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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             -----------------------

                                    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, 2002


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

                                     0-25976
                           --------------------------
                           (Registrants' file number)


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


  300 North Third Street, Philadelphia, Pennsylvania           19106
  --------------------------------------------------        ----------
      (Address of principal executive offices)              (Zip Code)


Registrant's telephone number, including area code: (215) 351-4600

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

Securities registered pursuant to Section 12(g)f 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  and 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.  [ X ]

Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act).    Yes ___     No [ X ]

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<PAGE>

     United Bancshares, Inc. (sometimes herein also referred to as the "Company"
or "UBS") has two classes of capital stock authorized - 2,000,000 shares of $.01
par value Common Stock and Series  Preferred  Stock (Series A Preferred  Stock).
The Board of  Directors  designated a subclass of the common  stock,  designated
Class B Common  Stock,  by filing of Articles of  Amendment  to its  Articles of
Incorporation  on September 30, 1998.  This Class of stock has all of the rights
and  privileges  of Common  Stock with the  exception of voting  rights.  Of the
2,000,000 shares of Common Stock authorized,  250,000 have been designated Class
B Common Stock.  There is no market for the Common Stock.  None of the shares of
the Registrant's  stock was sold within 60 days of the filing of this Form 10-K.
As of March 17,  2003 the  aggregate  number of the  shares of the  Registrant's
Common Stock outstanding was 1,102,088 (including 191,667 Class B non voting).

     The Board of Directors of United Bancshares,  Inc. designated one series of
the Series Preferred Stock (the "Series A Preferred Stock"),  500,000 authorized
of which 143,150 shares were outstanding as of March 18, 2002.

     There are 210 pages in the Form 10-K.


                                    FORM 10-K

                             United Bancshares, Inc.

                                      Index
 Item No.                                                                  Page

                                     PART I

    1.   Business............................................................ 3
    2.   Properties..........................................................10
    3.   Legal Proceedings...................................................11
    4.   Submission of Matters to a Vote of Security Holders.................11


                                     PART II

    5.   Market for Registrant's Common Equity and
           Related Stockholder Matters.......................................12
    6.   Selected Financial Data.............................................13
    7.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations.........................................13
    7A.  Quantitative and Qualitative Disclosures about Market Risk..........28
    8.   Financial Statements and Supplementary Data.........................28
    9.   Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure..............................................28


                                    PART III

   10.   Directors and Executive Officers of Registrant......................29
   11.   Executive Compensation..............................................30
   12.   Security Ownership of Certain Beneficial Owners and Management......32
   13.   Certain Relationships and Related Transactions......................33
   14.   Controls and Procedures.............................................33


                                     PART IV

   15.   Exhibits, Financial Statements Schedules and Reports on Form 8-K....34



      UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 17, 2003.


                                        2

<PAGE>


                                     PART I

          SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENT

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

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



                               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 300 North Third Street,  Philadelphia,  Pennsylvania  19106.  The
Registrant's telephone number is (215) 351-4600.

     As of March 17, 2003, UBS and the Bank had a total of 51 employees.



                                       3

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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 four  offices
located as  follows:  (i) Center  City  Branch  Two Penn  Center,  Philadelphia,
Pennsylvania;   (ii)  West  Philadelphia   Branch  37th  and  Lancaster  Avenue,
Philadelphia,  Pennsylvania,  (iii)  Mount Airy Branch  1620  Wadsworth  Avenue,
Philadelphia,  Pennsylvania;  and (iv)  Progress  Plaza  Branch 1015 North Broad
Street,  Philadelphia,  Pennsylvania.  In  January  2002,  the Bank  closed  and
consolidated  its 714 Market Street  Branch with its branch  located at Two Penn
Center to create operating efficiencies.  Through its locations, the Bank offers
a broad range of commercial and consumer banking services. At December 31, 2002,
the Bank had total  deposits  aggregating  approximately  $76.9  million and had
total net loans outstanding of approximately $43.5 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 is
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,  and home equity loans.  At March 17, 2003,  the Bank's
maximum legal lending limit was approximately $1,007,000 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 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 participations on a number of occasions.

     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 is intended to reduce
the Bank's exposure to loss in its commercial loan portfolio.  Commercial  loans
are typically made on 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.  Other  services the Bank offers  include 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.


                                       4

<PAGE>


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 un-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  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.

     United Wealth  Management  Services  ("UWMS"),  a division of the Bank, was
introduced in September  2002, to provide a full array of  non-deposit  products
including  investments,  insurance  and  brokerage  services  through the Bank's
branch network. The Bank's partner in this venture is UVEST Investment Services.
UVEST is a  registered  broker/dealer  that has been  offering  a wide  range of
investment  products and services  since 1982. The Bank intends to use UWMS as a
vehicle to introduce and market all of its products and services including loans
and deposits.


                           Supervision and Regulation

                      Regulation of United Bancshares, Inc.

     UBS, as a Pennsylvania business corporation, is subject to the jurisdiction
of the  Securities  and  Exchange  Commission  (the  "SEC")  and  certain  state
securities  commissions  concerning matters relating to the offering and sale of
its securities.  Accordingly,  if UBS wishes to issue  additional  shares of its
Common Stock, for example, to raise capital or to grant stock options,  UBS must
comply with the  registration  requirements  of the  Securities  Act of 1933, as
amended,  and any  applicable  states  securities  laws,  or find an  applicable
exemptions from registration.

The Bank Holding Company Act

     UBS, as a bank holding company,  is subject to the Bank Holding Company Act
of 1956,  as amended (the "BHC Act"),  and  supervision  by the Federal  Reserve
Board.  The BCH Act limits the  business of bank  holding  companies to banking,
managing or  controlling  banks,  performing  certain  servicing  activities for
subsidiaries  and engaging in such other activities as the Federal Reserve Board
may determine to be closely related to banking.


                                       5

<PAGE>


UBS is subject to the supervision of and inspection by the Federal Reserve Board
and  required  to file  with the  Board an  annual  report  and such  additional
information  as  the  Board  may  require  pursuant  to  the  BHC  Act  and  its
implementing regulations.

     A bank holding company is prohibited  from engaging in or acquiring  direct
or indirect  control of more than 5% of the voting shares of any company engaged
in  non-banking  activities,  unless  the  Federal  Reserve  Board,  by order or
regulation,  has found such  activities  to be so closely  related to banking or
managing or controlling  banks,  as to be a proper incident  thereto.  In making
this  determination,  the  Board  considers  whether  the  performance  of these
activities  by a bank holding  company  would offer  benefits to the public that
outweigh possible adverse effects.

     The BHC Act  requires  UBS to secure  the  prior  approval  of the  Federal
Reserve Board before it owns or controls,  directly or indirectly,  more than 5%
of the voting shares of any  corporation,  including  another bank. In addition,
the BHC Act prohibits UBS from  acquiring  more than 5% of the voting shares of,
or an  interest  in, or all or  substantially  all of the  assets  of,  any bank
located  outside  Pennsylvania,  unless  such  an  acquisition  is  specifically
authorized by the laws of the state in which such bank is located.

     Subject  to  compliance  with   Pennsylvania  law,  and,  as  noted  above,
compliance  with the BHC Act UBS is  permitted  to  control  a number  of banks.
However,  UBS is required  under the BHC Act to obtain the prior approval of the
Federal Reserve Board before acquiring all or substantially all of the assets of
any bank,  or acquiring  ownership or control of any voting  shares of any other
bank if, after such  acquisition,  UBS would  control more than 5% of the voting
shares of such bank.

     The BHC Act and the Federal  Reserve  Board's  regulations  prohibit a bank
holding company and its subsidiaries from engaging in certain tying arrangements
in  connection  with any  extension  of credit  or  services.  The  "anti-tying"
provisions prohibit a bank from extending credit,  leasing,  selling property or
furnishing any service to a customer on the condition  that the customer  obtain
additional  credit or service  from the bank,  its bank  holding  company or any
other  subsidiary  of its bank holding  company,  or on the  condition  that the
customer not obtain other credit or services from a competitor of the bank,  its
bank holding company or any subsidiary of its bank holding company.

     The Bank,  as a  subsidiary  of UBS,  is subject  to  certain  restrictions
imposed by the Federal  Reserve Act, as amended,  on any extensions of credit to
UBS or its subsidiaries,  on investments in the stock or other securities UBS or
its  subsidiaries,  and on taking such stock or  securities  as  collateral  for
loans.

     The Federal  Reserve Act and Federal Reserve Board  regulations  also place
certain limitations and reporting requirements on extensions of credit by a bank
to principal  shareholders of its parent holding company,  among others,  and to
related  interests of such  principal  shareholders.  In addition,  that Act and
those  regulations  may affect  the terms  upon  which any person who  becomes a
principal  shareholder  of a holding  company may obtain  credit from banks with
which the subsidiary bank maintains a correspondent relationship.

     Federal  law also  prohibits  the  acquisition  of control by UBS of a bank
holding  company,  without  prior  notice to certain  federal  bank  regulators.
Control is defined for this  purpose as the power,  directly or  indirectly,  to
direct the management or policies of the bank or bank holding company or to vote
25% or more of any class of voting securities of the bank holding company.

The Financial Services Act

     The Financial  Services Act (the "FSA Act"),  sometimes  referred to as the
Gramm-Leach-Bliley Act, repealed the provisions of the Glass-Steagall Act, which
prohibited  commercial  banks and securities  firms from  affiliating  with each
other and  engaging  in each  other's  businesses.  Thus,  many of the  barriers
prohibiting affiliations between commercial banks and securities firms have been
eliminated.

     The FSA Act authorizes the establishment of "financial  holding  companies"
("FHC")  to  engagement  in  new  financial  activities  offering  and  banking,
insurance,  securities and other financial  products to consumers.  Bank holding
companies  may  elect  to  become  a FHC,  if all of its  subsidiary  depository
institutions are well capitalized and well managed. See Regulatory Action below.
If those requirements are met, a bank holding company may file a certification


                                       6
<PAGE>



to that  effect  with the Federal  Reserve  Board and declare  that it elects to
become a FHC. After the  certification  and declaration  are filed,  the FHC may
engage  either de novo or through an  acquisition  in any activity that has been
determined by the Federal  Reserve Board to be financial in nature or incidental
to such financial activity.

