity.  The Bank has  attempted to minimize the repayment
risk (risk of very fast or very slow  repayment)  associated with these types of
securities  by investing  primarily in a number of seasoned  mortgage  pools for
which there is a repayment  history.  This  history  better  enables the Bank to
project the repayment speeds of these pools. In addition, the Bank has minimized
the interest  rate risk  associated  with these  mortgage-backed  securities  by
investing in a variety of pools,  many of which have variable rates with indices
that track closely with the current interest rate environment.

                   TABLE 4 - ANALYSIS OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
                                         Within        After one but         After five but            After
                                        one year     within five years      within ten years          ten years
                                    ---------------   ----------------     ------------------     -----------------       -----
                                    Amount    Yield   Amount     Yield     Amount       Yield     Amount      Yield       Total
                                    ------    -----   ------     -----     ------       -----     ------      -----       -----
                                                                    (Dollars in thousands)
<S>                                <C>        <C>     <C>        <C>       <C>           <C>        <C>                  <C>
   
U.S. Treasury                      $ 1,000    5.45%                                                 $ --        --%      $ 1,000
Other government securities         17,957    5.03     6,756     6.05%      9,176        6.50%                            33,938
Mutual funds                            90    5.57                            320        6.00                                 90
Other investments                                                                                                            320
Mortgage-backed securities                                                                                                 7,898
                                   -------            ------               ------                   ----                 -------
    Total securities               $19,047            $6,756               $9,496                   $ --                 $43,196
                                   =======            ======               ======                   ====                 =======
Average maturity years                                                                                                      3.59
</TABLE>
    

The above table sets forth the  maturities of investment  securities at December
31, 1998 and the weighted  average yields of such securities  (calculated on the
basis of the cost and effective  yields  weighted for the scheduled  maturity of
each security).

Loans

     Average  loans  increased  approximately  $2.4 million,  or 3.56%,  in 1998
compared to an increase of $3.6 million,  or 5.59%, in 1997. The increase during
1998 was primarily due to an increase in commercial  loan  originations  and the
purchase of  approximately  $8 million in seasoned  automobile loans in November
1997 and $4.5 million in April 1998.  During 1998,  the Bank sold $13.1  million
($2 million in March 1998 and $11.1  million in December  1998) in student loans
in an effort to reduce data processing costs and to improve the overall yield on
the loan  portfolio by shifting the funds into  higher-yielding  commercial  and
consumer loans. In addition, during 1998 mortgage loans continue to decline as a
result  of  payoff/paydowns  and  refinancings  due to  the  low  mortgage  rate
environment.

     The Bank's policy is to make its loans and  commitments  in the market area
it serves.  However,  from  time-to-time,  the Bank has  purchased a significant
portion of its loan  portfolio to adequately  match its level of deposits and to
improve the net interest  margin.  The Bank  continues to originate  loans and a
strong pipeline of loans located within the Philadelphia region.


                                       14
<PAGE>


               TABLE 5 - LOANS OUTSTANDING, NET OF UNEARNED INCOME

<TABLE>
<CAPTION>
                                                               December 31,
                                 -----------------------------------------------------------------------
                                   1998            1997             1996          1995             1994
                                 -----------------------------------------------------------------------
                                                                  (Dollars in thousands)
<S>                              <C>              <C>             <C>            <C>             <C>
Commercial and industrial        $13,643          $12,095         $10,107        $ 8,021         $ 3,037
Commercial real estate             1,518            1,515             649            627           1,608
Consumer loans                    11,424           22,611          17,340         16,254           9,503
Residential mortgages             31,365           35,962          36,622         37,271          39,398
Loans held-for-sale                 --              1,979           4,906           --            10,223
                                 -------          -------         -------        -------         -------
      Total loans                $57,950          $74,162         $69,624        $62,173         $63,769
                                 =======          =======         =======        =======         =======
</TABLE>

               TABLE 6 - LOAN MATURITIES AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
                                                      Within           After one but      After
                                                     one year        within five years   ten years        Total
                                                     --------        -----------------   ---------        -----
                                                                       (Dollars in thousands)
<S>                                                  <C>                 <C>              <C>            <C>
Commercial and industrial                            $  4,163            $ 3,720          $ 5,760        $13,643
Commercial real estate                                    614                355              549          1,518
Consumer loans                                          1,117              7,417            2,890         11,424
Residential mortgages                                                                      31,365         31,365
                                                     --------            -------          -------        -------
      Total loans                                    $  5,894            $11,492          $40,564        $57,950
                                                     ========            =======          =======        =======
Loans maturing after one year with:
    Fixed interest rates                             $ 40,995
                                                     ========
    Variable interest rates                          $ 11,061
                                                     ========
</TABLE>

Nonperforming Loans

     Table 7 reflects  the Bank's  nonperforming  loans for the last five years.
The Bank  generally  determines a loan to be  "nonperforming"  when  interest or
principal is past due 90 days or more. If it otherwise appears doubtful that the
loan will be repaid, management may consider the loan to be nonperforming before
the lapse of 90 days.  The Bank's policy is to charge off unsecured  loans after
90 days past due.  Interest on  nonperforming  loans ceases to accrue except for
loans that are well-collateralized and in the process of collection. When a loan
is placed on  nonaccrual,  previously  accrued and unpaid  interest is generally
reversed  out of income  unless  adequate  collateral  from which to collect the
principal of, and interest on, the loan appears to be available.


                                       15
<PAGE>


                          TABLE 7 - NONPERFORMING LOANS
                                    1998      1997      1996     1995      1994
                                   --------------------------------------------
                                              (Dollars in thousands)
   
Nonaccrual loans                   $1,720    $1,179     $800     $949      $572
Interest income included in
  net income for the year              37        14        6      23         --
Interest income that would
  have been recorded
  under original terms                189       112       45      37         41
Loans past due 90 days and
  still accruing                      125       306      408      10         --
    

     There is no known  information  about possible  credit  problems other than
those classified as nonaccrual that causes  management to be uncertain as to the
ability of any borrower to comply with present loan terms.

     The Bank grants  commercial,  residential,  and consumer loans to customers
primarily located in Philadelphia County,  Pennsylvania and surrounding counties
in the Delaware Valley. Although the Bank has a diversified loan portfolio,  its
debtors' ability to honor their contracts is influenced by the region's economy.

     At December  31,  1998,  approximately  33% of the Bank's  commercial  loan
portfolio  was  concentrated  in loans  made to  religious  organizations.  From
inception, the Bank has received support in the form of investments and deposits
and has developed strong relationships with the Philadelphia  region's religious
community.  Loans made to these  organizations  were primarily for expansion and
repair of church  facilities.  At December  31,  1998,  none of these loans were
nonperforming.

     During  1998,  nonaccrual  loans  increased to $1.7  million,  up from $1.2
million at December 31,  1997.  The  increase in the level of  nonaccrual  loans
during 1998 is primarily attributable to one community development  construction
loan and the aging of the residential mortgage loan portfolios the Bank acquired
in 1993 and 1994.  At December  31,  1998,  approximately  $501,000 of the total
nonaccrual loans were residential mortgages. The underlying collateral minimizes
the risk of loss associated  with these loans.  Loans past due 90 days and still
accruing  consist  primarily of student loans for which there is a 98% guarantee
of principal and interest.

Allowance for Loan Losses

     The allowance for loan losses reflects  management's  continuing evaluation
of the loan portfolio,  assessment of economic  conditions,  the diversification
and size of the portfolio,  adequacy of collateral,  past and  anticipated  loss
experience,  and the amount and quality of nonperforming loans. Table 9 presents
the  allocation  of loan losses by major  category for the past five years.  The
specific  allocations  in any  particular  category may prove to be excessive or
inadequate  and  consequently  may be  reallocated  in  the  future  to  reflect
then-current conditions.


                                       16
<PAGE>


TABLE 8 B ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                 1998                   1997                    1996                 1995
                          -------------------    -------------------    -------------------   -------------------
                                    Percent                Percent                Percent               Percent
                                    of loans              of loans               of loans              of loans
                                    in each                in each               in each               in each
                                  category to            category to            category to           category to
                          Amount  total loans    Amount  total loans    Amount  total loans   Amount  total loans
                          ------  -----------    ------  -----------    ------  -----------   ------  -----------
                                                       (Dollars in thousands)
<S>                        <C>      <C>           <C>      <C>            <C>     <C>          <C>     <C>
Commercial and
  industrial               $272      23.54%       $144      16.31%        $222     14.52%      $113     12.90%
Commercial real estate      132       2.62          13       2.04           13      0.93         13      1.01
Residential mortgages        55      19.71         180      48.49          245     52.60        246     59.95
Consumer loans              188      54.12          97      33.16           44     31.95         65     26.14
Unallocated                  32         --          34         --            4        --         39        --
                           ----     ------        ----     ------         ----    ------       ----    ------
                           $679        100%       $468     100.00%        $528    100.00%      $476    100.00%
                           ====     ======        ====     ======         ====    ======       ====    ======
</TABLE>

     Management  believes that the allowance for loan losses is adequate.  While
management  uses  available  information  to recognize  losses on loans,  future
additions may be necessary based on changes in economic conditions. In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically  review the Bank's  allowance  for loan losses.  Such  agencies may
require  the  Bank to  recognize  additions  to the  allowance  based  on  their
judgments of information available to them at the time of the examination.

                 TABLE 9 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                       -------------------------------------------------------------------------
                                        1998           1997             1996            1995              1994
                                       -------------------------------------------------------------------------
                                                                (Dollars in thousands)
<S>                                     <C>           <C>             <C>             <C>              <C>
Balance at January 1                    $ 468         $   528         $    476        $     726        $     629
                                        -----         -------         --------        ---------        ---------
Charge-offs:
  Commercial and industrial                               (66)             (17)            (195)            (298)
  Commercial real estate                                  -                -                -                -
  Residential mortgages                                    (9)             -                -                -
  Consumer loans                         (180)           (160)             (25)              (5)             (44)
                                        -----         -------         --------        ---------        ---------
                                         (180)           (235)             (42)            (200)            (342)
Recoveries - consumer loans                41              78                9                6                3
                                        -----         -------         --------        ---------        ---------
Net charge-offs                          (139)           (157)             (33)            (194)            (339)
Additions charged to operations           350              97               85               78              385
Allowance allocated to acquired loans                      --               --               --              185
Allowance previously allocated to
  sold loans                               --              --               --             (134)            (134)
                                        -----         -------         --------        ---------        ---------

Balance at December 31                  $ 679         $   468         $    528        $     476        $     726
                                        =====         =======         ========        =========        =========
Ratio of net charge-offs to average
  loans outstanding                       .19%           0.23%            0.05%           0.34%            0.63%
                                        =====         =======         ========        =========        =========
</TABLE>

The amount  charged to operations  and the related  balance in the allowance for
loan losses are based upon the  periodic  evaluations  of the loan  portfolio by
management.  These  evaluations  consider  several factors,  including,  but not
limited to, general economic conditions, loan portfolio composition,  prior loan
loss experience, and management's estimate of future potential losses.


                                       17
<PAGE>


Deposits

     Average  deposits  grew  approximately  $11.4  million,  or 12.4%,  in 1998
compared to growth of $8.5 million,  or 10.2%, in 1997.  Sweep deposit  accounts
were introduced in late 1997 as a vehicle to attract larger deposits by sweeping
funds out of  noninterest-bearing  demand  deposit  accounts and investing  them
overnight in interest-bearing deposit accounts. At December 31, 1998, there were
$10  million  in such  accounts.  In  addition,  in 1998,  non-interest  bearing
deposits increased on average by $3.8 million as a result of the introduction of
the new "Prestige checking" product.

TABLE 10 - DEPOSITS BY CLASS AND RATE
                                 1998             1997              1996
                             ------------    --------------    --------------
                             Amount  Rate    Amount    Rate    Amount    Rate
                             ------  ----    ------    ----    ------    ----
(Dollars in thousands)
Noninterest-bearing
  demand deposits           $19,740    --%   $15,905     --%   $11,197     --%
Interest-bearing demand
    deposits                 22,622  2.74     14,812   2.56     13,072   2.25
Savings deposits             23,283  1.84     23,277   1.97     24,046   2.10
Time deposits                37,365  5.08     37,627   4.92     34,806   4.74

Other Borrowed Funds

     The average balance for other borrowed funds increased $259,000, or 20.52%,
in 1998 compared to a decrease of $559,000,  or 30.70%, in 1997. The increase in
other borrowed funds during 1998 was due to  higher-balance  reverse  repurchase
agreements  the Bank entered into in 1998  compared to 1997.  The level of other
borrowed funds is dependent on many items such as loan growth,  deposit  growth,
customer  collateral/security  requirements  and  interest  rates paid for these
funds.