     Under the FSA Act the Bank, subject to various  requirements,  is permitted
to engage  through  "financial  subsidiaries"  in certain  financial  activities
permissible  for  affiliates  of an FHC.  However,  to be able to engage in such
activities  the Bank must be well  capitalized  and well  managed and receive at
least a "satisfactory" rating in its most recent Community Reinvestment Act (the
"CRA Act") examination. See the Community Reinvestment Act below.

     UBS  cannot  be  certain  of  the  future  effect  of the  legislation  and
regulations,   described   above,  on  its  business,   although  there  may  be
consolidation among financial service institutions and increased competition for
UBS as well as an increase in the expense of regulatory compliance.

                             Regulation of the Bank

     The Bank is subject  to  supervision,  regulation  and  examination  by the
Pennsylvania  Department  of Banking and the Federal  Reserve  Board because the
Bank is a member bank of the Federal Reserve System. The FDIC insures the Bank's
deposits and thus the Bank is subject to certain FDIC regulations.  In addition,
the Bank is subject to a variety of local,  state and  federal  laws that affect
its operation.  Below are  summarized  those laws and  regulations  which a have
material impact on the operations and expenses of the Bank and thus UBS.

Branch Banking

     The Pennsylvania  Banking Code of 1965, as amended,  the ("Banking  Code"),
has been  amended  to  harmonize  Pennsylvania  law with  federal  law to enable
Pennsylvania  banking  institutions,  such as the Bank, to participate  fully in
interstate  banking and to remove  obstacles  to out of state banks  engaging in
banking in Pennsylvania.

Federal Reserve Membership Regulations

     Since the Bank is a member bank of the Federal Reserve System,  the Federal
Reserve Board possesses the power to prohibit institutions regulated by it, such
as the Bank,  from  engaging in any activity that would be an unsafe and unsound
banking practice or violate the law. Moreover,  the Board has: (i) empowered the
FDIC to issue cease-and-desist or civil money penalty orders against the Bank or
its  executive  officers,  directors  and/or  principal  shareholders  based  on
violations of law or unsafe and unsound banking  practices;  (ii) authorized the
FDIC to remove  executive  officers who have  participated in such violations or
unsound  practices;  (iii)  restricted  lending  by the  Bank  to its  executive
officers,  directors,  principal shareholders or related interests thereof; (iv)
restricted  management  personnel  of the Bank from  serving as  directors or in
other management  positions with certain  depository  institutions  whose assets
exceed a specified amount or which have an office within a specified  geographic
area.  Additionally,  the Bank Control Act  provides  that no person may acquire
control of the Bank  unless the  Federal  Reserve  Board has been given  60-days
prior written notice and within that time has not disapproved of the acquisition
or extended the period for disapproval.

The Federal Deposit Insurance Corporation Act

     The Federal  Deposit  Insurance  Corporation  Act (the "FDIC Act") includes
several  provisions  that have a direct  material  impact on the Bank.  The most
significant of these provisions are discussed below.

     To  minimize  losses  to the  deposit  insurance  funds,  the  FDIC Act has
established a format to monitor  FDIC-insured  institutions and to enable prompt
corrective action to be taken by the appropriate  federal  supervisory agency if
an institution  begins to experience  difficulty.  The FDIC Act establishes five
"capital"   categories.   They  are:  (1)  well   capitalized,   (2)  adequately
capitalized, (3) undercapitalized,  (4) significantly undercapitalized,  and (5)
critically  undercapitalized.  The overall goal of these new capital measures is
to impose more scrutiny and  operational  restrictions  on banks as they descend
the capital categories from well capitalized to critically undercapitalized.

     Under current regulations,  a  "well-capitalized"  institution would be one
that has at least a 10% total  risk-based  capital ratio, a 6% Tier I risk-based
capital  ratio,  a 5% Tier I leverage  ratio,  and is not subject to any written
order or final  directive  by its  regulatory  agency  to meet  and  maintain  a
specific capital level.


                                       7
<PAGE>

     An  "adequately  capitalized"  institution  would  be one  that  meets  the
required  minimum  capital  levels,  but  does  not  meet  the  definition  of a
"well-capitalized"  institution.  The existing  capital rules generally  require
banks  to  maintain  a Tier I  Leverage  Ratio  of at  least  4% and an 8% total
risk-based capital ratio. Since the risk-based capital  requirement to be in the
form of Tier I capital,  this also will mean that a bank would need to  maintain
at least 4% Tier I risk-based  capital ratio.  An institution  must meet each of
the  required  minimum  capital  levels  in  order  to  be  deemed   "adequately
capitalized."  The most recent  notification  dated February 26, 2003,  from the
Federal Reserve  authorities  categorized  the Bank as "adequately  capitalized"
under the regulatory  framework for prompt and corrective action. See Regulatory
Action below.

     An "undercapitalized"  institution is one that fails to meet one or more of
the required minimum capital levels for an "adequately capitalized" institution.
Under  the FDIC  Act,  an  "undercapitalized"  institution  must  file a capital
restoration  plan and is  automatically  subject to  restrictions  on dividends,
management  fees and asset growth.  In addition,  the  institution is prohibited
from  making  acquisitions,  opening  new  branches  or engaging in new lines of
business without the prior approval of its primary federal  regulator.  A number
of other restrictions may be imposed.


The Community Reinvestment Act

     The Bank is required, by the CRA Act and the implementing regulations,  to:
(i)  meet  the  credit   needs  of  the   community,   including   the  low  and
moderate-income  neighborhoods,  which it  serves.  The Bank's CRA Act record is
taken into account by the  regulatory  authorities  in their  evaluation  of any
application  made by the Bank for,  among other things,  approval of a branch or
other deposit facility,  branch office  relocation,  a merger or an acquisition.
The CRA Act also requires the federal banking agencies to make public disclosure
of their evaluation of a bank's record of meeting the credit needs of its entire
community,  including  low and  moderate-income  neighborhoods.  After  its most
recent CRA Act examination the Bank was given an "outstanding" CRA Act rating."

The Bank Secrecy Act

     Under  the  Bank  Secrecy  Act  ("BSA"),   the  Bank  and  other  financial
institutions  are required to report to the Internal  Revenue  Service  currency
transactions,  of more than $10,000 or multiple  transactions  of which the Bank
has knowledge exceed $10,000 in the aggregate.  Civil and criminal penalties are
provided  under the BSA for  failure to file a required  report,  for failure to
supply  information  required  by the BSA or for  filing a false  or  fraudulent
report.

Privacy of Consumer Financial Information

     The FSA Act also  contains  provisions  designed  to protect the privacy of
each  consumer's  financial  information  held in a financial  institution.  The
regulations (the  "Regulations")  issued pursuant to the FSA Act are designed to
prevent financial  institutions,  such as the Bank, from disclosing a consumer's
nonpublic personal information to third parties. However, financial institutions
can share a  consumer  customer's  personal  information  or  information  about
business with affiliated companies.

     The FSA Act Regulations permit financial institutions to disclose nonpublic
personal  information to nonaffiliated  third parties for marketing purposes but
financial  institutions  must provide a description of their privacy policies to
the consumers and give consumers an  opportunity  to opt-out of such  disclosure
and prevent disclosure by the financial  institution of the consumer's nonpublic
personal  information to nonaffiliated third parties.  These privacy Regulations
will  affect  how  consumer   information  is  transmitted  through  diversified
financial companies and conveyed to outside vendors.

Consumer Protection Rules - Sale of Insurance Products

     In addition,  as mandated by FSA Act, the bank  regulators  have  published
consumer  protection  rules  (the  "Rules")  which  apply  to the  retail  sales
practices, solicitation,  advertising or offers of insurance products, including
annuities, by depository institutions such as the Bank.


                                       8
<PAGE>



     The Rules provide that before the sale of insurance or annuity products can
be  completed,  disclosures  must be made that such  insurance  products are not
deposits or other  obligations  of or guaranteed by the FDIC or any other agency
of the United  States,  the Bank or any affiliate and that  insurance  products,
including an  annuities,  may involve an investment  risk,  including a possible
loss of value.

     The Rules also  provide  that the Bank may not  condition  an  extension of
credit on the  consumer's  purchase of an insurance  product or annuity from the
Bank or any affiliate or on the consumer's  agreement not obtain or prohibit the
consumer  from  obtaining an insurance  product or annuity from an  unaffiliated
entity.

     Finally the Rules also require formal  acknowledgment  by the consumer that
such disclosures have been received. In addition,  to the extent practical,  the
Bank must keep insurance and annuity sales activities  physically  separate from
the areas where retail sales are routinely accepted from the general public. The
Bank currently does not market insurance products.

New Legislation and Regulations

The Patriot Act of 2001

     The Patriot Act of 2001 which was enacted in the wake of the  September 11,
2001  attacks,   include  provisions  designed  to  combat  international  money
laundering and advance the U.S. government's war against terrorism.  The Patriot
Act, and the regulations,  which implement it, contains many obligations,  which
must be satisfied by financial  institutions,  including the Bank, which involve
additional expenses for the Bank.

The Sarbanes-Oxley Act of 2002

     On July 30, 2002 the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley  Act")
became law. The stated goals of the Sarbanes-Oxley Act are to increase corporate
responsibility,   provide   enhanced   penalties  for  accounting  and  auditing
improprieties  by publicly traded  companies and protect  investors by improving
the  accuracy and  reliability  of corporate  disclosures  made  pursuant to the
securities law. The changes required by Sarbanes-Oxley  Act and its implementing
regulations  are intended to allow  shareholders  to monitor the  performance of
companies and their directors more easily and effectively.

     The Sarbanes-Oxley Act generally applies to all domestic companies, such as
UBS, that file periodic  reports with the SEC under the Securities  Exchange Act
of 1934, as amended. The Sarbanes-Oxley Act includes very significant disclosure
requirements  and  new  corporate  governance  rules,   requires  the  SEC,  the
securities  exchanges and the NASDAQ stock market to adapt extensive  additional
disclosures, corporate governance provisions and other related rules, as well as
mandating that studies of certain  significant issues be made by the SEC and the
US Comptroller  General.  Given the extensive number of Sarbanes-Oxley Act rules
and regulations to be finalized and  implemented,  the final scope and impact of
its  requirements  on UBS and the  financial  services  industry  have yet to be
determined.

     The  Sarbanes-Oxley  Act addresses,  among other matters,  directors' audit
committees; certification of financial statements by the chief executive officer
and chief financial officer; forfeiture of bonuses and profits made by directors
and senior  officers in the twelve  month period  covered by restated  financial
statements;  a prohibition on insider trading during pension  blackout  periods;
disclosure of off-balance sheet transactions;  a prohibition by companies, other
than  federally  insured  financial  institutions,  on  personal  loans to their
directors  and  officers;   expedited   filing  of  reports   concerning   stock
transactions  by  directors  and  executive  officers;  formation  of  a  public
accounting  oversight  board;  auditor  independence;   and  increased  criminal
penalties for violation of certain the securities laws.

     To implement the requirements of Sarbanes-Oxley  Act and regulations,  UBS'
management  has  instituted a series of actions to strengthen  and improve UBS',
corporate governance practices. Included in those actions was the development of
a system  designed to evaluate and monitor the  continued  effectiveness  of the
design and  operation of UBS'  internal  controls and  procedures  for financial
reporting.

                                       9
<PAGE>


     These  series of actions by UBS'  management  improves  UBS' and the Bank's
Audit  Committees  and Risk  Management  Committees of the Boards,  and UBS' and
Bank's  structures  and  processes  which  are  intended  to  provide  tools  to
strengthen  internal  controls,   communications  and  disclosure  of  necessary
information to those who must know and use it. UBS' system of internal  controls
and procedures, which are in place, are designed to capture information from all
segments of its  business.  At UBS and the Bank,  each key  material  element of
their operation is subject to oversight to help insure proper internal  controls
and  procedures,  administration,  risk  management  and  delivery  of  critical
information  disclosures to appropriate audit and financial officers,  executive
management,  Board  committees  and the  Boards of  directors.  UBS'  management
believes  that the addition of these new controls and processes has brought with
it a  broader  and  more in depth  analysis  to UBS'  systems  of  controls  and
procedures and corporate governance.

     The  rules  and   regulations,   discussed   above,   which  implement  the
Sarbanes-Oxley  Act could have a significant  economic  impact on the compliance
cost of the UBS and all publicly held companies.

Future Legislation and Governmental Policies

     From time to time various Federal and state  legislation have been proposed
that could result in additional regulation of, and restrictions on, the business
of the Bank. As the enactment of the FSA Act and the Sarbanes-Oxley Act confirm,
from time to time,  various  proposals are enacted in the United States Congress
as well as  Pennsylvania  legislature  and  issued by  various  bank  regulatory
authorities  which  alter the powers of, and place  restrictions  on,  different
types of bank organizations.

     As  a  consequence  of  the  extensive  regulation  of  commercial  banking
activities in the United States, the Bank's business is particularly susceptible
to being  affected by federal and state  legislation  and  regulations  that may
increase the costs of doing  business.  Bank  management  cannot  anticipate the
changes  in laws and  regulations  and  their  impact  on the  Bank's  business,
financial position and reported results of operation.

                                Regulatory Action

     In February  2000,  as a result of a  regulatory  examination  completed in
December  1999,  the Bank  entered  into a Written  Agreement  with its  primary
regulators  with  regard to,  among other  things,  achievement  of  agreed-upon
capital levels,  implementation of a viable  earnings/strategic  plan,  adequate
funding of the allowance for loan losses,  the completion of a management review
and  succession  plan,  and  improvement  in  internal  controls.  See,  ITEM 7,
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS.


                              ITEM 2 -- PROPERTIES

Corporate Headquarters

     In August 1999, the Bank moved its corporate  headquarters  from the branch
facility  at 714  Market  Street  to the  building  at 300 North  Third  Street,
Philadelphia,  Pennsylvania.  In October 2000,  the Bank  purchased the building
from a former officer in  conjunction  with the settlement of a legal matter for
approximately  $1.4 million.  Before its purchase,  the Bank leased the building
from this officer under a 10-year  non-cancelable  capital  lease.  The facility
consists of 25,000 square feet including executive offices, operations, finance,
human  resource,  security  and loss  prevention  functions.  The  Bank  sublets
approximately  2,500  square  feet to the African  American  Interdenominational
Ministries.

Market Street Branch (closed)

     The  Bank's  Market  Street  Branch  was  located  on the first  floor of a
multi-tenant  retail  and  commercial  office  building  at 714  Market  Street,
Philadelphia, Pennsylvania. The Bank occupied approximately 5,700 square feet of
space pursuant to a lease that expired on February 28, 2002. In conjunction with
the  expiration  of the  lease,  the branch  operations  of this  facility  were
consolidated  with the branch  located at Two Penn Center in January  2002.  The
aggregate monthly rent for this location was $14,023.


                                       10


<PAGE>


Mt. Airy Branch

     The Bank  operates  a branch  at 1620  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 at a monthly
rental of $3,517.

Center City Branch

     The Bank operates a branch location at Two Penn Center, 15th Street and JFK
Boulevard,  Philadelphia,  Pennsylvania.  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 $13,115.

Frankford Branch and ATM Machine

     In 1995, the Bank purchased a branch facility at 4806 Frankford  Avenue. In
September 2000, the Bank closed this facility.  In June 2002, the Bank sold this
facility.  An ATM machine  remains  operational at this facility.  The aggregate
monthly rental for the ATM Machine is $500.

West Girard Branch and ATM Machine

     The Bank leased a facility  located at 2820 West Girard Avenue.  The branch
operations of this facility were  discontinued in September 2000. An ATM machine
remained  operational at this facility until February 2002 when it was relocated
to 2820 West Girard. The aggregate monthly rental for the ATM Machine at the new
location is $500.

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 $2,875 exclusive of taxes,  insurance,
utilities and janitorial service.

Progress Plaza Branch

     The Bank  leases a branch  facility  located  at 1015 North  Broad  Street,
Philadelphia, Pennsylvania. The facility comprises a teller and customer service
area, lobby and vault. The aggregate  monthly rental for this facility is $3,875
per  month.   The  Bank  has  been  notified  by  the  landlord  that  extensive
improvements  to the  shopping  plaza in which this branch is located is planned
for early 2004. This will result in the temporary relocation of this facility to
a yet undetermined nearby location at the beginning of 2004.


                          ITEM 3 -- LEGAL PROCEEDINGS

     No  material  claims  have been  instituted  or  threatened  by or  against
Registrant or its affiliates other than in the ordinary course of business.


         ITEM 4 -- SUBMISSION OF MATTERS TO A 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.


                                       11

<PAGE>


                                     PART II

               ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY
                         AND RELATED STOCKHOLDER MATTERS

Common Stock

     As of March 17,  2003  there  were  3,168  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  "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.

     In June 2000 and December 2000,  respectively,  the Bank received  $411,809
and $436,212 and issued 34,317 and 36,351 shares,  respectively,  as a result of
the  purchase of UBS common stock by members of the Bank's board of directors in
a limited offering at a price of $12.00 per share. This offering was exempt from
registration under the Act pursuant to the exemption in section 4(2) of the Act.

     In May 2001 and December 2001,  respectively,  the Bank received $2,000 and
$9,596 and issued 167 and 800 shares, respectively,  as a result of the purchase
of UBS  common  stock by two  individuals  in a limited  offering  at a price of
$12.00 per share.  This  offering  was exempt  from  registration  under the Act
pursuant to the exemption in section 4(2) of the Act.

     In June 2002, the Bank received $20,400 and issued 1,700 shares as a result
of the  purchase  of UBS common  stock by new  members  of the  Bank's  board of
directors in a limited  offering at a price of $12.00 per share.  This  offering
was exempt from registration  under the Act pursuant to the exemption in section
4(2) of the Act.

Dividends

     UBS 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 Federal Reserve Board has the power to
prohibit the payment of cash  dividends by a bank if it  determines  that such a
payment  would be an unsafe or unsound  banking  practice.  As a result of these
laws and regulations,  the Bank, and therefore the Registrant, whose only source
of income is dividends from the Bank,  will be unable to pay any dividends while
an accumulated deficit exists. The Registrant does not anticipate that dividends
will be paid for the foreseeable 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.


                                       12

<PAGE>


     The information below has been derived from UBS' consolidated financial
statements.