Liquidity and Interest Rate Sensitivity Management

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

     The Bank is required to maintain minimum levels of liquid assets as defined
by Federal  Reserve Board (FRB)  regulations.  This  requirement is evaluated in
relation to the composition  and stability of deposits;  the degree and trend of
reliance on short-term,  volatile sources of funds, including any undue reliance
on particular segments of the money market or brokered deposits;  any difficulty
in obtaining funds;  and the liquidity  provided by securities and other assets.
In addition, consideration is given to the nature, volume and anticipated use of
commitments;  the adequacy of  liquidity  and funding  policies  and  practices,
including the provision for alternate sources of funds; and the nature and trend
of off-balance-sheet  activities.  As of December 31, 1998,  management believes
the Bank's liquidity is satisfactory and in compliance with FRB regulations

     The  Bank's  principal  sources  of  asset  liquidity  include   investment
securities  consisting   principally  of  U.S.  Government  and  agency  issues,
particularly those of shorter maturities,  and  mortgage-backed  securities with
monthly repayments of principal and interest. Securities maturing in one year or
less  amounted to $19  million at December  31,  1998,  representing  44% of the
investment portfolio. Other types of assets such as federal funds sold,


                                       18
<PAGE>


as well as maturing loans, are sources of liquidity.  Approximately $5.9 million
in loans are scheduled to mature within one year.

     The Bank's  overall  liquidity has been enhanced by a significant  level of
core deposits  which  management  has  determined are less sensitive to interest
rate  movements.  The Bank  has  avoided  reliance  on  large-denomination  time
deposits as well as  brokered  deposits.  Table 11  provides a breakdown  of the
maturity of deposits of $100,000 or more.

               TABLE 11 - MATURITY OF DEPOSITS OF $100,000 OR MORE
                             (Dollars in thousands)

      3 months or less                                     $ 10,591
      Over 3 through 6 months                                 2,892
      Over 6 months through 1 year
      Over 1 through five years                                 459
      Over five years                                             -
                                                           --------
                 Total                                     $ 13,942
                                                           ========

     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 that are tied to prime or other short-term indices differ
considerably  from  long-term   investment   securities  and  fixed-rate  loans.
Similarly,  time deposits are much more interest-sensitive than passbook savings
accounts.  The shorter-term interest rate sensitivities are key to measuring the
interest sensitivity gap or excess interest-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.  Table 12 sets
forth the earliest repricing distribution of the Bank's  interest-earning assets
and interest-bearing  liabilities at December 31, 1998, the Bank's interest rate
sensitivity  gap ratio  (i.e.  excess of  interest  rate-sensitive  assets  over
interest  rate-sensitive  liabilities,  divided by total  assets) and the Bank's
cumulative  interest  rate  sensitivity  gap ratio.  For  purposes of the table,
except for savings deposits, an asset or liability is considered  rate-sensitive
within a  specified  period  when it matures or could be  repriced  within  such
period or repriced within such period in accordance with its contractual  terms.
At  December  31,  1998,  a liability  sensitive  position  is  maintained  on a
cumulative  basis  through one year of -12.24% that is within the Bank's  policy
guidelines of +/-15% on a cumulative one-year basis. The current gap position is
primarily due to the high  concentration  of fixed-rate  mortgage loans the Bank
has in its loan portfolio but is somewhat  mitigated by the Bank's high level of
core deposits that have been placed in longer  repricing  intervals.  Generally,
because of the Bank's negative gap position in shorter time frames, the Bank can
anticipate that increases in market rates will have a negative impact on the net
interest income, while decreases will have the opposite effect.

     For purposes of the gap analysis,  such deposits (savings,  MMA, NOW) which
do not have  definitive  maturity  dates and do not readily  react to changes in
interest rates have been placed in longer  repricing  intervals versus immediate
repricing  time  frames,  making  the  analysis  more  reflective  of the Bank's
historical experience.


                                       19
<PAGE>


                    TABLE 12 - INTEREST SENSITIVITY ANALYSIS
                         Interest rate sensitivity gaps
<TABLE>
<CAPTION>
                                                            as of December 31, 1998
                                   -----------------------------------------------------------------------------
                                                                 Over
                                                  Over           1 year        Over
                                   3 months    3 through 12     through      3 through    Over five
                                   or less        months        3 years       5 years        years    Cumulative
                                   -------       -------        -------       -------       -------     --------
                                                            (Dollars in thousands)
<S>                                <C>           <C>            <C>           <C>           <C>         <C>
Interest-sensitive assets:
  Interest-bearing deposits
    with banks                     $   350       $              $             $             $           $    350
  Investment securities:
    Held-to-maturity                18,957           198            250         5,015        10,726       35,146
    Available-for-sale               4,133                                      2,006         1,911        8,050
  Federal funds sold                12,318                                                                12,318
  Loans                             12,842         2,099          6,947         3,905        32,157       57,950
                                   -------       -------        -------       -------       -------     --------
    Total interest-sensitive
       assets                       48,600         2,297          7,197        10,926        44,794     $113,814
                                   -------       -------        -------       -------       -------     ========
    Cumulative totals               48,600        50,897         58,094        69,020       113,814
                                   -------       -------        -------       -------       -------
Interest-sensitive liabilities:
  Interest checking accounts        19,593                        9,521                                 $ 29,114
   Savings accounts                 13,866                        9,527                                   23,393
  Certificates less than
    $100,000                         6,072        10,247          3,710         2,585                     22,614
  Certificates of $100,000
    or more                         10,591         2,892            339           120                     13,942
  Other Borrowed Funds               1,558            11                                                   1,569
                                   -------       -------        -------       -------       -------     --------
    Total interest-sensitive
       liabilities                  51,680        13,150         23,097         2,705            --     $ 90,632
                                   -------       -------        -------       -------       -------     ========
    Cumulative totals              $51,680       $64,830        $87,927       $90,632       $90,632
                                   =======       =======        =======       =======       =======
Interest sensitivity gap           ($3,080)     ($10,853)      $(15,900)       $8,221       $44,794
                                   =======       =======        =======       =======       =======
Cumulative gap                     ($3,080)     ($13,933)      ($29,833)     ($21,612)      $23,182
                                   =======       =======        =======       =======       =======
Cumulative gap/total earning
  Assets                              2.71%       (12.24%)       (26.21%)       18.98%        20.37%
                                   =======       =======        =======       =======       =======
Interest-sensitive assets to
  interest-sensitive liabilities     94.04%        17.46%         31.15%       403.91%           --%
                                   =======       =======        =======       =======       =======
</TABLE>

Core  deposits  such as  checking  and  savings  deposits  have  been  placed in
repricing intervals based on historical trends and management's estimates.


     While using the interest  sensitivity  gap analysis is a useful  management
tool as it considers the quantity of assets and liabilities subject to repricing
in a given time period, it does not consider the relative  sensitivity to market
interest rate changes that are characteristic of various interest rate-sensitive
assets and  liabilities.  Consequently,  even  though the Bank  currently  has a
negative  gap  position  because  of  unequal  sensitivity  of these  assets and
liabilities,  management  believes  this  position  will not  materially  impact
earnings in a changing rate


                                       20
<PAGE>

environment. For example, changes in the prime rate on variable commercial loans
may not  result  in an equal  change  in the rate of money  market  deposits  or
short-term  certificates  of deposit.  A simulation  model is therefore  used to
estimate  the impact of various  changes,  both upward and  downward,  in market
interest  rates and volumes of assets and  liabilities on the Bank's net income.
This model  produces an interest rate exposure  report that forecast  changes in
the  market  value  of  portfolio   equity  under   alternative   interest  rate
environments.  The market  value of  portfolio  equity is defined as the present
value  of the  Company's  existing  assets,  liabilities  and  off-balance-sheet
instruments.  The  calculated  estimates of changes in market value of portfolio
value at December 31, 1998 are as follows:

                                     Market value of             Percent of
       Changes in rate               portfolio equity              change
                                 (Dollars in thousands)
     +400 basis points                  ($19,251)                  (764)%
     +300 basis points                   (13,714)                  (573)
     +200 basis points                    (8,176)                  (382)
     +100 basis points                    (2,640)                  (191)
     Flat rate                             2,898                     --
     -100 basis points                     8,436                    191
     -200 basis points                    13,972                    382
     -300 basis points                    19,510                    573
     -400 basis points                    25,048                    764

     The  assumptions  used in  evaluating  the  vulnerability  of the Company's
earnings  and  capital to changes in  interest  rates are based on  management's
consideration  of past  experience,  current  position  and  anticipated  future
economic  conditions.  The  interest  sensitivity  of the  Company's  assets and
liabilities, as well as the estimated effect of changes in interest rates on the
market  value  of  portfolio  equity,  could  vary  substantially  if  different
assumptions are used or actual experience  differs from the assumptions on which
the calculations were based.

     The Bank's Board of Directors and  management  consider all of the relevant
factors and conditions in the  asset/liability  planning process.  Interest rate
exposure is not  significant  and is within the Bank's policy limits at December
31, 1998.  However,  if  significant  interest  rate risk  arises,  the Board of
Directors  and  management  may take (but are not  limited to) one or all of the
following steps to reposition the balance sheet as appropriate:

     1.   Limit jumbo  certificates  of deposit and  movement  into money market
          deposit  accounts  and  short-term  certificates  of  deposit  through
          pricing and other marketing strategies.

     2.   Purchase  quality  loan  participations   with  appropriate   interest
          rate/gap match for the Bank's balance sheet.

     3.   Restructure the Bank's investment portfolio.

     The Board of  Directors  has  determined  that  active  supervision  of the
interest  rate  spread  between  yield on earning  assets and cost of funds will
decrease the Bank's vulnerability to interest rate cycles.

Capital Resources

     Total  shareholders'  equity  increased $1.9 million in 1998 compared to an
increase of approximately  $300,000 in 1997. The increase in 1998 is a result of
retained earnings ($10,000),  sale of common stock ($1.1 million),  and the sale
of preferred stock ($796,000).

     The  FRB  standards  for  measuring   capital  adequacy  for  U.S.  Banking
organizations  require  that banks  maintain  capital  based on  "risk-adjusted"
assets so that  categories of assets with  potentially  higher risk will require
more  capital  backing  than  assets  with lower risk.  In  addition,  banks are
required  to maintain  capital to support,  on a  risk-adjusted  basis,  certain
off-balance-sheet  activities  such  as  loan  commitments.  The  FRB  standards
classify  capital  into two  tiers,  referred  to as Tier 1 and  Tier 2.  Tier 1
consists of common shareholders' equity,


                                       21
<PAGE>


noncumulative and cumulative  perpetual  preferred stock, and minority interests
less  goodwill.  Tier 2 capital  consists of allowance  for loan losses,  hybrid
capital  instruments,  term subordinated debt, and  intermediate-term  preferred
stock. Banks are required to meet a minimum ratio of 8% of qualifying capital to
risk-adjusted total assets with at least 4% Tier 1 capital and a Tier I leverage
ratio of at least 6%.  Capital  that  qualifies  as Tier 2 capital is limited to
100% of Tier 1 capital.

     As indicated in Table 13, the Bank's  risk-based  capital  ratios are above
the  minimum  requirements.   Management  continues  the  objective  of  raising
additional capital by offering  additional stock (preferred and common) for sale
to the public as well as  increasing  the rate of internal  capital  growth as a
means of maintaining the required  capital  ratios.  The Company and the Bank do
not anticipate paying dividends in the near future.

                            TABLE 13 - CAPITAL RATIOS
                                                 1998        1997        1995
                                                --------------------------------
                                                    (Dollars in thousands)
Tier 1 capital                                  $ 8,823     $ 6,891     $ 6,558
Tier 2 capital                                      679         468         504
                                                -------     -------     -------
  Total qualifying capital                      $ 9,502     $ 7,359     $ 7,062
                                                =======     =======     =======
Risk-adjusted total assets (including off-
  balance-sheet exposures)                      $54,373     $51,868     $40,306
                                                =======     =======     =======
Tier 1 risk-based capital ratio                   16.23%      13.29%      16.27%
Total (Tier I and II) risk-based capital ratio    17.48%      14.19%      17.52%
Tier 1 leverage ratio                              7.62%       6.59%       7.09%

Regulatory Matters

     At December 31, 1998, the Bank is operating under a Supervisory Letter from
its primary regulator.  The Supervisory Letter, among other things, prevents the
Bank and the  Company  from  declaring  or paying  dividends  without  the prior
written  approval of its  regulators and prohibits the Bank and the Company from
issuing debt.