                        ITEM 6 -- SELECTED FINANCIAL DATA

                             Selected Financial Data

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                       ------------------------------------------------------------
(Dollars in thousands, except per share data)            2002         2001        2000         1999         1998
                                                       ------------------------------------------------------------

<S>                                                    <C>         <C>          <C>         <C>          <C>
Net interest income..............................      $ 3,726     $  4,060     $ 5,415     $  5,264     $  5,241
Provision for loan losses........................         175           335         565        1,007          351
Noninterest income...............................        2,327        2,443       3,197        2,226        1,816
Noninterest expense..............................        6,095        7,038       8,801        7,714        6,696
Net income (loss)................................         (217)        (870)       (755)      (1,230)          10
Net income (loss) per share - basic                      (0.20)       (0.79)      (0.72)       (1.24)        0.01

Balance sheet totals:
    Total assets.................................      $86,044     $ 88,668     $93,533      $137,249    $121,983
    Net loans....................................       43,459       42,292      44,743        59,444      57,271
    Investment securities........................       21,518       25,806      35,014        51,433      43,196
    Deposits.....................................       76,929       79,423      83,238       124,766     109,063
    Shareholders' equity.........................        8,500        8,558       9,350         9,027       8,904
    Ratios:
       Equity to assets..........................        7.45%        7.67%       7.74%         8.07%       6.40%
       Return on assets..........................       (0.25)%      (0.95)%     (0.63)%       (1.03)%      0.01%
       Return on equity..........................       (2.55)%      (9.31)%     (8.08)%      (12.71)%      0.14%

</TABLE>


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

     Because  UBS  is a  bank  holding  company  for  the  Bank,  the  financial
statements  in this report are prepared on a  consolidated  basis to include the
accounts of the Company and the Bank. The purpose of this discussion is to focus
on information  about the Bank's financial  condition and results of operations,
which is not  otherwise  apparent  from the  consolidated  financial  statements
included in this 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 a net loss of approximately $217,000 thousand for 2002
($0.20 per share)  compared to a net loss of  approximately  $870,000 ($0.79 per
share)  for 2001 and net loss of  approximately  $755,000  ($0.72  per share) in
2000.  In 2002,  the Bank was  awarded a $198,000  grant from the U.S.  Treasury
Department's  Bank Enterprise Award (BEA) Fund which is included in other income
on the  consolidated  statement  of  operations.  These  funds  are  awarded  to
financial  institutions that demonstrate  community development through loan and
deposit activity.  The financial results for 2002 were also positively  impacted
by the  continued  implementation  of the Bank's  profit  restoration  plan that
resulted in reductions  in  noninterest  expenses of $943,000  compared to 2001.
Components    of    the    plan    included    among    other    things    staff
reductions/consolidations,  salary  reductions,  reduction  in branch  operating
hours,  elimination  of director  fees,  and the  reduction  of other  operating
expenses.

     In  addition,  revenue  enhancement  strategies  were  employed to generate
expanded opportunities for fee income through the implementation of new products
and  services  including  the debit card and  wealth  management  services.  The
marketing of consumer loan products including home equity, automobile,  student,
and credit card loans, and; the installation of additional high volume automated
teller machines are also expected to contribute to increased revenues.

     During 2002,  while expense  reductions were achieved,  a greater impact is
expected to be realized with increased loan  originations  that build the Bank's
loan-to-deposit  ratio.  Increased  loan  volume  will  result  in a higher  net
interest margin and therefore  increased  revenues.  Thus,  while  continuing to
control  expenses,  management  will place more focus on the  implementation  of
business  development  strategies to increase the level of loans  outstanding to
achieve profitability.

                                       13

<PAGE>


     During 2003, to build momentum around business  development and to generate
interest  and  enthusiasm  in  the  marketplace,  management  will  embark  on a
re-branding  campaign for the Bank. The campaign will focus on a re-introduction
of the Bank and emphasize its  commitment to the  community.  This campaign will
include  among other  things,  in-branch  marketing  of the Bank's  products and
services,  direct mail  advertising/solicitation,  and the use of newspaper  and
television  media . A major  focus will be placed on the  Bank's  new  division,
United Wealth Management  Services,  as a lead-in to cross-sell the Bank's other
products and services.

     A more detailed  explanation  for each component of earnings is included in
the sections below.


    Table 1--Average Balances, Rates, and Interest Income and Expense Summary

<TABLE>
<CAPTION>
                                                                         December 31,
                                                2002                         2001                         2000
                                       -----------------------      -----------------------      ------------------------
                                       Average           Yield/     Average           Yield/     Average           Yield/
(Dollars in thousands)                 balance  Interest  rate      balance  Interest  rate      balance  Interest  rate
                                       -----------------------      -----------------------      ------------------------
<S>                                    <C>       <C>      <C>       <C>       <C>      <C>       <C>       <C>      <C>
Assets:
Interest-earning assets:
    Loans...........................   $ 42,839  $3,006   7.02%     $ 45,828  $3,595   7.85%     $ 55,262  $4,655   8.42%
    Investment securities
      held-to-maturity                   10,155     626   6.16        14,669     987   6.73        28,659   1,875   6.54
    Investment securities
      available-for-sale                 13,783     831   6.03        11,758     772   6.57        18,044   1,284   7.12
    Federal funds sold..............     10,406     169   1.62         7,726     282   3.65         5,518     339   6.15
                                        -------  ------              -------  ------              -------  ------
       Total interest-earning assets     77,183   4,632   6.00        79,981   5,636   7.05       107,483   8,153   7.59

Noninterest-earning assets:
    Cash and due from banks.........      4,542                        4,801                        5,339
    Premises and equipment, net.....      2,613                        3,214                        3,671
    Other assets....................      2,926                        4,028                        4,494
    Less allowance for loan losses..       (674)                        (576)                        (562)
                                       --------                     --------                     --------
       Total........................   $ 86,590                     $ 91,448                     $120,425
                                       ========                     ========                     ========

Liabilities and shareholders' equity:
Interest-bearing liabilities:
    Demand deposits.................   $ 12,882     114   0.89%     $ 13,802     178   1.29%     $ 19,851     602   3.03%
    Savings deposits................     21,931     129   0.59        24,480     317   1.29        30,776     497   1.61
    Time deposits...................     23,712     662   2.79        24,089   1,081   4.49        28,531   1,387   4.86
    Other borrowed funds............        -        -      -              1      -      -          1,925     252  13.09
                                       --------  ------             --------  ------             --------  ------
       Total interest-bearing
         liabilities                     58,525     906   1.55        62,372   1,576   2.53        81,083   2,738   3.38
Noninterest-bearing liabilities:
    Demand deposits.................     19,565                       19,612                       27,567
    Other...........................        -                            431                        3,233
Shareholders' equity................      8,500                        9,033                        8,542
                                       --------  ------             --------  ------             --------  ------
       Total........................   $ 86,590                     $ 91,448                     $120,425
                                       ========                     ========                     ========

Net interest earnings...............             $3,726                       $4,060                       $5,415
Net yield on interest-earning assets                      4.83%                        5.08%                       5.04%

</TABLE>

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


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.

                                       14
<PAGE>


     Net interest  income in 2002 totaled $3.7 million,  a decrease of $334,000,
or 8.22%, compared to 2001. Net interest income for 2001 totaled $4.1 million, a
decrease of $1.3 million or 25%, compared to 2000.


         Table 2--Rate-Volume Analysis of Changes in Net Interest Income

<TABLE>
<CAPTION>
                                                               2002 compared to 2001                2001 compared to 2000
                                                           -----------------------------        -----------------------------
                                                            Increase (decrease) due to         Increase (decrease) due to
                                                           -----------------------------      -----------------------------

(Dollars in thousands)                                       Volume    Rate       Net            Volume    Rate       Net
                                                            -------   -------   -------         -------   -------   -------
<S>                                                         <C>       <C>        <C>            <C>        <C>      <C>
Interest earned on:
    Loans...............................................    $ (209)   $ (380)    $(589)         $  (742)   $(317)   $(1,059)
    Investment securities held-to-maturity..............      (277)      (84)     (361)            (942)      55       (887)
    Investment securities available-for-sale............       122       (63)       59             (412)    (100)      (512)
    Federal funds sold..................................        44      (157)     (113)              81     (138)       (57)
                                                             -----     -----     -----          -------    -----    -------

       Total interest-earning assets....................      (320)     (684)    (1004)          (2,015)    (500)    (2,515)
                                                             -----     -----     -----          -------    -----    -------

Interest paid on:
    Demand deposits.....................................        (8)      (55)      (63)             (78)    (345)      (423)
     Savings deposits...................................       (16)     (172)     (188)             (83)     (96)      (179)
    Time deposits.......................................        (9)     (410)     (419)            (200)    (107)      (307)
    Other borrowed funds................................         -         -         -             (252)      -        (252)
                                                             -----     -----     -----          -------    -----    -------

       Total interest-bearing liabilities...............       (33)     (637)     (670)            (613)    (548)    (1,161)
                                                             -----     -----     -----          -------    -----    -------

       Net interest income..............................    $ (287)   $  (47)    $(334)         $(1,402)   $  48    $(1,354)
                                                            ======    ======     =====          =======    =====    =======
</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 2002,  there was a decrease in net  interest  income of $334,000  due to
changes  in volume but a decrease  of $47,000  due to changes in rate.  In 2001,
there was a decrease in net  interest  income of $1.4  million due to changes in
volume but an increase of $48,000 due to changes in rate.

     Average earning assets decreased from $80 million in 2001 to $77 million in
2002 and decreased  from $107.5  million in 2000 to $80 million in 2001. To meet
capital requirements mandated in its Written Agreement with regulators (Refer to
Regulatory  Matters  below)  the Bank  implemented  an  asset  reduction/capital
improvement  plan in 2000 that included the reduction of deposits.  Beginning in
June  2000,  the Bank sold  higher  yielding  certificates  of  deposit to other
financial institutions,  encouraged some large deposit account holders to remove
deposits, and consolidated three branches in its branch network. The Bank's core
deposit base was stable during 2002 and represented 84% of total deposits. Until
additional capital is raised,  the Bank will not seek to significantly  increase
its level of deposits.

     The net interest margin of the Bank was 4.83% in 2002, 5.08% in 2001, 5.04%
in 2000.  Management  actively  manages its exposure to interest  rate  changes.
While the prime rate  decreased  400 basis  points  during  2001 and another 150
basis points in 2002, the Bank did not experience a similar  decline in yield on
its earning  assets.  This is because much of the Bank's loan portfolio is fixed
rate in  nature  and not  related  to  prime.  In  addition,  65% of the  Bank's
investment portfolio is fixed rate. These  characteristics of the Bank's earning
assets coupled with the Bank's  significant  level of core deposits  resulted in
minimal  impact to the Bank's net  interest  margin  during the  declining  rate
environment.

     During 2002, the average federal funds yield was 1.62% compared to 3.65% in
2001 and 6.15% in 2000.  During 2002,  the average  investment  in federal funds
increased by $2.7 million.  Because of the declining rate environment,  the Bank
experienced a high level of  payoffs/paydowns in its loan portfolio as well as a
significant level of calls of its higher yielding  government agency securities.
Alternate investment strategies were developed and continue to be implemented to
place liquid funds into longer-term  securities including  mortgage-backed (MBS)
and other agency  securities to decrease the level of investment in low yielding
Federal Funds Sold.

                                       15
<PAGE>


     The yield on the investment portfolio decreased 57 basis points to 6.09% in
2001 compared to 6.66% in 2002 compared to 6.76% in 2000. As indicated above,
the Bank experienced a significant level of called agency securities that were
re-invested in a lower interest rate environment--thereby, reducing the yield on
the portfolio.

     The cost of interest-bearing liabilities declined to 1.55% in 2002 compared
to 2.53% in 2001.  Consistent  with  market  conditions  during  2002,  the Bank
reduced the rates it pays on many of its interest-bearing products. Because most
of the Bank's deposits are considered core, they were not sensitive to declining
rates.

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 for loan losses charged against earnings in 2002 was $175,000
compared to $335,000 in 2001 and $565,000 in 2000.  Significant  provisions were
made for the year ended December 31, 2001 for one  commercial  borrower that the
Bank added to its classified  loans and provided a specific reserve of $357,000.
This  borrower  is  in  the  telecommunications  industry  with  loans  totaling
approximately  $1.3 million and is  experiencing  severe  financial  difficulty.
Guarantees  from the Small  Business  Administration  (SBA)  reduce  the  Bank's
exposure to approximately  $714 thousand.  Management  continues to work closely
with this borrower to develop a workout plan to minimize the risk of loss. These
loans have been modified to provide for a moratorium on principal payments until
January 2004. The borrower is in compliance with the modified terms.

     During the current  unstable  economic  environment,  the Bank monitors its
credit  quality very closely by working with  borrowers in an effort to identify
and control  credit risk.  Systematic  provisions  are made to the  allowance to
cover  potential  losses  related to the  Bank's  classified  loans.  Management
believes the level of the  allowance  for loan losses is adequate as of December
31, 2002.

Noninterest Income

     Noninterest  income  decreased  $116,000  in  2002  compared  to  2001  and
decreased $754,000 in 2001 compared to 2000.

     The amount of the Bank's  noninterest  income generally reflects the volume
of the  transactional  and other accounts  handled by the Bank and includes such
fees and charges as low balance account charges,  overdrafts,  account analysis,
and other customer  service fees.  Customer  service fees decreased  $275,000 in
2002  compared  to 2001  primarily  because of a reduction  in activity  fees on
deposits and lower surcharge income on the Bank's ATM network.  The Bank's lower
deposit levels in 2002 compared to 2001 result in less overdraft fees,  activity
service charges and low balance fees.

     Surcharges from the Bank's ATM network  declined  because of the 714 Market
Street branch closure in January 2002 and another ATM location lease expiration.
In  addition,  the Bank had two  high-volume  ATMs out of  service  for  lengthy
periods  during  the  year  due  to an  accident  and a  relocation.  Management
continues the process of identifying other potentially high volume locations.

     The decline in customer  service  fees was  partially  offset by a $198,000
grant the Bank  received from the U.S.  Treasury  Department's  Bank  Enterprise
Award (BEA) Fund.  The Bank received this grant as a result of  certificates  of
deposit it placed with other Community Development Financial Institutions (CDFI)
throughout  the  country.  (Note:  United Bank of  Philadelphia  also has a CDFI
designation  and  periodically  receives  such deposits to support its community
development mission.)

     Also,  in 2002,  the Bank  syndicated a $60 million  back-up line of credit
with other minority banks  throughout  the country for a major  corporation  for
which it  received  an agent fee.  This fee will be  received  annually  for the
administration of this line of credit.

     During 2002, the Bank sold its former  Frankford branch facility for a gain
of  $48,000.  In  addition,  the Bank sold  approximately  $1.1  million  of its
available-for-sale portfolio for a gain of approximately $26,000.


                                       16
<PAGE>

     During  2001,  the Bank sold its former West Girard  branch  facility for a
gain of $78,000.  In addition,  the Bank sold  approximately $3.5 million of its
available-for-sale portfolio for a gain of approximately $78,000.


Noninterest Expense

     Noninterest  expense  decreased  $943,000,  or 13.4% in 2002  compared to a
decrease of $1.8 million, or 20% in 2001 compared to 2000.

     Salaries and benefits decreased  $320,000,  or 12.01% in 2002 compared to a
decrease of $411,000,  or 13.4%,  in 2001.  In April 2002, as part of its Profit
Restoration   Plan,   the  Bank  made   strategic   reductions  in  staff,   job
consolidations, and reduced salaries for certain employees to lower the level of
personnel  expense.  Management  continues  its  review  to  ensure  the Bank is
operating with the most efficient organizational structure.

     Occupancy  and  equipment  expense  decreased  approximately  $316,000,  or
19.62%, during 2002 compared to a decrease of approximately  $181,000, or 10.1%,
during 2001. The decrease is primarily attributable to the closure/consolidation
of the Bank's 714 Market Street branch in January 2002. In addition,  the Bank's
former West Girard branch was sold in June 2001 and the Bank's former  Frankford
branch office was sold on June 8, 2002.  The sale of these  branches  results in
occupancy  expense  savings.  In addition,  many of the fixed  assets  initially
acquired in 1992 when the Bank opened for business are now fully depreciated (10
year life). This results in a reduction in monthly depreciation expense.

     Data  processing  expenses are a result of the  management  decision of the
Bank to outsource a majority of its data  processing  operations  to third party
processors.  Such expenses are  reflective  of the high level of accounts  being
serviced for which the Bank is charged a per account  charge by  processors.  In
addition,  the Bank  uses  outside  loan  servicing  companies  to  service  its
mortgage, credit card, installment and student loan portfolios.  Data processing
expenses decreased by $168,000, or 20.81%, during 2002 compared to a decrease of
$163,000 or 16.8%,  during 2001.  The decrease is  primarily  attributable  to a
reduction  in  deposit  levels for which the Bank pays an  outside  servicer  to
process transactions and provide statement rendering. In addition,  during 2002,
the Bank  received a $75,000  credit  from its core  service  provider  to cover
projected  cost savings that were lost due to delays in  conversion  of its core
processing system.

     In November  2002,  the Bank  converted  its core data  processing to a new
vendor,  FISERV.  This conversion will reduce monthly data processing expense by
at least  $7,500  and  result  in other  efficiencies  that  may  allow  further
reductions in personnel expense. 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  loan   servicing   options  and  the
re-negotiation of existing contracts with servicers.

     Marketing and public relations expense  decreased by $27,000,  or 24.39% in
2002 compared to a decrease of $49,000,  or 31.1% in 2001. The Bank does not use
a significant amount of traditional marketing and advertising.  Management seeks
to use innovative methods to market the Bank's products and services through its
corporate  alliances and strong ties to the  religious  community to enhance its
visibility and expand channels of distribution for its products and services for
minimal cost.

     Professional services increased by $51,000, or 21.92% in 2002. During 2002,
the Bank worked with outside  attorneys to settle two outstanding legal matters.
In addition,  the legal review and implementation of the Sarbanes-Oxley Act that
was enacted in 2002, resulted in increased legal fees.

     Office operations and supplies expense  decreased by $21,000,  or 4.54%, in
2002.  Savings  were  realized as a result of the  closure/consolidation  of the
Bank's 714 Market Street branch due to reductions in branch operating cost (i.e.
security guards,  supplies,  etc.). In addition,  in conjunction with the Bank's
earnings enhancement / profit restoration plan, all other operating expenses are
tightly controlled.

     Federal  deposit  insurance  premiums  were  $36,000  in 2002  compared  to
$150,000 in 2001 and $169,000 in 2000.  FDIC  insurance  premiums are applied to
all financial institutions based on a risk based premium assessment system.


                                       17
<PAGE>

     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.  The Bank's  assessment  was based on 15 basis
points for BIF (Bank  Insurance  Fund)  assessable  deposits  and SAIF  (Savings
Insurance Fund) assessable  deposits.  The decrease during 2002 is a result of a
reduction in the Bank's level of deposits as well as  improvement  in the Bank's
risk rating.

     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.

                               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 below
indicates  how the  Bank  has  managed  these  elements.  Average  funding  uses
decreased approximately $2.8 million, or 3.50% in 2002 compared to approximately
$27.5 million, or 25.6%, in 2001.


                    Table 3--Sources and Use of Funds Trends
<TABLE>
<CAPTION>

                                                       2002                                  2001                     2000
                                        -------------------------------       -------------------------------       ---------
                                                     Increase                              Increase
                                         Average    (decrease)                 Average    (decrease)                 Average
(Dollars in thousands)                   balance      amount    Percent        balance      amount    Percent        balance
                                        ---------    --------   -------       ---------    --------   -------       ---------
Funding uses:
<S>                                       <C>        <C>         <C>           <C>         <C>         <C>          <C>
    Loans .............................   $42,839    $(2,989)    (6.52)%       $45,828     $ (9,434)   (17.07)%     $ 55,262
    Investment securities
      Held-to-maturity.................    10,155     (4,514)   (30.77)         14,669      (13,990)   (48.82)        28,659
      Available-for-sale...............    13,783      2,025     17.22          11,758       (6,286)   (34.84)        18,044
      Federal funds sold...............    10,406      2,680     34.69           7,726        2,208     40.01          5,518
                                          -------    -------                   -------     --------                 --------
          Total uses...................   $77,183    $(2,798)                  $79,981     $(27,502)                $107,483
                                          =======    =======                   =======     ========                 ========

Funding sources:
    Demand deposits:
      Noninterest-bearing..............   $19,565    $   (47)    (0.09)%       $19,612     $ (7,955)   (28.86)%     $ 27,567
      Interest-bearing.................    12,882       (920)    (6.67)         13,802       (6,049)   (30.47)        19,851
    Savings deposits...................    21,931     (2,549)   (10.41)         24,480       (6,296)   (20.46)        30,776
    Time deposits......................    23,712       (377)    (1.57)         24,089       (4,442)   (15.57)        28,531
    Other borrowed funds...............         -         (1)  (100.00)              1       (1,924)   (99.95)         1,925
                                          -------    -------                   -------     --------                 --------
          Total sources................   $78,090    $(3,894)                  $81,984     $(26,666)                $108,650
                                          =======    =======                   =======     ========                 ========
</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 $191,000,  or .56%,  in 2002 compared to a decrease of $18 million,
or 34.6%, in 2001. The bulk of the increase was in the category of Federal Funds
Sold that  increased on average by $2.7  million.  During  2002,  because of the
declining   rate   environment,   the   Bank   experienced   a  high   level  of
payoffs/paydowns  in its loan portfolio as well as a significant  level of calls
of its higher yielding government agency securities. These funds are temporarily
held in Federal Funds Sold until loans and/or  investments  can be originated or
purchased.