Income (Loss) Per Share

     During 1997,  the Company  adopted the provisions of Statement of Financial
Accounting  Standards  (SFAS)  No.  128,  "Earnings  Per  Share."  SFAS No.  128
eliminates  primary and fully  diluted  earnings  per share  (EPS) and  requires
presentation of basic and diluted EPS in conjunction  with the disclosure of the
methodology  used in  computing  such EPS.  Basic EPS  excludes  dilution and is
computed by dividing  income  available to common  shareholders  by the weighted
average  common  shares  outstanding  during the period.  Diluted EPS takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were  exercised  and converted  into common  stock.  Prior
period EPS  calculations  have been restated to reflect the adoption of SFAS No.
128.

Reporting Comprehensive Income

     In January  1998,  the Bank adopted SFAS No. 130,  Reporting  Comprehensive
Income.  This standard  establishes  new  standards for reporting  comprehensive
income which  includes net income as well as certain other items which result in
a change to equity  during the  period.  These  financial  statements  have been
reclassified to reflect the provisions of SFAS No. 130.

                                       22
<PAGE>


Disclosures About Segments of an Enterprise and Related Information

     In June 1997,  the FASB  issued SFAS No. 131,  which is  effective  for all
periods  beginning  after December 15, 1998.  SFAS No. 131,  "Disclosures  About
Segments  of an  Enterprise  and  Related  Information,"  requires  that  public
business  enterprises  report certain  information  about operating  segments in
complete  sets  of  financial  statements  of the  enterprise  and in  condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their products
and  services,  the  geographic  area in which  they  operate,  and their  major
customers.  Management is currently evaluating the disclosure impact of SFAS No.
131 on its  financial  statements.  Management  has  determined  that  the  Bank
operates in one segment, namely community banking.

Cautionary Statement

     Certain  statements  contained  herein are not based on historical fact and
are  "forward-looking  statements"  within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements,  which are based upon
various  assumptions  (some of which are beyond the  control of the Bank and the
Company),  may be identified by reference to a future period, or periods,  or by
the  use of  forward-looking  terminology  such  as  "may,"  "will,"  "believe,"
"expect," "estimate,"  "anticipate,"  "continue," or similar terms or variations
on those  terms,  or the negative of those terms.  Actual  results  could differ
materially  from those set forth in  forward-looking  statements.  Factors  that
could   cause   actual   results  to  differ   materially   from  those  in  the
forward-looking  statements  include,  but are not limited to, economic  growth;
governmental  monetary  policy,  including  interest  rate  policies of the FRB;
sources and costs of funds;  levels of interest rates;  inflation rates;  market
capital spending;  technological change; the state of the securities and capital
markets;  acquisition;  consumer  spending and  savings;  expense  levels;  tax,
securities, and banking laws; and prospective legislation.


                                       23
<PAGE>


Year 2000

     The Year 2000  problem is the result of  computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's programs or that of its vendor that have  time-sensitive  software may
recognize  the date using "00" as the year 1900 rather than the Year 2000.  This
could  result in major  system  failure  or  miscalculations.  The  "Year  2000"
potential  problems create risk for the Company from unforeseen  problems in its
own computer system and from third parties such as other financial institutions,
the federal government, federal agencies, vendors and customers. Failures of the
Company's or third party's  computer systems could have a material effect on the
Company's  abilities to conduct business,  especially to process and account for
the transfer of funds electronically

     Like many  financial  institutions,  the Company  relies upon computers for
conducting its daily  operations.  Failure to resolve Year 2000 issues  presents
the following  risks to the Company:  (1) the Bank could lose customers to other
financial  institutions,  resulting  in loss  revenue,  if the Bank is unable to
properly account for customer transactions;  (2) governmental agencies,  such as
the Federal Home Loan Bank, and correspondent institutions could fail to provide
funds to the Bank which could materially  impair the Bank's liquidity and affect
the Bank's  ability to fund loans and  deposit  withdrawals;  (3) concern on the
part of  depositors  that Year 2000 issues could impair  access to their deposit
account balances could result in the Bank experiencing deposit outflows prior to
December 31, 1999;  and (4) the bank could incur  increased  personnel  costs if
additional staff is required to perform functions that inoperative systems would
have  otherwise  performed.  Management  believes  that  it is not  possible  to
estimate the  potential  lost revenue due to the Year 2000 issue,  as the extent
and longevity of any potential problem cannot be predicted.

     The Company has conducted a comprehensive  review of its computer  systems,
both internal and outsourced  processing,  to identify the systems that could be
affected by the "Year  2000" issue and has  developed a Year 2000 Plan to modify
or replace the affected systems and test them for Year 2000 readiness,  To date,
the Company has taken the following actions to mitigate the potential effects of
the Year 2000 issue:

o    The Bank  has  upgraded  all  applicable  computer  systems  (hardware  and
     software)  to be Year 2000  ready.  Management  is  currently  testing  all
     systems to ensure Year 2000 Compliance and is developing an  implementation
     plan to resolve the issue.

o    The Board of  Directors  has  adopted a Year 2000 Plan that  Management  is
     currently  implementing.  The Plan  address the overall  status of the Year
     2000 Project,  details of the Company's contingency plan, describes mission
     critical  systems and non-mission  critical  systems,  identifies all third
     party vendors and applicable testing strategies and test dates. The Company
     has also written a Year 2000  Business  Resumption  Plan that  contains all
     mission critical systems and services.

o    The Company has established a Year 2000 Committee  consisting of members of
     senior  management  which  currently  meets at  least  monthly  to  discuss
     progress on the Year 2000 Plan, and

o    A Year 2000 budget has been developed  which  estimates the cost associated
     with Year 2000 readiness.  Current  estimates of the cost to be incurred to
     prepare for the Year 2000 range from do not exceed $200,000. In conjunction
     with Year 2000  preparation,  the Bank plans to make most hardware upgrades
     as a normal part of replacement of equipment--thereby minimizing cost. Cost
     estimates  include  primarily  personnel and consulting  time to ensure all
     business   components/processes   have  been   considered  and  tested  for
     compliance.

o    The Bank holds customer awareness seminars and has contacted its major loan
     and  deposit  customers  to advise  them to review  their own  systems  for
     possible  Year 2000  problems.  In  determining  credit  risk for  existing
     customers as well as in making credit  decisions for major  borrowers,  the
     Bank considers the impact of the Year 2000 issues.


                                       24
<PAGE>


ITEM 8 - FINANCIAL STATEMENTS

               Report of Independent Certified Public Accountants

Shareholders and Board of Directors
United Bancshares, Inc.

     We have  audited the  accompanying  consolidated  balance  sheets of United
Bancshares,  Inc.  and  Subsidiary  as of December  31,  1998 and 1997,  and the
related consolidated  statements of operations,  changes in shareholders' equity
and  comprehensive  income,  and cash  flows for the  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in  all  material  respects,  the  consolidated  financial  position  of  United
Bancshares,  Inc.  and  Subsidiary  as of December  31,  1998 and 1997,  and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.


GRANT THORNTON LLP

Philadelphia, Pennsylvania
April 9, 1999


                                       25
<PAGE>


                     United Bancshares, Inc. and Subsidiary

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                 ------------------------------
                                                                                      1998             1997
                                                                                 -------------    -------------
                         ASSETS
<S>                                                                              <C>              <C>
Cash and due from banks                                                          $   3,675,010    $   4,604,408
Interest-bearing deposits with banks                                                   350,024          334,288
Federal funds sold                                                                  12,318,000        7,821,000
                                                                                 -------------    -------------
      Cash and cash equivalents                                                     16,343,034       12,759,696
Investment securities:
  Available-for-sale, at market value                                                8,049,875        7,398,607
  Held-to-maturity, at amortized cost (market value of $35,203,274 in 1998)         35,146,148       10,854,711

Loans held-for-sale (market value of $2,008,865 in 1997)                                              1,979,177
Loans, net of unearned discount of $301,540 and $361,350 in 1998 and
  1997, respectively                                                                57,950,133       72,183,255
Less allowance for loan losses                                                        (679,557)        (468,806)
                                                                                 -------------    -------------
      Net loans                                                                     57,270,576       73,693,626
Bank premises and equipment, net                                                     1,565,131        1,862,647
Accrued interest receivable                                                          1,749,623        1,439,587
Foreclosed real estate                                                                 262,368          165,188
Deferred branch acquisition costs                                                                        75,753
Prepaid expenses and other assets                                                    1,595,926          664,475
                                                                                 -------------    -------------
                                                                                 $ 121,982,681    $ 108,914,290
                                                                                 =============    =============
              LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Demand deposits, noninterest-bearing                                           $  19,999,226    $  17,697,901
  Demand deposits, interest-bearing                                                 29,114,084       20,922,107
  Savings deposits                                                                  23,393,986       22,925,881
  Time deposits, $100,000 and over                                                  13,942,008       13,852,356
  Time deposits                                                                     22,614,098       24,028,818
                                                                                 -------------    -------------
                                                                                   109,063,402       99,427,063

  Long-term debt                                                                        11,191           43,688
  Securities sold to repurchase                                                      1,557,755        1,341,053
  Accrued interest payable                                                             598,352          541,225
  Accrued expenses and other liabilities                                             1,847,665          502,406
                                                                                 -------------    -------------
      Total liabilities                                                            113,078,365      101,855,435
                                                                                 -------------    -------------
Shareholders' equity:
  Series A preferred stock, noncumulative, 6%, $0.01 par value, 500,000 shares
    authorized; 132,999 and 93,150 issued and outstanding
    in 1998 and 1997                                                                     1,330              932
  Common stock, $0.01 par value; 2,000,000 shares authorized; 913,490 and
    823,695 issued and outstanding in 1998 and 1997, respectively                        9,134            8,236
  Additional paid-in-capital                                                        12,286,233       10,425,626
  Accumulated deficit                                                               (3,428,169)      (3,438,102)
  Accumulated other comprehensive income                                                35,788           62,163
                                                                                 -------------    -------------
            Total shareholders' equity                                               8,904,316        7,058,855
                                                                                 -------------    -------------
                                                                                 $ 121,982,681    $ 108,914,290
                                                                                 =============    =============
</TABLE>

The accompanying notes are an integral part of these statements.


                                       26
<PAGE>


                     United Bancshares, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                    ---------------------------------------
                                                                        1998          1997          1996
                                                                    -----------   -----------   -----------
<S>                                                                 <C>           <C>           <C>
Interest income:
  Interest and fees on loans                                        $ 6,270,323   $ 5,912,901   $ 5,566,650
  Interest on investment securities                                   1,275,542     1,067,762       977,117
  Interest on federal funds sold                                        688,285       482,856       224,594
  Interest on time deposits with other banks                             26,329        25,333        20,519
                                                                    -----------   -----------   -----------
      Total interest income                                           8,260,479     7,488,852     6,788,880
                                                                    -----------   -----------   -----------
Interest expense:
    Interest on time deposits                                         1,898,967     1,852,080     1,650,740
    Interest on demand deposits                                         619,921       379,397       294,363
    Interest on savings deposits                                        427,682       459,035       506,458
    Interest on borrowed funds                                           73,265        54,841        78,629
                                                                    -----------   -----------   -----------
              Total interest expense                                  3,019,835     2,745,353     2,530,190
                                                                    -----------   -----------   -----------
              Net interest income                                     5,240,644     4,743,499     4,258,690
Provision for loan losses                                               350,500        97,500        85,000
                                                                    -----------   -----------   -----------
              Net interest income after provision for loan losses     4,890,144     4,645,999     4,173,690
                                                                    -----------   -----------   -----------
Noninterest income:
    Gain on sale of loans                                               201,664       187,471        11,188
    Customer service fees                                             1,457,508     1,181,082       907,557
    Resolution Trust Corporation fee                                       --            --          90,000
    Gain on sale of investments                                           1,201          --           9,157
    Other income                                                        155,663       148,867        99,820
                                                                    -----------   -----------   -----------
              Total noninterest income                                1,816,036     1,517,420     1,117,722
                                                                    -----------   -----------   -----------
Noninterest expense:
    Salaries, wages, and employee benefits                            2,555,774     2,397,861     2,255,079
    Occupancy and equipment                                           1,275,902     1,015,419       898,464
    Office operations and supplies                                      525,771       522,525       509,158
    Marketing and public relations                                      221,348       172,326       136,352
    Professional services                                               232,793       274,999       266,955
    Data processing                                                     868,665       844,009       811,531
    Deposit insurance assessments                                        82,389        66,274       616,025
    Other operating                                                     933,605       689,416       629,603
                                                                    -----------   -----------   -----------
              Total noninterest expense                               6,696,247     5,982,829     6,123,167
                                                                    -----------   -----------   -----------
              Net income (loss)                                     $     9,933   $   180,590   $  (831,755)
                                                                    ===========   ===========   ===========
Net income (loss) per common share -- basic/diluted                 $       .01   $      0.22   $     (1.03)
                                                                    ===========   ===========   ===========
Weighted average number of common shares                                845,902       818,240       810,729
                                                                    ===========   ===========   ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       27
<PAGE>