                                       18
<PAGE>


     The   Bank's   current   investment   portfolio   primarily   consists   of
mortgage-backed  pass-through  agency 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 below,  the average  duration of the
portfolio  is 2.62 years.  In the current low  interest  rate  environment,  the
duration of the investment  portfolio is significantly  shortened because of the
of callable government agency securities.-  approximately  21.4%.  Approximately
$10.8  million in securities  were called during the year.  The average yield of
called securities was 6.00%.  Calls will likely continue as the rate environment
remains at  historically  low levels.  The result is additional  liquidity and a
reduction in yield on the portfolio.

     Approximately   78.6%  of  the   portfolio   consist   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.

     The Bank will continue to take steps to combat the impact of the high level
of optionality in the portfolio by identifying  replacement  loans or securities
that diversify risk and provide some level of monthly  cashflow to be reinvested
in the future rising rate environments. In 2002, a strategy to invest $4 million
in variable rate  mortgage-backed  securities was implemented.  These securities
have average current yields of approximately  4.00% and estimated durations of 4
years with monthly  cashflow.  These securities will adjust at various intervals
ranging from one to seven years.

                   Table 4--Analysis of Investment Securities

<TABLE>
<CAPTION>
                                                         After one but       After five but
                                    Within one year    within five years    within ten years    After ten years
                                    ---------------    -----------------    ----------------    ---------------
(Dollars in thousands)              Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Total
                                    ------    -----     ------    -----     ------    -----     ------    -----     ------
<S>                                  <C>       <C>      <C>       <C>       <C>       <C>       <C>      <C>      <C>
Other government securities......    $             %    $1,000    4.66%     $3,862    5.90%     $             %    $ 4,862
Mutual funds.....................      106     1.35                                                                    106
Other investments................                                              288    6.00                             288
Mortgage-backed securities.......                                                                                   16,262
                                     -----              ------              ------              ------             -------
Total securities.................    $ 106              $1,000              $4,150                                 $21,518

Average maturity.................                                                                               2.62 years

</TABLE>

The above table sets forth the maturities of investment securities at December
31, 2002 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  decreased  approximately  $3  million,  or  6.52%,  in 2002
compared  to a  decrease  of $9.4  million,  or  17.07%,  in 2001.  The Bank has
developed  relationships  with other  financial  institutions in the region with
which  it  participates  in  loans  as a  strategy  to  stabilize  and  grow its
commercial loan portfolio. This strategy continues to be utilized while the Bank
enhances it own  business  development  capacity.  Approximately  $10 million in
commercial  loan   participations   were  booked  during  2002.  Most  of  these
participations were secured by commercial real estate.

     Increases  in the  commercial  loan  portfolio  were offset by  significant
levels of  repayments  in the Bank's  residential  mortgage  loan  portfolio  as
consumers  refinance existing loans or sell existing homes to purchase new homes
to take advantage of the current low interest rate environment. Because the Bank
is not a competitive player in the mortgage loan origination market, it does not
generate sufficient mortgage loan volume to cover these payoffs.

     The Bank's  loan-to-deposit  ratio at  December  31, 2002 was 56.5% up from
53.2% at December 31, 2001. The target  loan-to-deposit ratio is 75%. This level
would  allow the Bank to  optimize  interest  income  on  earning  assets  while
maintaining  adequate  liquidity.  Management  will  continue to implement  loan
growth  strategies   including  the  purchase  of  additional   commercial  loan
participations  and the  origination  of small business loans and consumer loans
including home equity, automobile, student and credit card loans.


                                       19
<PAGE>


     As reflected in Table 5 below, during 2002, because of the purchase of loan
participations, commercial real estate loans increased by $6.4 million to 27% of
total loans.  Conversely,  the rapid  repayments in the mortgage loan  portfolio
resulted  in  a  reduction  of  $4.6  million,  or  25.3%--thereby   creating  a
significant shift in the composition of the overall loan portfolio.

         As reflected in Table 6 below, approximately 55% of the Bank's loan
portfolio have scheduled maturities of five years or more. This position is
largely a result of the Bank's relatively high level of residential mortgage
loans. While scheduled maturities exceed five years, due to the high level of
refinancing in this portfolio, the actual duration of the portfolio may be much
shorter.


               Table 5--Loans Outstanding, Net of Unearned Income
<TABLE>
<CAPTION>

                                                                            December 31,
                                                 ------------------------------------------------------------------
(Dollars in thousands)                             2002          2001          2000          1999          1998
                                                 -------       -------       -------       -------       -------
<S>                                              <C>           <C>           <C>           <C>           <C>
Commercial and industrial...................     $10,855       $11,054       $11,429       $13,664       $13,643
Commercial real estate......................      11,898         5,504           652         1,288         1,518
Residential mortgages.......................      13,560        18,148        22,316        26,237        31,365
Consumer loans..............................       7,820         8,294        10,908        19,822        11,424
                                                 -------       -------       -------       -------       -------
    Total loans.............................     $44,133       $43,000       $45,305       $61,011       $57,950
                                                 =======       =======       =======       =======       =======
</TABLE>


                Table 6--Loan Maturities and Interest Sensitivity
<TABLE>
<CAPTION>

                                                     Within           After one but          After
(Dollars in thousands)                              one year        within five years     five years      Total
                                                  ------------      -----------------     ----------     -------
<S>                                                 <C>                  <C>               <C>           <C>
Commercial and industrial...................        $ 7,622              $ 1,908           $ 1,325       $10,855
Commercial real estate......................          1,520                2,028             8,350        11,898
Residential mortgages.......................                                                13,560        13,560
Consumer loans..............................            522                5,027             2,271         7,820
                                                    -------              -------           -------       -------
      Total loans...........................          9,664                8,963            25,506        44,133

Loans maturing after one year with:
    Fixed interest rates....................        $32,787
    Variable interest rates.................          1,682
</TABLE>


Nonperforming Loans

     Table 7 reflects the Bank's  nonperforming  and restructured  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 reversed  out of income  unless  adequate  collateral  from which to
collect the principal of, and interest on, the loan appears to be available.


                          Table 7--Nonperforming Loans
<TABLE>
<CAPTION>

(Dollars in thousands)                            2002           2001          2000          1999          1998
                                                 -------       -------       -------       -------       -------
<S>                                               <C>           <C>           <C>           <C>           <C>
Nonaccrual loans............................      $  651        $  412        $  453        $2,027        $1,720
Interest income included in net income
    for the year............................          25            25            20            67            37
Interest income that would have been
    recorded under original terms...........          49            29            28           113           189
Loans past due 90 days and still accruing...         797           526            34            53           125
Restructured loans..........................       1,286           182           632           580             -

</TABLE>


                                       20

<PAGE>

     The balance of impaired  loans was $ 1,951,000  and $412,000 as of December
31, 2002 and 2001, respectively.  The Bank identifies a loan as impaired when it
is probable that interest and principal  will not be collected  according to the
contractual  terms of the loan  agreement.  The impaired  loan balance  included
$651,000  and  $412,000  of  non-accrual  loans at  December  31, 2002 and 2001,
respectively.  The allowance  for loan loss  associated  with the  $1,951,000 of
impaired loans was $402,000 at December 31, 2002.  Interest income recognized on
impaired loans during 2002 and 2001 was $104,000 and $25,000,  respectively. The
Bank recognizes income on impaired loans under the cash basis when the loans are
both  current  and  the  collateral  on the  loan is  sufficient  to  cover  the
outstanding obligation to the Bank. If these factors do not exist, the Bank will
not recognize income on such loans.

     From  time to time,  management  will  modify or  restructure  the terms of
certain loans to provide relief to borrowers. Restructured loans are those loans
whose  terms  have been  modified  because  of  deterioration  in the  financial
condition  of a borrower  to  provide  for a  reduction  of either  interest  or
principal,  regardless  of whether  such  loans are  secured  or  unsecured  and
regardless  of whether  such  credits are  guaranteed  by the  government  or by
others.  As of December 31,  2002,  the Bank had  approximately  $1.3 million in
restructured  loans  consisting  primarily of three loans to one borrower in the
technology industry.

     There is no known  information  about possible  credit  problems other than
those  classified  as  nonaccrual  or  impaired  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, 2002, approximately 18.71% of the commercial loan portfolio
of the Bank 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,  2002,  none of these loans were
nonperforming.

     During 2002,  nonaccrual  loans totaled  $651,000,  compared to $412,000 at
December 31, 2001.  At December  31,  2002,  approximately  $66,000 of the total
nonaccrual  loans was residential  mortgages and $342,000  carried some level of
guarantee from the Small  Business  Administration.  The underlying  real estate
collateral  and credit  enhancement  provided by the SBA  minimizes  the risk of
loss.


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 8 below
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.

     The  allowance  for loan losses as a percentage of total loans was 1.53% at
December 31, 2002 compared with 1.65% at December 31, 2001.  During the past two
years, there has been an economic downturn and economic  uncertainty  continues.
Because the impact on the borrowers may lag the current economic conditions, the
Bank proactively  monitors its credit quality while working with borrowers in an
effort to identify and control credit risk.