                     United Bancshares, Inc. and Subsidiary

               CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
                        EQUITY AND COMPREHENSIVE INCOME

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                   Series A                                                    Accumulated     Total
                               preferred stock      Common stock     Additional                    other       share-
                               ----------------   ----------------     paid-in   Accumulated   comprehensive  holders' Comprehensive
                               Shares    Amount   Shares    Amount     capital      deficit    income (loss)   equity  income (loss)
                               ------    ------   ------    ------     -------      -------    -------------   ------  -------------
<S>                             <C>      <C>      <C>       <C>      <C>           <C>            <C>        <C>           <C>
Balance at January 1, 1996      93,150   $  932   802,480   $8,024   $10,210,580   $(2,786,937)   $37,236    $7,469,835    $     --

  Proceeds from issuance of
    common stock                    --       --    13,875      139       138,409            --         --       138,548

  Unrealized losses on
    investment securities           --       --        --       --            --            --    (17,960)      (17,960)    (17,960)

  Net loss                          --       --        --       --            --      (831,755)        --      (831,755)   (831,755)
                               -------   ------   -------   ------   -----------   -----------    -------    ----------    --------
Balance at December 31, 1996    93,150      932   816,355    8,163    10,348,989    (3,618,692)    19,276     6,758,668    $849,715

  Proceeds from issuance of
    common stock                    --       --     7,340       73        76,637            --         --        76,710

  Unrealized gains on
    investment securities           --       --        --       --            --            --     42,887        42,887      42,887

  Net income                        --       --        --       --            --       180,590         --       180,590       0,590
                               -------   ------   -------   ------   -----------   -----------    -------    ----------    --------
Balance at December 31, 1997    93,150      932   823,695    8,236    10,425,626    (3,438,102)    62,163     7,058,855    $223,477

  Proceeds from issuance of
    referred stock              39,849      398                          796,582                                796,980

  Proceeds from issuance of
    common stock                                   89,795      898     1,064,025                              1,064,923
  Unrealized losses on
    investment securities                                                                         (26,375)      (26,375)    (26,375)

  Net income                        --       --        --       --            --         9,933         --         9,933       9,933
                               -------   ------   -------   ------   -----------   -----------    -------    ----------    --------
Balance at December 31, 1998   132,999   $1,330   913,490   $9,134   $12,286,233    $3,428,169)   $35,788    $8,904,316    ($16,442)
                               =======   ======   =======   ======   ===========    ==========    =======    ==========    ========
</TABLE>

The accompanying notes are an integral part of this statement.


                                       28
<PAGE>


                     United Bancshares, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                               --------------------------------------------
                                                                   1998            1997            1996
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                            $      9,933    $    180,590    $   (831,755)
  Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
    Provision for loan losses                                       350,500          97,500          85,000
    Gain on sale of loans                                          (201,664)       (187,471)        (11,188)
    Depreciation and amortization                                   584,744         542,193         512,045
    Realized investment securities gains                               --              --            (9,157)
    (Increase) decrease in accrued interest receivable
      and other assets                                           (1,345,070)       (244,534)       (570,347)
    (Decrease) increase in accrued interest payable
      and other liabilities                                       1,402,386        (131,570)        341,790
                                                               ------------    ------------    ------------
        Net cash provided by (used in) operating activities         800,829         256,708        (483,612)
                                                               ------------    ------------    ------------
Cash flows from investing activities:
  Purchase of available-for-sale investments                    (11,708,818)     (3,738,899)     (4,154,304)
  Purchase of held-to-maturity investments                      (33,748,996)     (6,094,788)     (6,095,331)
  Proceeds from maturity and principal
    reductions of available-for-sale investments                 11,057,565       1,856,565       2,218,412
  Proceeds from maturity and principal
    reductions of held-to-maturity investments                    9,429,511       4,185,109       5,692,377
  Proceeds from sale of available-for-sale investments                 --              --         4,562,444
  Proceeds from sale of student loans                            12,846,705       9,677,111            --
  Net decrease (increase) in loans                                8,276,373      (4,512,352)     (7,474,235)
  Purchase of residential mortgage loans                               --        (1,623,782)           --
  Purchase of automobile loans                                   (4,848,864)     (8,047,769)           --
  Purchase of premises and equipment                               (203,413)       (495,501)       (489,100)
                                                               ------------    ------------    ------------
        Net cash (used in) provided by investing activities      (8,899,937)     (8,794,306)     (5,739,737)
                                                               ------------    ------------    ------------
Cash flows from financing activities:
  Net increase (decrease) in deposits                             9,636,339      10,666,092       4,532,967
  Repayments on long-term debt                                      (32,497)        (30,873)        (29,401)
  Reverse repurchase agreement                                      216,702       1,341,053            --
  Net proceeds from issuance of common stock                      1,064,922          76,710         138,548
  Net proceeds from issuance of preferred stock                     796,980            --              --
                                                               ------------    ------------    ------------
        Net cash provided by (used in) financing activities      11,682,446      12,052,982       4,642,114
                                                               ------------    ------------    ------------
        Net increase (decrease) in cash and cash equivalents      3,583,338       3,515,384      (1,581,235)
Cash and cash equivalents at beginning of year                   12,759,696       9,244,312      10,825,547
                                                               ------------    ------------    ------------
Cash and cash equivalents at end of year                       $ 16,343,034    $ 12,759,696    $  9,244,312
                                                               ============    ============    ============
Supplemental disclosure of cash flow information:
  Cash paid during the year for interest                       $  2,960,086    $  2,726,349    $  2,502,283
                                                               ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                       29
<PAGE>


                     United Bancshares, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1998 and 1997


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation

     The  consolidated  financial  statements  include  the  accounts  of United
     Bancshares, Inc. (the Company) and its wholly owned subsidiary, United Bank
     of Philadelphia (the Bank). All significant  intercompany  transactions and
     balances have been eliminated.

     Statement of Cash Flows

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
     cash on  hand,  amounts  due  from  banks,  and  federal  funds  sold on an
     overnight basis.

     Securities Held-to-Maturity

     Bonds,  notes,  and  debentures  for which  the Bank has both the  positive
     intent and ability to hold are classified as  held-to-maturity  and carried
     at cost,  adjusted  for  premiums  and  discounts  that are  recognized  in
     interest income using the interest method over the period to maturity.

     Securities Available-for-Sale

     Available-for-sale  securities consist of bonds, notes and debentures,  and
     certain equity  securities for which the Bank does not have positive intent
     to hold to maturity. These securities are carried at fair value.

     Unrealized   holding   gains  and  losses  on   securities   classified  as
     available-for-sale  are carried as a separate  component  of  shareholders'
     equity net of related income tax effects.

     Gains  and  losses  on  the  sale  of  available-for-sale   securities  are
     determined by the specific identification method.

     Premiums and discounts are recognized in interest income using the interest
     method over the period to maturity.

     Loans

     Loans are stated at the amount of unpaid principal, reduced by net unearned
     discount and an  allowance  for loan  losses.  Interest  income on loans is
     recognized as earned based on  contractual  interest rates applied to daily
     principal amounts  outstanding and accretion of discount.  It is the Bank's
     policy to  discontinue  the  accrual of  interest  income when a default of
     principal  or  interest  exists  for a period of 90 days  except  when,  in
     management's   judgment,  the  collection  of  principal  and  interest  is
     reasonably  anticipated  or adequate  collateral  exists  (including a loan
     impaired  under SFAS No. 114).  Interest  received on  nonaccrual  loans is
     either applied against  principal or reported as interest income  according
     to management's  judgment as to collectibility of principal.  When interest
     accruals are discontinued,  interest credited to income is reversed and the
     loan is classified as nonperforming.


                                       30
<PAGE>


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Unearned  discount is amortized over the weighted  average  maturity of the
     mortgage loan portfolio.

     Loan  origination and commitment  fees and certain direct loan  origination
     costs are deferred, and the net amount is amortized as an adjustment of the
     related  loan's  yield.  The  Bank is  amortizing  these  amounts  over the
     contractual life of the loan.

     Loans Held-for-Sale

     Loans held-for-sale are carried at the aggregate of lower of cost or market
     value.

     For purchased loans, the discount  remaining after the loan loss allocation
     is being amortized over the remaining life of the purchased loans using the
     interest method.

     Allowance for Loan Losses

     The Bank adopted  Statement of Financial  Accounting  Standards  (SFAS) No.
     114,  "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
     "Accounting by Creditors for Impairment of a Loan--Income  Recognition  and
     Disclosures,"  effective January 1, 1995. Under SFAS No. 114, the allowance
     for loan losses related to "impaired loans" is based on the discounted cash
     flows using the impaired  loans'  initial  effective  interest  rate as the
     discount rate, or the fair value of the collateral for collateral-dependent
     loans.  A loan is  impaired  when it meets  the  criteria  to be  placed on
     nonaccrual  status.  Loans which are evaluated for  impairment  pursuant to
     SFAS  No.  114 are  assessed  on a  loan-by-loan  basis  and  include  only
     commercial  nonaccrual loans.  Large groups of smaller,  homogeneous loans,
     such as credit  cards,  student  loans,  residential  mortgages,  and other
     student loans, are evaluated  collectively for impairment.  The adoption of
     these standards did not have any impact on the Bank's financial position or
     results of operations.

     The allowance for loan losses is maintained at a level considered  adequate
     to provide for  potential  losses in the loan  portfolio.  The allowance is
     increased  by  provisions  charged to  operating  expenses  and  reduced by
     charge-offs net of recoveries.  Management's  determination of the adequacy
     of the  allowance  is  based  on  continuous  credit  reviews  of the  loan
     portfolio,  consideration  of the current  economic  conditions,  review of
     specific  problem loans,  and other relevant  factors.  This  evaluation is
     subjective  as it requires  material  estimates,  including the amounts and
     timing of future cash flows  expected to be received on impaired loans that
     may be susceptible to significant change.

     Bank Premises and Equipment

     Bank  premises  and   equipment   are  stated  at  cost  less   accumulated
     depreciation. Depreciation is computed on the straight-line method over the
     estimated   useful   lives  of  the  assets.   Amortization   of  leasehold
     improvements  is computed over the shorter of the related lease term or the
     useful life of the assets.

     Income Taxes

     The liability  method is used in accounting for income taxes.  Deferred tax
     assets  and  liabilities  are  determined  based  on  differences   between
     financial  reporting  and tax  bases  of  assets  and  liabilities  and are
     measured  using the  enacted tax rates and laws that will be in effect when
     the differences are expected to reverse.


                                       31
<PAGE>


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Income (Loss) Per Share

     During 1997, the Company adopted the provisions of SFAS No. 128,  "Earnings
     Per Share." SFAS No. 128 eliminates  primary and fully diluted earnings per
     share  (EPS)  and  requires  presentation  of  basic  and  diluted  EPS  in
     conjunction  with the disclosure of the methodology  used in computing such
     EPS.  Basic EPS  excludes  dilution  and is  computed  by  dividing  income
     available to common  shareholders  by the weighted  average  common  shares
     outstanding during the period. Diluted EPS takes into account the potential
     dilution that could occur if securities or other  contracts to issue common
     stock were  exercised  and converted  into common  stock.  Prior period EPS
     calculations have been restated to reflect the adoption of SFAS No. 128.

     Off-Balance-Sheet Financial Instruments

     In the ordinary course of business,  the Bank has entered into  off-balance
     sheet financial instruments  consisting of commitments to extend credit and
     letters of credit. Such financial instruments are recorded in the financial
     statements when they become payable.

     Financial Instruments

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

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

     Investment  securities:  Fair values for investment securities 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.

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
     No. 133, Accounting for Derivative  Instruments and Hedging Activity.  SFAS
     No. 133  establishes  accounting  and reporting  standards  for  derivative
     instruments,  including certain  derivative  instruments  imbedded in other
     contracts, and for hedging activities. It requires that an entity recognize
     all  derivatives  as  either  assets or  liabilities  in the  statement  of
     financial  position and measure those instruments at fair value. If certain
     conditions are met, a derivative may be specifically designated as a hedge.
     The  accounting  for changes in the fair value of a  derivative  (gains and
     losses)  depends  on  the  intended  use of the  derivative  and  resulting
     designation.  SFAS No. 133 is effective  for all fiscal  quarters of fiscal
     years beginning after June 15, 1999. Earlier  application is permitted only
     as of the beginning of any fiscal quarter.  The adoption of SFAS No. 133 is
     not anticipated to have a material impact on the Bank's financial  position
     or results of operations.

     Loans  held-for-sale:  Fair values are  estimated  using quoted rates based
     upon secondary market sources for similar loans.


                                       32
<PAGE>


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Loans:  The fair value of loans was estimated  using a discounted cash flow
     analysis,   which  considered  estimated   prepayments  and  amortizations.
     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.


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

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

     Foreclosed Real Estate

     Real estate properties  acquired  through,  or in lieu of, loan foreclosure
     are to be sold  and are  initially  recorded  at fair  value at the date of
     foreclosure,  establishing a new cost basis. After foreclosure,  valuations
     are periodically performed by management, and the real estate is carried at
     the lower of carrying  amount or fair value less the cost to sell.  Revenue
     and expenses from operations and changes in valuation allowance are charged
     to operations. The historical average holding period for such properties is
     24 months.

     Management's Use of Estimates

     The  preparation of the financial  statements in conformity  with generally
     accepted  accounting  principles  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.

     In 1998,  the Bank  adopted  Statement of  Financial  Accounting  Standards
     (SFAS) No. 131,  Disclosures  about  Segments of an Enterprise  and Related
     Information.  SFAS No. 131 redefines how operating  segments are determined
     and requires  disclosures of certain financial and descriptive  information
     about the Bank's  operating  segments.  Management  has determined the Bank
     operates in one business segment, community banking.

     Reclassifications

     Certain  reclassifications  have been made to the 1997 financial statements
     to conform to the 1998 presentation.


                                       33
<PAGE>


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Comprehensive Income

     In January  1998,  the Bank adopted SFAS No. 130,  Reporting  Comprehensive
     Income. This standard establishes new standards for reporting comprehensive
     income  which  includes  net income as well as certain  other  items  which
     result in a change to equity during the period.  These financial statements
     have been reclassified to reflect the provisions of SFAS No. 130.

     The income tax effects allocated to comprehensive income is as follows:

<TABLE>
<CAPTION>
                                                                  December 31, 1998
                                                         -----------------------------------
                                                                                     Net of
                                                         Before tax      Tax          tax
                                                           amount      expense       amount
                                                          --------     -------      --------
<S>                                                       <C>          <C>          <C>
     Unrealized gains on securities
       Unrealized holding losses arising during period    $(39,963)    $13,588      ($26,375)
       Less reclassification adjustment for gains
       realized in net income                                 --          --            --
                                                          --------     -------      --------
       Other comprehensive income (loss), net             $(39,963)    $13,588      ($26,375)
                                                          ========     =======      ========

                                                                  December 31, 1997
                                                         -----------------------------------
                                                                                     Net of
                                                         Before tax      Tax          tax
                                                           amount      expense       amount
                                                          --------     -------      --------
     Unrealized gains on securities
       Unrealized holding losses arising during period    $ 72,284     $29,397       $42,887
       Less reclassification adjustment for gains
       realized in net income                                 --          --            --
                                                          --------     -------       -------
       Other comprehensive income (loss), net             $ 72,284     $29,397       $42,887
                                                          ========     =======       =======
</TABLE>

     Organizational Costs

     The  American  Institute  of  Certified  Public   Accountants'   Accounting
     Standards  Executive  Committee  issued  Statement  of Position  (SOP)98-5,
     Reporting on Costs of Start-up Activities.  SOP 98-5 requires that costs of
     start-up  activities,  as  defined,   including  organizational  costs,  be
     expensed  as  incurred.  This  statement  is  effective  for  fiscal  years
     beginning after December 15, 1998.  Upon adoption,  the application of this
     statement is reported as the  cumulative  effect of a change in  accounting
     principle.


                                       34
<PAGE>


2.   CASH AND DUE FROM BANK BALANCES

     The Bank maintains various deposit accounts of $726,000 with other banks to
     meet normal funds  transaction  requirements  and to compensate other banks
     for certain correspondent services. The withdrawal or usage restrictions of
     these  balances did not have a significant  impact on the operations of the
     Bank as of December 31, 1998.

3.   INVESTMENTS

     The  amortized  cost,  gross  unrealized  holding  gains  and  losses,  and
     estimated  market  value  of the  available-for-sale  and  held-to-maturity
     investment  securities by major security type at December 31, 1998 and 1997
     are as follows:

<TABLE>
<CAPTION>
                                                              1998
                                   -----------------------------------------------------------
                                                      Gross           Gross
                                    Amortized       unrealized      unrealized        Market
                                       cost           gains           losses          value
                                   -----------     -----------     -----------     -----------
<S>                                <C>             <C>             <C>             <C>
Available-for-sale:
  Other Government Securities        2,248,700           5,840            --         2,254,540
  Mortgage-backed securities         5,337,225          48,383                       5,385,608
                                   -----------     -----------     -----------     -----------
  Total debt securities              7,585,925          54,223            --         7,640,148
  Investments in mutual funds           89,527            --              --            89,527
  Other investments                    320,200            --              --           320,200
                                   -----------     -----------     -----------     -----------
                                   $ 7,995,652     $    54,223     $      --       $ 8,049,875
                                   ===========     ===========     ===========     ===========
Held-to-maturity:
  U.S. Treasury securities         $ 1,000,141     $     1,109     $      --       $ 1,001,250
  Other Government securities       31,633,770          50,483            --        31,684,253
  Mortgage-backed securities         2,512,237           5,534            --         2,517,771
                                   -----------     -----------     -----------     -----------
                                   $35,146,148     $    57,126     $      --       $35,203,274
                                   ===========     ===========     ===========     ===========
</TABLE>


                                       35
<PAGE>


3.   INVESTMENTS - Continued

<TABLE>
<CAPTION>
                                                              1997
                                   -----------------------------------------------------------
                                                      Gross           Gross
                                    Amortized      unrealized       unrealized        Market
                                       cost           gains           losses          value
                                   -----------     -----------     -----------     -----------
<S>                                <C>             <C>             <C>             <C>
Available-for-sale:
  U.S. Treasury securities         $   649,186     $       814     $      --       $   650,000
  Mortgage-backed securities         6,250,234          93,372            --         6,343,606
                                   -----------     -----------     -----------     -----------
  Total debt securities              6,899,420          94,186            --         6,993,606
  Investments in mutual funds           84,801            --              --            84,801
  Other investments                    320,200            --              --           320,200
                                   -----------     -----------     -----------     -----------
                                   $ 7,304,421     $    94,186     $      --       $ 7,398,607
                                   ===========     ===========     ===========     ===========
Held-to-maturity:
  U.S. Treasury securities         $ 3,298,383     $     3,035     $      --       $ 3,301,418
  Other Government securities        6,346,155          52,520            --         6,398,675
  Mortgage-backed securities         1,210,173           4,500            --         1,214,673
                                   -----------     -----------     -----------     -----------
                                   $10,854,711     $    60,055     $      --       $10,914,766
                                   ===========     ===========     ===========     ===========
</TABLE>

     Maturities of investment securities  classified as  available-for-sale  and
     held-to-maturity at December 31, 1998 were as follows.  Expected maturities
     may differ from contractual maturities.

                                                   Amortized        Market
                                                      cost           value
                                                  -----------     -----------
Available-for-sale:
   Due after three years through five years       $ 1,998,700     $ 2,006,235
   Due after five years through fifteen years         250,000         248,305
   Mortgage-backed securities                       5,337,225       5,385,608
                                                  -----------     -----------
        Total debt securities                       7,585,925       7,640,148
   Investments in mutual funds                         89,527          89,527
   Other investments                                  320,200         320,200
                                                  -----------     -----------
                                                  $ 7,995,652     $ 8,049,875
                                                  ===========     ===========
Held-to-maturity:
   Due in three months or less                    $18,955,560     $18,940,538
   Due after three months through one year               --              --
   Due after one year through three years             250,125         250,157
   Due after three years through five years         4,499,844       4,524,345
   Due after five years through fifteen years       8,928,382       8,970,463
                                                  -----------     -----------
   Due after fifteen years                               --              --
                                                  -----------     -----------
         Total debt securities                     32,633,911      32,685,503
   Mortgage-backed securities                       2,512,237       2,517,771
                                                  -----------     -----------
                                                  $35,146,148     $35,203,274
                                                  ===========     ===========


                                       36
<PAGE>


     There were no sales of investments  during 1998 and 1997. The proceeds from
     sales of investments in debt securities during 1996 were $4,571,601.  Gross
     gains of $9,157 were realized on those sales.

     As of December 31, 1998 and 1997,  investment  securities with a book value
     of $11,703,948 and $11,122,211, respectively, were pledged as collateral to
     secure public deposits and for other purposes required or permitted by law.

4.   LOANS AND ALLOWANCE FOR LOAN LOSSES

     The composition of the net loans is as follows:

                                            1998              1997
                                        ------------      ------------

     Commercial and industrial          $ 13,643,535      $ 12,095,471
     Commercial real estate                1,517,979         1,515,146
     Residential mortgages                31,364,864        35,961,372
     Consumer loans                       11,423,755        24,590,443
                                        ------------      ------------
            Total loans                   57,950,133        74,162,432
     Less allowance for loan losses         (679,557)         (468,806)
                                        ------------      ------------
            Net loans                   $ 57,270,576      $ 73,693,626
                                        ============      ============

     Student loans held-for-sale at December 31, 1997 totaled $1,979,177 and are
     carried at the lower of cost or market.

     As of December  31, 1998 and 1997,  the Bank had loans to certain  officers
     and directors and their affiliated interests in aggregate dollar amounts of
     approximately $1,148,000 and $886,000, respectively. During 1998, new loans
     to such related  parties  amounted to $467,500 and  repayments  amounted to
     $276,127.  Such  transactions  are made on  substantially  the same  terms,
     including  interest rates and collateral,  as those  prevailing at the time
     for other nonrelated party transactions.

     Nonaccrual  loans totaled  approximately  $1,720,000  and  $1,179,000 as of
     December 31, 1998 and 1997, respectively.

     At December 31, 1998 and 1997,  unamortized deferred fees and costs totaled
     $177,847 and $149,396, respectively.

     Loans having a carrying value of $127,800 and $100,000 were  transferred to
     foreclosed real estate in 1998 and 1997, respectively.


                                       37
<PAGE>


     Changes in the allowance for possible loan losses are as follows:

                                       1998           1997           1996
                                    ---------      ---------      ---------
     Balance, beginning of year     $ 468,806      $ 527,507      $ 476,132
     Provision                        350,500         97,500         85,000
     Charge-offs                     (180,727)      (234,638)       (42,271)
     Recoveries                        40,978         78,437          8,646
                                    ---------      ---------      ---------
                                    $ 679,557      $ 468,806      $ 527,507
                                    =========      =========      =========

     At December 31, 1998 and 1997,  the recorded  investment in loans that were
     on a nonaccrual basis and were considered to be impaired under SFAS No. 114
     was $845,500 and $208,000, respectively. At December 31, 1998 and 1997, the
     related  allowance  for loan losses was $183,000 and $0,  respectively.  At
     December 31, 1998 and 1997,  impaired  loans of $208,000 are SBA guaranteed
     and do not  have  an  allowance  for  loan  losses.  The  average  recorded
     investment in impaired  loans during the years ended  December 31, 1998 and
     1997 was approximately $526,000 and $208,000,  respectively.  For the years
     ended December 31, 1998 and 1997, the Bank  recognized  interest  income on
     those impaired loans of $36,800 and $0, respectively.

     The Bank grants  commercial,  residential,  and consumer loans to customers
     primarily  located in  Philadelphia  County,  Pennsylvania  and surrounding
     counties in the Delaware  Valley.  Although the Bank has a diversified loan
     portfolio,  its debtors'  ability to honor their contracts is influenced by
     the  region's  economy.  During  1998,  approximately  33%  of  the  Bank's
     commercial  loan  portfolio  was  concentrated  in loans made to  religious
     organizations.