     At December 31, 2002, the Bank's classified loans totaled $2.7 million , or
6.1%, of total loans. Specific reserves of $608,000 have been allocated to these
loans.  Approximately  $357  thousand  was  allocated to one loan for which full
collectibility  is  uncertain.  (Refer to  Provision  for Loan Losses  above for
further discussion on this loan.)

                                       21
<PAGE>

                Table 8--Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>

                               2002                   2001                2000                   1999                  1998
                       -------------------   -------------------   -------------------   -------------------    -------------------
                                  Percent              Percent               Percent               Percent               Percent
                                 of loans              of loans              of loans              of loans              of loans
                                 in each               in each               in each               in each               in each
                                category             category to           category to           category to            category to
                       Amount  total loans   Amount  total loans   Amount  total loans   Amount  total loans    Amount  total loans
                       ------  -----------   ------  -----------   ------  -----------   ------  -----------    ------  -----------
(Dollars in thousands)

<S>                    <C>        <C>        <C>        <C>        <C>        <C>        <C>         <C>        <C>        <C>
Commercial and
  industrial.......... $ 565      24.60%     $ 576      37.30%     $ 383      25.23%     $  263      22.40%     $ 272      23.55%
Commercial real
  estate..............    37      26.96         29       1.21         11       1.44         877       2.11        132       2.62
Residential mortgages.    45      17.72         30      19.29        102      24.08         144      43.00         55      54.12
Consumer loans........    28      30.72         73      42.20         66      49.25         283      32.49        188      19.71
Unallocated...........     -          -          -          -          -          -           -          -         32          -
                       -----    -------      -----    -------      -----    -------      ------    -------      -----    -------
                       $ 675    100.00%      $ 708    100.00%      $ 562    100.00%      $1,567    100.00%      $ 679    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,
                                               ------------------------------------------------------------------
(Dollars in thousands)                            2002           2001          2000          1999          1998
                                                -------        -------       -------       -------       -------
<S>                                              <C>            <C>          <C>           <C>            <C>
Balance at January 1.......................      $  708         $  562       $ 1,567       $   679        $  468

Charge-offs:
    Commercial and industrial..............                        (61)         (321)          (25)            -
    Commercial real estate.................        (100)                        (803)           -              -
    Residential mortgages..................                                        -           (47)            -
    Consumer loans.........................        (261)          (261)         (597)         (315)         (180)
                                                 ------         ------       -------       -------        ------
                                                   (361)          (322)       (1,721)         (387)         (180)
                                                 ------         ------       -------       -------        ------
Recoveries--commercial loans................         27              -             -             -             -

Recoveries--consumer loans..................        126            133           151           268            41
                                                 ------         ------       -------       -------        ------
                                                    153            133           151           268            41

Net charge-offs............................        (208)          (189)       (1,570)         (119)         (139)
Provisions charged to operations...........         175            335           565         1,007           350
                                                 ------         ------       -------       -------        ------
Balance at December 31.....................      $  675         $  708       $   562       $ 1,567        $  679
                                                 ======         ======       =======       =======        ======

Ratio of net charge-offs to average loans
    outstanding.............................      0.49%          0.41%         2.84%         0.17%         0.19%

</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.


                                       22
<PAGE>

Deposits

     Average deposits  declined  approximately  $3.9 million,  or 4.71%, in 2002
compared  to a decline  of $24.7  million,  or 23.2%,  in 2001.  The  decline is
primarily attributable to the maturity of certificates of deposits the Bank held
on deposit from a special deposit program of the  Commonwealth of  Pennsylvania.
This program was eliminated in 2002.  Because of mandatory capital  requirements
outlined in the Bank's Written  Agreement with its  regulators  (See  Regulatory
Matters  below),  aggressive  deposit  retention  or  new  business  development
strategies have not been implemented.


                  Table 10--Average Deposits by Class and Rate

<TABLE>
<CAPTION>
                                                2002                     2001                    2000
                                         ------------------      ------------------      ------------------

(Dollars in thousands)                    Amount      Rate        Amount      Rate        Amount      Rate
                                         ------------------      ------------------      ------------------
<S>                                      <C>          <C>        <C>          <C>        <C>         <C>
Noninterest-bearing demand deposits      $19,565        - %      $19,612        - %      $27,567        - %
Interest-bearing demand deposits          12,882      0.89        13,802      1.29        19,851      3.03
Savings deposits                          21,931      0.59        24,480      1.30        30,776      1.61
Time deposits                             23,712      2.79        24,089      4.49        28,531      4.86
</TABLE>


Other Borrowed Funds

     The Bank did not borrow funds during 2002. Generally, 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. The Bank's liquidity has been enhanced by loan paydowns/payoffs and
called investment securities--thereby, reducing the need to borrow.

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, 2002,  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   primarily  of  U.S.   Government  and  agency  issues,
particularly those of shorter maturities,  and  mortgage-backed  securities with
monthly repayments of principal and interest.  There are no securities  maturing
in one year or less. However,  other types of assets such as federal funds sold,
as well as maturing loans, are sources of liquidity.  Approximately $9.2 million
in loans are scheduled to mature within one year.


                                       23

<PAGE>


     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 time deposits of $100,000 or more.

             Table 11--Maturity of Time Deposits of $100,000 or More

              (Dollars in thousands)

              3 months or less..........................    $ 7,754
              Over 3 through 6 months...................        769
              Over 6 months through 1 year..............      1,114
              Over 1 through five years.................      1,246
              Over five years...........................          -
                                                            -------
                   Total................................    $10,883
                                                            =======


     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, 2002, 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 in accordance with its contractual  terms. At December 31, 2002, a slight
asset sensitive position is maintained on a cumulative basis through one year of
5.26%.  This  level is  within  the  Bank's  policy  guidelines  of  +/-15% on a
cumulative one-year basis. The current gap position is relatively evenly matched
as a result of the number of loans  either  repricing  or  maturing in 12 months
closely  matching  certificate  of  deposit  maturities.  Interest  rate risk is
minimized  by the Bank's  high level of core  deposits  that have been placed in
longer  repricing  intervals.  Generally,  because  of the Bank's  positive  gap
position in shorter  time  frames,  the Bank can  anticipate  that  increases in
market  rates  will have a positive  impact on the net  interest  income,  while
increases 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.


                                       24

<PAGE>

                     Table 12--Interest Sensitivity Analysis
<TABLE>
<CAPTION>

                                                         Interest rate sensitivity gaps as of December 31, 2002
                                               --------------------------------------------------------------------------
                                                                           Over
                                                              Over        1 year        Over
                                               3 months    3 through     through     3 through      Over
(Dollars in thousands)                         or less     12 months     3 years      5 years      5 years     Cumulative
                                               --------    ---------    ---------    ---------    ---------    ----------
<S>                                             <C>         <C>          <C>         <C>           <C>          <C>
Interest-sensitive assets:
    Interest-bearing deposits with banks.       $           $   865      $            $            $             $   865
    Investment securities................         9,410         830          438        1,026        9,419        21,123
    Federal funds sold...................        10,122                                                           10,122
    Loans................................        14,630       4,939        5,764        4,046       14,754        44,133
                                                 ------      ------        -----        -----       ------        ------

      Total interest-sensitive assets....        34,162       6,634        6,202        5,072       24,173       $76,243
                                                 ------      ------        -----       ------       ------       =======

      Cumulative totals..................        34,162      40,796       46,998       52,070       76,243
                                                 ------      ------       ------       ------       ------
</TABLE>

<TABLE>
<CAPTION>
                                                         Interest rate sensitivity gaps as of December 31, 2002
                                               --------------------------------------------------------------------------
                                                                            Over
                                                              Over        1 year        Over
                                               3 months    3 through     through     3 through      Over
(Dollars in thousands)                         or less     12 months     3 years      5 years      5 years     Cumulative
                                               --------    ---------    ---------    ---------    ---------    ----------
<S>                                             <C>         <C>         <C>           <C>          <C>           <C>
Interest-sensitive liabilities:
    Interest checking accounts...........         2,927                    2,927                                   5,854
    Savings accounts.....................        13,739                   13,739                                  27,478
    Certificates less than $100,000......         4,117       6,362        1,167         615                      12,261
    Certificates of $100,000 or more.....         6,332       3,306        1,245                                  10,883
    Other borrowed funds.................             -           -            -           -                       -
                                                -------     -------     --------      -------      -------       -------
      Total interest-sensitive liabilities      $27,115     $ 9,668     $ 19,078      $   615      $     -       $56,476
                                                =======     =======     ========      =======      =======       =======

      Cumulative totals..................       $27,115     $36,783     $ 55,861      $56,476      $56,476
                                                =======     =======     ========      =======      =======

Interest sensitivity gap.................       $ 7,046     $(3,034)    $(12,876)     $ 4,457      $24,173
                                                =======     =======     ========      =======      =======

Cumulative gap...........................         7,046       4,012       (8,863)      (4,406)      19,767

Cumulative gap/total earning assets......         9.24%       5.26%      11.63%          5.78%      25.93%

Interest-sensitive assets to interest-sensitive
    liabilities..........................         1.26        1.11        0.84           0.92        1.35

</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
positive  gap  position  because  of  unequal  sensitivity  of these  assets and
liabilities,  management  believes  this  position  will not  materially  impact
earnings in a changing rate environment.  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
net income of the Bank. The calculated  estimates of net income or "earnings" at
risk at December 31, 2002 are as follows:


                                       25
<PAGE>


                                  Net interest             Percent of
    Changes in rate                  income                  change
    ---------------               -----------              ----------
                             (Dollars in thousands)

    +200 basis points               $ 3,835                   2.43%
    +100 basis points                 3,790                   1.23
    Flat rate                         3,744                     -
    -100 basis points                 3,696                  (1.28)
    -200 basis points                 3,638                  (2.83)


     A simulation  model is also used to estimate the impact of various changes,
both upward and  downward,  in market  interest  rates and volumes of assets and
liabilities on the economic  value of the Bank.  This model produces an interest
rate exposure report that measures the long-term rate risks in the balance sheet
by valuing the Bank's assets and liabilities at market. It simulates what amount
would be left over if the Bank  liquidated its assets and  liabilities.  This is
otherwise  known as "economic  value" of the capital of the Bank. The calculated
estimates of economic value at risk at December 31, 2002 are as follows:


                                                            Percent of
     Changes in rate                MV equity                 change
     ---------------               -----------              ----------
                             (Dollars in thousands)

    +200 basis points               $ 3,335                   52.03%
    +100 basis points                 5,136                   26.13
    Flat rate                         6,953                      -
    -100 basis points                 8,836                   27.08
    -200 basis points                10,571                   52.03


     The assumptions used in evaluating the vulnerability of the Bank's earnings
and equity 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 Bank's assets and  liabilities,  as well as the
estimated effect of changes in interest rates on the earnings and 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  policy  limits of the Bank at
December 31, 2002. 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 declined $58,000 in 2002 compared to 2001. The
decrease  in 2002 is a result of the net loss of $217,000  which  resulted in an
increase in the accumulated deficit offset by an increase in other comprehensive
income for the fair market value of available  for sale  investment  securities,
net of taxes.