5.   BANK PREMISES AND EQUIPMENT

     The major classes of bank premises and equipment and the total  accumulated
     depreciation are as follows:

                                         Estimated
                                        useful life      1998          1997
                                        -----------   -----------   -----------

Buildings and leasehold improvements    10-15 years   $ 1,343,898     1,295,948
Furniture and equipment                 3-7 years       2,183,743     2,028,280
                                                      -----------   -----------
                                                        3,527,641     3,324,228
Less accumulated depreciation                          (1,962,510)   (1,461,581)
                                                      -----------   -----------

                                                      $ 1,565,131   $ 1,862,647
                                                      ===========   ===========


                                       38
<PAGE>


5.   BANK PREMISES AND EQUIPMENT--Continued

     The Bank leases various  premises  under  noncancellable  agreements  which
     expire  through  the year 2006 and  require  minimum  annual  rentals.  The
     minimum rental commitments under these leases are as follows:

             1999                              $  301,830
             2000                                 302,980
             2001                                 302,921
             2002                                 219,548
             2003                                 193,002
             Thereafter                           106,115
                                               ----------
                                               $1,426,396
                                               ==========

     In  conjunction  with the branch  acquisitions  from the  Resolution  Trust
     Corporation,  the Bank operated three branches under a five-year  free-rent
     agreement.  In November  1996,  the Bank closed two of these  branches  and
     terminated  the  related  leases.  The Bank  operated  one  branch  under a
     free-rent  agreement  for which the related lease expired on July 30, 1998.
     Upon  expiration,  the Bank had the option to  purchase  the  building at a
     price  equivalent  to 93% of the  appraised  value.  The Bank  deferred the
     decision to purchase the building and entered into a  month-to-month  lease
     with the FDIC at a monthly rate of $1,875.

     The total rental  expense  included in the statement of operations  for the
     years ended December 31, 1998, 1997, and 1996 was  approximately  $323,330,
     $288,959 and $244,000, respectively.

6.   LONG-TERM DEBT

     The Bank has a loan from PIDC-Local  Development  Corporation  (PIDC) which
     financed the acquisition of furniture and fixtures. The loan bears interest
     at 5% per annum.  Principal and interest are paid in equal monthly payments
     of $2,827. The loan is secured by furniture, fixtures, and equipment of the
     Bank,  and  is  further  collateralized  by  the  assignment  of a  $50,000
     Certificate  of Deposit with PNC Bank to PIDC.  Scheduled  repayment of the
     loan is as follows:

             1999                              $   11,191
                                               ==========

7.   DEPOSITS

     The aggregate amount of short-term jumbo certificates of deposit, each with
     a minimum  denomination  of $100,000,  was  $13,942,008  and $13,852,356 at
     December 31, 1998 and 1997, respectively.


                                       39
<PAGE>


     At December 31, 1998, the scheduled  maturities of  certificates of deposit
     are as follows (dollars in thousands):

             1999                              $   29,802
             2000                                   2,490
             2001                                   1,559
             2002                                     960
             2003                                   1,416
             Thereafter                               329
                                               ----------
                                               $   36,556
                                               ==========

8.   REVERSE REPURCHASE AGREEMENTS

     The Bank enters into sales of  securities  under  agreements  to repurchase
     identical securities or reverse repurchase agreements. The amounts advanced
     to the Bank under these agreements  represent short-term loans and would be
     reflected as a payable in the balance sheet. The securities  underlying the
     agreements are book-entry securities maintained at the Federal Reserve Bank
     of Philadelphia. The average balance of reverse purchase agreements entered
     into during 1998 was $1.5 million,  and the maximum  amount  outstanding at
     any month-end during 1998 was $1.5 million.

9.   CAPITAL STOCK OFFERINGS

     On  September  30,  1998,the  Company  designated a sub-class of its Common
     Stock as Class B.  Pursuant to the terms of the  amendment,  holders of the
     Class B Common  Stock  have all  rights  of Common  Stockholders,  with the
     exception  of voting  rights.  On October 9, 1998,  the Company sold 83,333
     shares of Class B Common Stock to one  shareholder  for a purchase price of
     $12 per share.

     In April  1997,  the Bank  began its fifth  offering  of a maximum  250,000
     shares of common stock at a price of $12 per share ($0.01 par value). As of
     December  31,  1997,  the Bank had  received  $42,600 and had issued  3,550
     shares of common  stock from this  offering.  This  offering was limited to
     existing  shareholders  of  record  as of  April  20,  1997.  The  offering
     terminated on December 31, 1997.

     In May 1996, the Bank began its fourth offering of a maximum 250,000 shares
     of  common  stock at a price of $12 per  share  ($0.01  par  value).  As of
     December  31,  1996,  the Bank had  received  $83,012 and had issued  6,934
     shares of common  stock from this  offering.  This  offering was limited to
     existing  shareholders  of  record  as of  April  20,  1996.  The  offering
     terminated on December 31, 1996.

     During 1996, the Bank received  $55,536 and issued 6,942 shares as a result
     of warrants  exercised by  shareholders to purchase common stock at a price
     of $8.00 per share.

     During 1997, the Bank received  $34,110 and issued 3,790 shares as a result
     of warrants  exercised by  shareholders to purchase common stock at a price
     of $9.00 per share.  As of  December  31,  1997,  7,733  warrants  remained
     outstanding.


                                       40
<PAGE>


9.   CAPITAL STOCK OFFERINGS--continued

     During 1998, the Bank received  $64,922 and issued 6,492 shares as a result
     of warrants  exercised by  shareholders to purchase common stock at a price
     of  $10.00  per  share.  As  of  December  31,  1998,  no  warrants  remain
     outstanding.

     In July  1998,  the  Company  began a  limited  offering  of its  Series  A
     Preferred  Stock   (noncumulative,   6%,  $0.01  par  value)  to  FannieMae
     Corporation.  The nonvoting  preferred  stock was offered at a price of $20
     per share,  in an amount for which the  aggregate  purchase  price does not
     exceed  the lesser of (1) 9.99% of the total  equity of the  Company or (2)
     $880,000.  During 1998,  the Company  received  $796,980 and issued  39,849
     shares of preferred stock from this offering.

     Upon the declaration of a common  dividend,  each of the Series A preferred
     shares will be accorded a non-cumulative dividend preference equal to 6% of
     the  purchase  price of the  stock per annum  prior to the  payment  of any
     dividend  on  account  of any  other  class or series  of the  Company.  No
     dividends have been declared or paid.

10.  INCOME TAXES

     The Bank  accounts  for  income  taxes in  accordance  with  SFAS No.  109,
     "Accounting for Income Taxes."

     At December 31, 1998,  the Bank has net  operating  loss  carryforwards  of
     approximately  $2,656,446  for income tax purposes that begins to expire in
     2007.

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting  purposes  and the  amount  used for  income  tax  purposes.  For
     financial  reporting  purposes,  a valuation  allowance of  $1,120,565  and
     $1,094,889  as of  December  31,  1998  and  1997,  respectively,  has been
     recognized  to offset the  deferred  tax assets  related to the  cumulative
     temporary   differences  and  the  tax  loss   carryforwards.   Significant
     components of the Bank's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                           1998             1997
                                                       -----------      -----------
<S>                                                    <C>              <C>
     Deferred tax assets:
       Provision for loan losses                           164,653           40,607
       Unrealized gains on investment securities           (18,435)         (32,023)
       Depreciation                                         42,725           32,818
       Net operating loss carryforwards                    903,192          977,558
       Other                                                28,430           11,883
       Valuation allowance for deferred tax assets      (1,120,565)      (1,030,843)
                                                       -----------      -----------

           Net deferred tax assets                     $      --        $      --
                                                       ===========      ===========
</TABLE>


                                       41
<PAGE>


10.  INCOME TAXES--Continued

<TABLE>
<CAPTION>
                                                             1998           1997           1996
                                                           ---------      ---------      ---------
<S>                                                        <C>            <C>            <C>
     Effective rate reconciliation:
       Tax at statutory rate                               $   2,314      $  61,400      $(282,797)
       Nondeductible expenses                                 17,634         11,849          5,828
       (Utilization of) increase in net operating loss       (19,948)       (73,249)       276,969
                                                           ---------      ---------      ---------
           Total tax expense                               $    --        $    --        $    --
                                                           =========      =========      =========
</TABLE>

11.  FINANCIAL INSTRUMENT COMMITMENTS

     The Bank is a party to financial instruments with off-balance-sheet risk in
     the normal course of business to meet the financing needs of its customers.
     These  financial  instruments  include  commitments  to extend  credit  and
     letters of credit, which are conditional  commitments issued by the Bank to
     guarantee the  performance of an obligation of a customer to a third party.
     Both arrangements have credit risk essentially the same as that involved in
     extending  loans and are  subject to the  Bank's  normal  credit  policies.
     Collateral  may  be  obtained  based  on  management's  assessment  of  the
     customer. The Bank's exposure to credit loss in the event of nonperformance
     by the other  party to the  financial  instruments  is  represented  by the
     contractual amount of those instruments.

     Summaries of the Bank's financial instrument commitments are as follows:

                                                    1998              1997
                                                 ----------        ----------
     Commitments to extend credit                $7,269,229        $2,950,271
     Outstanding letters of credit                  259,000           105,000

     Commitments  to extend credit are  agreements to lend to a customer as long
     as there is no violation of any condition  established  in the contract and
     unused  credit card lines.  Since many of the  commitments  are expected to
     expire  without  being  drawn  upon,  the total  commitment  amounts do not
     necessarily represent future cash requirements.  Commitments generally have
     fixed expiration dates or other termination clauses and may require payment
     of a fee.

12.  FAIR VALUES OF FINANCIAL INSTRUMENTS

     Fair value  information  about  financial  instruments  is  required  to be
     disclosed,  whether or not  recognized  in the balance  sheet,  where it is
     practicable to estimate that value. In cases where quoted market prices are
     not available,  fair values are based on estimates  using  discounted  cash
     flows or other valuation  techniques.  Those  techniques are  significantly
     affected by assumptions used,  including the discount rate and estimates of
     future cash flows. In that regard,  the derived fair value estimates cannot
     be substantiated  by comparison to independent  markets and, in many cases,
     could not be realized in immediate settlement of the instrument.


                                       42
<PAGE>


12. FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued

    Certain  financial  instruments and all nonfinancial  instruments are exempt
    from disclosure requirements.  Accordingly, the aggregate fair value amounts
    presented do not represent the underlying value of the Bank.

<TABLE>
<CAPTION>
                                                            1998                    1997
                                                    -------------------     -------------------
                                                    Carrying      Fair      Carrying     Fair
                                                     amount      value       amount      value
                                                    -------     -------     -------     -------
                                                               (Dollars in thousands)
<S>                                                 <C>         <C>         <C>         <C>
     Assets:
        Cash and cash equivalents                   $16,343     $16,343     $12,760     $12,760
        Investment securities                        43,196      43,253      18,253      18,313
        Loans held-for-sale                            --          --         1,979       2,009
        Loans, net of allowance for loan losses      57,271      56,577      71,715      71,595
</TABLE>

<TABLE>
<CAPTION>
                                                            1998                    1997
                                                    -------------------     -------------------
                                                    Carrying      Fair      Carrying     Fair
                                                     amount      value       amount      value
                                                    -------     -------     -------     -------
                                                               (Dollars in thousands)
<S>                                                 <C>         <C>         <C>         <C>
     Liabilities:
        Demand deposits                              49,114      49,114      38,620      38,620
        Savings deposits                             23,394      23,394      22,926      22,926
        Time deposits                                36,556      36,352      37,881      37,884
     Off Balance Sheet:
        Commitments to extend credit                  7,172        --         2,950        --
        Outstanding letters of credit                   259        --           105        --
</TABLE>

13.  EMPLOYEE COMPENSATION

     The Bank  entered  into a  five-year  employment  agreement  with its chief
     executive officer covering such items as salaries,  bonuses,  and benefits.
     The agreement  expires in 2000 and provides for  guaranteed  minimum annual
     compensation  of  $150,000  over the term of the  contract.  The  contract,
     entered  into on  September  13,  1993 and  amended  January 1, 1994,  also
     granted the chief  executive  officer the option to acquire up to 4% of the
     Bank's stock as of December 31, 1993 at $8.54 per share, which was the book
     value at the date of grant.  The  contract,  as amended on January 1, 1997,
     also provides for a minimum  contribution  of $58,200 per year to the chief
     executive  officer's  retirement  benefit.  The Company made no stock-based
     compensation awards to any employee during 1998 or 1997.

14.  DEFERRED BRANCH ACQUISITION COST

     The Bank  incurred  approximately  $149,000  and $224,000 in 1994 and 1993,
     respectively,  in  consulting  and other  costs  directly  related to these
     branch  acquisitions  which have been deferred and are being amortized over
     five  years.  Amortization  totaled $ 78,700  for each of the  years  ended
     December 31, 1998, 1997, and 1996.


                                       43
<PAGE>


15.  RESOLUTION TRUST CORPORATION FEE

     Pursuant to the acquisition of the Ukrainian  branch in June 1994, the Bank
     was granted an option to purchase  residential  real estate  loans from the
     Resolution Trust Corporation (RTC) equal to the amount of deposits acquired
     in the branch acquisition.  However, the Bank found the pricing methodology
     used by the RTC to be  unacceptable.  The RTC  then  offered  the  Bank two
     options:  (1) to exercise its right to purchase the loans using the current
     loan pricing or (2) to receive a fee equivalent to the accrued  interest on
     the balance of the offered loan  portfolio  for which the interest  accrual
     period began 45 days after the date of the branch  acquisition and to waive
     its right to purchase loans from the RTC. Under protest, the Bank agreed to
     option (2) which  required it to waive its right to purchase loans from the
     RTC.  Also  under  protest,  the Bank  accepted  the  accrued  interest  as
     calculated  by the RTC of  approximately  $303,000.  The Bank  disputed the
     RTC's  calculation  of  accrued  interest.  During  1996,  as a  result  of
     litigation, the Bank received a settlement for $90,000.

16.  CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY

                            CONDENSED BALANCE SHEETS

                                                             December 31,
                                                       ----------------------
                                                         1998          1997
                                                       --------      --------
                                                       (Dollars in thousands)
     Assets:
        Due from banks (subsidiary)                    $    265      $    186
        Investment in United Bank of Philadelphia         8,639         6,873
                                                       --------      --------
              Total assets                             $  8,904      $  7,059
                                                       ========      ========

     Shareholders' equity:
        Series A preferred stock                       $      1      $      1
        Common stock                                          9             8
        Additional paid-in-capital                       12,286        10,426
        Accumulated deficit                              (3,428)       (3,438)
        Net unrealized holding gains on securities
            available-for-sale                               36            62
                                                       --------      --------
              Total shareholders' equity               $  8,904      $  7,059
                                                       ========      ========


                                       44
<PAGE>


16.  CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY- Continued

                       CONDENSED STATEMENTS OF OPERATIONS

                                                     Year ended December 31,
                                                   -------------------------
                                                    1998      1997      1996
                                                   -----     -----     -----
                                                      (Dollars in thousands)

     Equity in net income (loss) of subsidiary     $  10     $ 181     $(832)
                                                   -----     -----     -----
              Net income (loss)                    $  10     $ 181     $(832)
                                                   =====     =====     =====

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                        ---------------------------------
                                                          1998         1997         1996
                                                        -------      -------      -------
                                                             (Dollars in thousands)
<S>                                                     <C>          <C>          <C>
     Cash flows from operating activities:
       Net income (loss)                                $    10      $   181      $  (832)
       Equity in net income (loss) of subsidiary            (10)        (181)         832
                                                        -------      -------      -------
         Net cash provided by operating activities         --           --           --
                                                        -------      -------      -------
     Cash flows from investing activities:
       Investment in subsidiary                          (1,783)         (76)        (139)
                                                        -------      -------      -------
         Net cash used in investing activities           (1,783)         (76)        (139)
                                                        -------      -------      -------
     Cash flows from financing activities:
       Issuance of preferred stock                          797         --           --
       Issuance of common stock                           1,065           76          139
                                                        -------      -------      -------
         Net cash provided by financing activities        1,862           76          139
                                                        -------      -------      -------
         Net increase in cash and cash equivalents           79         --           --
     Cash and cash equivalents at beginning of year         186          186          186
                                                        -------      -------      -------
     Cash and cash equivalents at end of year           $   265      $   186      $   186
                                                        =======      =======      =======
</TABLE>

18.  REGULATORY MATTERS

     The Bank  engages in the  commercial  banking  business,  with a particular
     focus on serving Blacks, Hispanics and women, and is subject to substantial
     competition  from financial  institutions  in the Bank's service area. As a
     bank holding  company and a banking  subsidiary,  the Company and the Bank,
     respectively,  are subject to regulation  by the Federal  Reserve Board and
     the Pennsylvania Department of Banking and are required to maintain capital
     requirements established by those regulators. Prompt corrective actions may
     be taken by those


                                       45
<PAGE>


18.  REGULATORY MATTERS--Continued

     regulators  against  banks that do not meet minimum  capital  requirements.
     Prompt corrective  actions range from restriction or prohibition of certain
     activities  to  the   appointment  of  a  receiver  or  conservator  of  an
     institution's net assets.  Failure to meet minimum capital requirements can
     initiate certain mandatory--and possibly additional  discretionary--actions
     by regulators  that if undertaken,  could have a direct  material effect on
     the Bank's financial  statements.  Under capital  adequacy  guidelines that
     involve  quantitative  measures  of the  Bank's  assets,  liabilities,  and
     certain  off-balance-sheet  items as calculated under regulatory accounting
     practices,  the Bank's capital amounts and  classification are also subject
     to  qualitative   judgments  by  the  regulators  about  components,   risk
     weightings, and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum  amounts and ratios (set forth in the
     table  below) of total Tier 1 capital  (as defined in the  regulations)  to
     risk-weighted assets (as defined).  Management believes, as of December 31,
     1998, that the Bank meets all capital adequacy  requirements to which it is
     subject.


     The most recent notification from the Federal Deposit Insurance Corporation
     (FDIC)  categorized  the Bank as "well  capitalized"  under the  regulatory
     framework for prompt and  corrective  action.  To be  categorized  as "well
     capitalized,"  the Bank must  maintain  minimum  total  risk-based,  Tier 1
     risk-based,  and Tier 1  leverage  ratios as set forth in the table  below.
     There are no  conditions  or events at December  31,  1998 that  management
     believes have changed the institution's category.

     The Bank's actual capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
                                                                                   To be well
                                                                                capitalized under
                                                             For capital        prompt corrective
                                          Actual          adequacy purposes     action provisions
                                     ----------------      ----------------     ----------------
                                     Amount     Ratio      Amount     Ratio     Amount     Ratio
                                     ------     -----      ------     -----     ------     -----
<S>                                  <C>        <C>        <C>         <C>      <C>        <C>
     As of December 31, 1998:
       Total capital to risk-
         weighted assets:
           Consolidated              $9,502     17.48%     $4,350      8.00%    $5,437     10.00%
            Bank                      9,236     16.99       4,350      8.00      5,437     10.00
       Tier 1 capital to risk-
         weighted assets:
           Consolidated               8,823     16.23       2,175      4.00      3,262      6.00
           Bank                       8,557     15.74       2,175      4.00      3,262      6.00
       Tier 1 capital to average
         assets:
           Consolidated               8,823      7.67       4,603      4.00      5,754      5.00
           Bank                       8,557      7.44       4,592      4.00      5,740      5.00
</TABLE>


                                       46
<PAGE>


18.  REGULATORY MATTERS - Continued

<TABLE>
<CAPTION>
                                                                                   To be well
                                                                                capitalized under
                                                              For capital       prompt corrective
                                          Actual           adequacy purposes    action provisions
                                     ----------------      ----------------     ----------------
                                     Amount     Ratio      Amount     Ratio     Amount     Ratio
                                     ------     -----      ------     -----     ------     -----
<S>                                  <C>        <C>        <C>        <C>       <C>        <C>
     As of December 31, 1997:
       Total capital to risk-
         weighted assets:
           Consolidated              $7,359     14.19%     $4,149     >/=8.00%  $5,187     >/=10.00%
           Bank                       7,173     13.83       4,149     >/=8.00    5,187     >/=10.00
       Tier 1 capital to risk-
         weighted assets:
           Consolidated               6,891     13.29       2,075     >/=4.00    3,112     >/=6.00
           Bank                       6,705     12.93       2,075     >/=4.00    3,112     >/=6.00
       Tier 1 capital to average
         assets:
           Consolidated               6,891      6.59       4,183     >/=4.00    5,229     >/=5.00
           Bank                       6,705      6.41       4,176     >/=4.00    5,220     >/=5.00
</TABLE>

     In May 1995, as a result of a regulatory  examination completed in February
     1995, the Bank entered into a Memorandum of Understanding  with its primary
     regulator  with regard to, among other things,  achievement  of agreed-upon
     capital  levels,  implementation  of a viable earnings plan, and addressing
     interest  rate  sensitivity  risks through the  development  of systems for
     monitoring   the  risks.   Effective  July  26,  1996,  the  Memorandum  of
     Understanding was terminated as a result of the Bank's full compliance with
     its terms as  determined in an  examination  completed as of March 31, 1996
     and noted  improvements  in the Bank's  policies and  procedures,  internal
     controls,  and capital  position.  Beginning in 1996, the Bank has operated
     under a  Supervisory  Letter from its primary  regulator.  The  Supervisory
     Letter prevents the Bank and the Company from declaring or paying dividends
     without the prior written approval of its regulators and prohibits the Bank
     and Company from issuing long-term debt.

19.  DEPOSIT INSURANCE ASSESSMENTS

     Deposits  of the Bank are  insured  by the FDIC.  On  September  30,  1996,
     Congress passed a bill to recapitalize the Savings Insurance Fund (SAIF) of
     the FDIC.  As a result,  commercial  banks,  like United  Bank,  which were
     members of the Bank  Insurance  Fund  (BIF),  which  owned  SAIF-assessable
     deposits,  were required to pay on November 27, 1996, a one-time assessment
     of 65.7 basis points of total  SAIF-assessable  deposits.  Because the Bank
     acquired  deposits of failed savings and loan  institutions from the RTC in
     1993 and 1994,  approximately  $71 million of its deposits  are  considered
     SAIF-assessable.  As a result,  the Bank had to pay a one-time SAIF Special
     Assessment  of  approximately  $485,000.  The Bank  filed an appeal of this
     because  management  believes a  significant  portion of its  deposits  are
     misclassified  under the SAIF,  as at the time of  acquisition  of branches
     from the RTC it had over $30 million in deposits  accumulated and insurable
     under  the  BIF.   Furthermore,   since  its  acquisition  of  deposits,  a
     significant  amount of acquired RTC savings and loan  deposits have run off
     and been replaced with  commercial  deposits.  Currently,  the law does not
     make any  provision  for deposit  runoff or for  appeals on this basis.  To
     date, the Bank has been unsuccessful in its appeal efforts.


                                       47
<PAGE>


20.  COMMITMENTS AND CONTINGENCIES

     In the  ordinary  course  of  business,  the Bank has  various  outstanding
     commitments  and  contingent  liabilities  that  are not  reflected  in the
     accompanying  consolidated financial statements. In addition, 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.

21.  EARNINGS PER SHARE COMPUTATION

     In accordance  with SFAS No. 128,  income (loss) per share is calculated as
     follows:

<TABLE>
<CAPTION>
                                                                Year ended December 31, 1998
                                                         ----------------------------------------
                                                            Income           Shares     Per share
                                                         (numerator)      (denominator)   amount
                                                         -----------      -------------   ------
<S>                                                       <C>                <C>          <C>
     Net income                                           $   9,933
                                                          =========
     Basic loss per share
       Income available to stockholders                   $   9,933          845,902      $  .01
                                                          =========          =======      ======

<CAPTION>
                                                                Year ended December 31, 1997
                                                        ----------------------------------------
                                                            Income           Shares     Per share
                                                         (numerator)      (denominator)   amount
                                                         -----------      -------------   ------
<S>                                                       <C>                <C>          <C>
     Net income                                           $ 180,590
                                                          =========
     Basic EPS
       Income available to stockholders                   $ 180,590          818,240      $  0.22
                                                          =========          =======      ======
     Effect of dilutive securities
       Warrants                                                  --            7,733
                                                          ---------          -------
     Diluted EPS
       Income available to common stockholders plus
         assumed conversions                              $ 180,590          825,973      $ 0.22
                                                          =========          =======      ======

<CAPTION>
                                                                Year ended December 31, 1996
                                                        ----------------------------------------
                                                            Loss             Shares     Per share
                                                         (numerator)      (denominator)   amount
                                                         -----------      -------------   ------
<S>                                                       <C>                <C>          <C>
     Net loss                                             $(831,755)
                                                          =========
     Basic loss per share
       Loss available to stockholders                     $(831,755)         810,729      $(1.03)
                                                          =========          =======      ======
</TABLE>


                                       48
<PAGE>


ITEM 9 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a)  Directors of the Registrant.

<TABLE>
<CAPTION>
                           PRINCIPAL OCCUPATION AND                 YEAR FIRST            TERM
NAME              AGE      OTHER DIRECTORSHIPS                    BECAME DIRECTOR      WILL EXPIRE
----              ---      -------------------                    ---------------      -----------
<S>                <C>     <C>                                         <C>                <C>
James F.
  Bodine ...       77      Retired as Managing                         1993               2002
                           Partner, Urban Affairs
                           Partnership
                           Phila., PA.

S. Amos
  Brackeen ...     80      Founder and Pastor,                         1993               1999
                           Philippian Baptist
                           Church of Phila., PA.

Emma C.
  Chappell ..      54      Chairman of                                 1993               1999
                           The Board, President and CEO
                           of Registrant and United Bank
                           of Philadelphia

Luis A.
  Cortes, Jr..     41      Executive Director                          1993               2000
                           of the Hispanic Clergy
                           of Philadelphia & Vicinity.
Kemel G.
  Dawkins ...      75      President, Kemrodco                         1993               2001
                           Development and
                           Construction Company, Inc.,
                           President, Kem-Her
                           Construction Company
                           Inc., Phila., PA.
</TABLE>


                                       49
<PAGE>


<TABLE>
<S>                <C>     <C>                                         <C>                <C>
L. Armstead
  Edwards ...      56      Treasurer,                                  1993               2000
                           United Bancshares, Inc.
                           Owner and President,
                           P.A.Z., Inc.,
                           Philadelphia., PA

Marionette Y.      54      Partner,                                    1996               2000
  Frazier ...              John Frazier, Inc.
                           Philadelphia, PA

William C.
  Green ...        74      Co-founder, Ivy Leaf                        1993               2002
                           Middle School,
                           Philadelphia, PA

Angela M.
  Huggins ...      58      President and CEO                           1993               2001
                           RMS Technologies
                           Inc. Foundation

William B.
  Moore ...        56      Secretary,
                           United Bancshares, Inc.
                           Pastor, Tenth Memorial                      1993               1999
                           Baptist Church,
                           Philadelphia, PA

Ernest L.
  Wright ...       70      Founder, President and                      1993               2000
                           CEO of Ernest L. Wright
                           Construction Company
                           Phila., PA
</TABLE>


                                       50
<PAGE>


(b)  Executive Officers of Registrant.

NAME                                AGE           OFFICE

Emma C. Chappell (1)..........      54            Chairman, President and Chief
                                                  Executive Officer

James F. Bodine ..............      77            Vice Chairman

Reverend William B.
 Moore .......................      56            Secretary

L. Armstead Edwards ..........      56            Treasurer

(1) Dr. Chappell is the only Executive Officer of the Registrant compensated for
her  services as such.  Dr.  Chappell  serves as Chairman,  President  and Chief
Executive Officer of the Bank pursuant to a written employment agreement entered
into  September  13,  1993 and  amended  as of  January 1, 1994 by and among Dr.
Chappell,  the  Bank and  United  Bancshares,  Inc.  This  employment  agreement
provides for an employment  term ending  December 31, 2000 and further  provides
that Dr.  Chappell will receive a guaranteed  annual base salary of $150,000.  A
copy of this  employment  was  filed  with  Registrant's  1998  Form 10-K and is
incorporated herein by reference. The employment agreement was amended effective
January 1, 1997 to revise the defined  benefit nature of the retirement  benefit
identified in the contract to a defined contribution retirement obligation.


(c)  Family Relationships.

No family  relationships  between  any  director,  executive  officer  or person
nominated or chosen by the Bank to become a director or executive officer.

(d)  Other

There have been no events under any bankruptcy act, no criminal  proceedings and
no  judgments  or  injunctions  material  to the  evaluation  of the ability and
integrity of any director or executive officer during the past five years.


                                       51
<PAGE>


ITEM 11 - EXECUTIVE COMPENSATION.

                                                 COMPENSATION TABLE

Name of
Individual or
Number   Capacities in
in Group Which Served               1998 Salary   1998 Cash Bonus   1998 Options
---------------------               -----------   ---------------   ------------
Emma C.
Chairman, President                 $162,000      $18,000           29,694(1)
Chappell Chief Executive Officer

                                    1997 Salary   1997 Cash Bonus
                                    -----------   ---------------
                                    $162,000          $0

                                    1996 Salary   1996 Cash Bonus
                                    -----------   ---------------
                                    $162,000          $0

     (1) These  options to purchase the  Registrant's  Common Stock at $8.54 per
share were issued in December 1998 to replace  options that expired in 1998. The
options have a five year term.

Directors of the Bank are compensated for each meeting attended in the amount of
three hundred  dollars  fifty ($350) per Board meeting  attended and one hundred
fifty dollars ($150) for each committee meeting attended. Directors who are also
salaried  officers of the Bank  receive no  remuneration  for their  services as
Directors.  During the year ended  December 31, 1996,  the Bank paid  Directors'
fees  to its  "non-interested"  Directors  totaling  $39,100.  UBS  has  paid no
director fees since its inception.


                                       52
<PAGE>


Dr. Emma C. Chappell,  Chairman of the Board and Chief Executive  Officer of the
Bank and  Registrant  since its  formation,  receives a minimum annual salary of
$150,000.  A copy of the employment  agreement  entered into among Dr. Chappell,
the Bank and UBS is incorporated hereing by reference.

One hundred  thousand  shares of the Bank's  Common  Stock are subject to a Long
Term  Incentive  Compensation  Plan (the "Plan") under which options to purchase
the Bank's Common Stock may be granted to key employees of a price not less than
the fair market value thereof at the date of the grant  ("Options"),  and Common
Stock  may be  awarded  as  Restricted  Stock,  subject  for a period of time to
substantial  risk of forfeiture and restrictions on disposition as determined by
the  Compensation  Committee as of the date of the grant  ("Restricted  Stock").
Pursuant to the Plan,  options  are  granted in tandem  with Stock  Appreciation
Rights  allowing the holder of an Option to surrender  the Option and receive an
amount equal to the  appreciation in market value of a fixed number of shares of
Common  Stock  from the date of the grant of the  Option  ("SARs").  SARs may be
payable in Common Stock or cash or a combination  of both.  The Plan also allows
the Compensation  Committee to grant  Performance  Shares,  which are contingent
rights to receive, when certain performance criteria have been attained, amounts
of Common Stock and cash  determined by the  Compensation  Committee for such an
award.  Such rights are subject to forfeiture or reduction if performance  goals
specified are not met during the performance period. No such options, restricted
stock or SARs were granted for 1998 performance.

     No   deferred   compensation,   incentive   compensation   or  any  further
compensation  pursuant to any plan has been paid by the Bank, or will be paid by
the Bank based on services rendered to the Bank to the date of this filing.

At its annual  meeting  held May 6, 1994,  the  shareholders  of the  Registrant
approved the  establishment  of an Employee Stock  Ownership Plan ("ESOP").  The
ESOP has not been formally  activated by the Registrant.  No purchases have been
made pursuant to the ESOP.


                                       53
<PAGE>


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

   Shareholders Owning in Excess of Five Percent of Registrant's Common Stock

Amount of UBS                                       Beneficial       Percentage
Shareholders                                        Ownership       Common Stock
------------                                        ---------       ------------
First Union Corporation                              133,333            14.60%
Broad and Chestnut Streets
Philadelphia, PA  19101

Greater Philadelphia Urban Affairs Coalition          47,500             5.20%
121 North Broad Street
Philadelphia, PA  19107

Philadelphia Municipal                                71,667             7.84%
Retirement System
2000 Two Penn Center
Philadelphia, PA  19102


                       Directors and Officers of the Bank

Shares of Registrant's Common Stock               Beneficially
Name                                                  Owned          Percentage
----                                                ---------       ------------
James F. Bodine                                       10,833             1.19%
S. Amos Brackeen                                       5,000              .56%
Emma C. Chappell(1)                                    7,000              .77%
Luis A. Cortes, Jr.                                      500              .05%
Kemel G. Dawkins                                       8,333              .91%
L. Armstead Edwards                                   10,833             1.19%
Marionette Y. Frazier                                  9,350             1.02%
William C. Green (2)                                  13,833             1.51%
Angela M. Huggins                                      4,200              .46%
William B. Moore                                       1,000              .11%
Ernest L. Wright                                       5,000              .55%
                                                      ------             -----
TOTAL                                                 75,882             8.31%
                                                      ======             =====


                                       54
<PAGE>


(1) Dr.  Chappell also acts as Trustee of a voting trust  agreement  pursuant to
which  Fahnstock,  Inc  deposited  5,209  shares of Common Stock of UBS with Dr.
Chappell as Trustee,  to be voted by Dr.  Chappell  pursuant to the terms of the
Voting Trust. The term of the Voting Trust is ten years.

Dr.  Chappell  acts as Trustee of a voting  trust  agreement  pursuant  to which
NationsBank  Corporation deposited 33,500 shares of Common Stock of UBS with Dr.
Chappell as Trustee,  to be voted by Dr.  Chappell  pursuant to the terms of the
Voting Trust. The term of the Voting Trust is ten years.

Dr.  Chappell  also owns  options to purchase up to 29,694  shares of the common
stock of UBS at a purchase price of $8.54 per share . This option was awarded on
September  15,  1993 and  remains  in effect  for a term of five years from that
date.

(2) Owned jointly with Liller B. Green, his wife.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                           UNITED BANK OF PHILADELPHIA

United  Bank of  Philadelphia  ("UBP")  is a  Pennsylvania  bank  subsidiary  of
Registrant. The Directors of UBP are as follows:

                              PRINCIPAL OCCUPATION                 YEAR FIRST
NAME              AGE         OTHER DIRECTORSHIPS                BECAME DIRECTOR
----              ---         -------------------                ---------------
James F.
 Bodine ...       77          Retired as Managing                     1992
                              Partner, Urban Affairs
                              Partnership
                              Phila., PA.

S. Amos
 Brackeen ...     80          Founder and Pastor,                     1992
                              Philippian Baptist
                              Church of Phila., PA.

Emma C.
 Chappell ...     54          Founder, Chairman of                    1992
                              the Board, President
                              and CEO of the
                              Bank and Registrant.

Luis A.
 Cortes, Jr...    41          Executive Director                      1992
                              of the Hispanic Clergy
                              of Philadelphia & Vicinity.

Kemel G.
 Dawkins ...      75          President, Kemrodco                     1992
                              Development and
                              Construction Company, Inc.,
                              President, Kem-Her
                              Construction Company
                              Inc., Phila., PA.


                                       55
<PAGE>


L. Armstead
 Edwards ...      56          Owner and President,                    1992
                              P.A.Z., Inc.,
                              Philadelphia., PA

Marionette Y.     54          Partner                                 1996
 Frazier ...                  John Frazier, Inc.
                              Philadelphia, PA

William C.
 Green ....       74          Co-Founder, Ivy Leaf                    1992
                              Middle School,
                              Philadelphia, PA

Angela M.
 Huggins ...      58          President and CEO                       1992
                              RMS Technologies, Inc. Foundation
                              Moorestown, NJ

William B.
 Moore ...        56          Pastor, Tenth Memorial                  1992
                              Baptist Church,
                              Philadelphia, PA

Ernest L.
 Wright ...       70          Founder, President and                  1992
                              CEO of Ernest L. Wright
                              Construction Company, Phila., PA

Each  of  these  officers  and  directors  are  officers  and  directors  of the
Registrant.

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

Financial Statements: December 31, 1998

Report of Independent Auditors, April 9, 1999

Consolidated Balance Sheets at December 31, 1998.

Consolidated Statements of Operations for the years ended December 31, 1998.

Consolidated Statements of Shareholders' Equity for the years ended December 31,
1998.

Consolidated Statements of Cash Flows for the years ended December 31, 1998.


                                       56
<PAGE>


Notes to Consolidated Financial Statements.

Reports on Form 8-K

Not Applicable.

         SIGNATURES

UNITED BANCSHARES, INC.



BY:
   -------------------------------
   Emma C. Chappell, Chairman, President & CEO

----------------------------------
James F. Bodine

----------------------------------
S. Amos Brackeen

----------------------------------
Emma C. Chappell

----------------------------------
Luis A. Cortes, Jr.

----------------------------------
Kemel G. Dawkins

----------------------------------
L. Armstead Edwards

----------------------------------
Marionette Y. Frazier

----------------------------------
William C. Green

----------------------------------
Angela M. Huggins

----------------------------------
William B. Moore

----------------------------------
Ernest L. Wright

                                       57