                                       26
<PAGE>


     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 I and Tier II.  Tier I
consists of common  shareholders' equity (excluding net unrealized holding gains
on  available  for sale  securities),  noncumulative  and  cumulative  perpetual
preferred stock, and minority interests less goodwill and/or intangible assets).
Tier  II  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 I capital and a Tier I leverage
ratio of at least 6%.  Capital  that  qualifies as Tier II capital is limited to
100% of Tier I capital.

     As indicated in Table 13, the Company'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
in a private  offering as well as increasing the rate of internal capital growth
as a means of  maintaining  the required  capital  ratios.  However,  the Bank's
growth, continued losses and the additional provisions to the allowance for loan
losses may have an adverse  effect on its  capital  ratios.  The Company and the
Bank do not anticipate paying dividends in the near future.


                            Table 13--Capital Ratios

(Dollars in thousands)                            2002       2001        2000
                                                -------    -------     -------
Total Capital.................................  $ 8,263    $ 8,459     $ 9,317
Less:
    Intangible Assets.........................   (1,937)    (2,119)     (2,298)
                                                -------    -------     -------
Tier I capital................................    6,326      6,340       7,019
Tier II capital...............................      528        510         537
                                                -------    -------     -------
Total qualifying capital......................  $ 6,854    $ 6,850     $ 7,556
                                                =======    =======     =======
Risk-adjusted total assets
  (including off-balance-sheet exposures).....  $42,104    $41,624     $42,949
                                                =======    =======     =======

Tier I risk-based capital ratio................  15.02%     15.23%      16.34%
Total (Tier I and II) risk-based capital ratio.  16.28%     16.46%      17.59%
Tier I leverage ratio..........................   7.46%      7.12%       7.39%

Regulatory Matters

     In February  2000,  as a result of a  regulatory  examination  completed in
December  1999,  the Bank entered  into a Written  Agreement  (herein  sometimes
referred to as the Agreement) with its primary  regulators with regard to, among
other things,  achievement of agreed-upon  capital levels,  implementation  of a
viable  earnings/strategic  plan,  adequate  funding of the  allowance  for loan
losses,  the  completion  of  a  management  review  and  succession  plan,  and
improvement in internal  controls.  The Agreement  requires the Bank to increase
its capital ratio to 6.5% by June 30, 2000 and to 7% at all times thereafter. As
of December  31,  2000,  the Bank had met the  required  ratios by  implementing
strategies  that  included:  reducing  expenses,   consolidating  branches,  and
soliciting  new and  additional  sources of  capital.  Management  continues  to
address all matters outlined in the Agreement. Management believes that the Bank
is  "substantially"  in compliance  with the  Agreement's  terms and conditions.
Failure to comply  could  result in  additional  regulatory  supervision  and/or
actions.

     As of December 31, 2001, the Bank's tier one leverage capital ratio fell to
6.80% , below the 7% minimum  capital ratio required by the Agreement.  However,
at December  31, 2002,  the tier one  leverage  ratio had improved to 7.12% as a
result of the smaller  average asset size of the Bank.  Management  continues to
review and revise its capital plan to address the development of new equity.  In
addition, a profit restoration plan was developed and implemented during 2002 to
include numerous expense reduction and profit enhancement strategies.



                                       27
<PAGE>


Recent Accounting Pronouncements

     On January  1, 2002 the Bank  adopted  SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived  assets to be
held and used or to be disposed of by sale. However,  SFAS No. 144 makes changes
to the  scope  and  certain  measurement  requirements  of  existing  accounting
guidance.  SFAS No. 144 also changes the requirements  relating to reporting the
effects  of a  disposal  or  discontinuation  of a segment  of a  business.  The
adoption of this statement did not have an impact on the financial  condition or
results of operations of the Bank.

     SFAS No.  148,  "Accounting  for  Stock-Based  Compensation-Transition  and
Disclosure," amends the disclosure and certain transition provisions of SFAS No.
123, Accounting for Stock-Based Compensation,  to provide alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation. For entities that use the intrinsic value
method under Accounting  Principles  Board (APB) Opinion No. 25,  Accounting for
Stock Issued to Employees,  to account for employee stock  compensation  for any
period  presented,   their  accounting  policies  note  should  include  certain
disclosures.  The expanded  annual  disclosure  requirements  and the transition
provisions  are effective for fiscal years ending after  December 15, 2002.  The
new interim period disclosures are required in financial  statements for interim
periods  beginning after December 15, 2002. The expanded annual  disclosures are
provided in the 2002 financial statements.


     In January 2003, FASB issued FASB  Interpretation No. 46,  Consolidation of
Variable  Interest  Entities  ("FIN 46").  FIN 46  requires a variable  interest
entity to be  consolidated  by a a  company  if that  company  is  subject  to a
majority of the risk of loss from the variable interest  entity's  activities or
entitled  to receive a majority of the risk of loss from the  variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns,  or both.  FIN 46 also requires  disclosures  about  variable  interest
entities  that a company is not required to  consolidate,  but it which it has a
significant  variable interest.  The consolidation  requirements of FIN 46 apply
immediately to variable  interest  entities  created after January 31, 2003. The
consolidation  requirements  apply to existing entities in the first fiscal year
or interim period  beginning  after June 15, 2003. The Company is in the process
of determing what impact,  if any, the adoption of the provisions of FIN 46 will
have upon its financial condition or results of operations.


      ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  financial  information  required  by this Item 7A is  incorporated  by
reference to page 25 of this Report, the Liquidity and Interest Rate Sensitivity
Management provisions and pages 23 to 26 of this Report including Table --12 the
Interest Sensitivity Analysis Table of this Report.


              ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Consolidated Financial Statements on pages 39 to 63 hereof.


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

     None.








                                       28
<PAGE>



                                    PART III

          ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a)    Directors of the Registrant and Bank
       ------------------------------------
<TABLE>
<CAPTION>

                                              Principal occupation and               Year first             Term
Name                             Age             other directorships               became director       will expire
----                             ---        ---------------------------            ---------------       -----------

<S>                              <C>        <C>                                         <C>                 <C>
James F. Bodine                  81         Co-Chairman,                                1993                2003
                                            United Bancshares, Inc.
                                            Retired as Managing Partner,
                                            Urban Affairs Partnership
                                            Philadelphia, Pennsylvania

Bernard E. Anderson              65         Professor of Management/Economist           2002                2006
                                            At the Wharton School,
                                            Philadelphia, PA

David R. Bright                  63         Retired, Executive Vice President
                                            Meridian Bancorp                            2002                2006
                                            Philadelphia, PA

Luis A. Cortes, Jr.              45         President,
                                            Nueva Esperanza                             2002                2006
                                            Philadelphia, PA

L. Armstead Edwards              61         Co-Chairman,                                1993                2004
                                            United Bancshares, Inc.
                                            Owner and President,
                                            P.A.Z., Inc.
                                            Philadelphia, Pennsylvania

Marionette Y. Wilson(Frazier)    58         Retired as Partner,                         1996                2004
                                            John Frazier, Inc.
                                            Philadelphia, Pennsylvania

 Angela M. Huggins               61         Treasurer,                                  1993                2005
                                            United Bancshares, Inc.
                                            Retired as Vice President
                                            Real Estate Affairs
                                            RMS Technologies, Inc.

William B. Moore                 60         Secretary,
                                            United Bancshares, Inc.
                                            Pastor, Tenth Memorial                      1993                2003
                                            Baptist Church
                                            Philadelphia, Pennsylvania

Wanda M. Richards                37         Senior Counsel, FCCS                        2001                2005

Steven L. Sanders                42         President and Co-CEO,
                                            MDL Capital                                 2002                2006


                                       29
<PAGE>


                                            Principal occupation and                 Year first             Term
Name                             Age        other directorships                    became director      will expire
----                             ---        -------------------                    ---------------      -----------

Evelyn F. Smalls                 57         President and CEO of Registrant             2000                2003
                                            and United Bank of Philadelphia

Ernest L. Wright                 74         Founder, President and                      1993                2004
                                            CEO of Ernest L. Wright
                                            Construction Company
                                            Philadelphia, Pennsylvania

</TABLE>

(b)    Executive Officers of Registrant and Bank

Name                      Age   Office
----                      ---   ------

Evelyn F. Smalls          57    President and Chief Executive Officer

Brenda M. Hudson-Nelson   41    Executive Vice President/Chief Financial Officer

James F. Bodine           81    Co-Chairman, Board of Directors

L. Armstead Edwards       61    Co-Chairman, Board of Directors

William B. Moore          60    Secretary

Marionette Y. Frazier     58    Assistant Secretary

Angela M. Huggins         62    Treasurer


(c)    Family Relationships.
       --------------------

     There are no family relationships between any director, executive officer
or person nominated or chosen by the UBS or 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.

                        ITEM 11 -- EXECUTIVE COMPENSATION

     The following information relates to all plan and non-plan compensation
awarded to, earned by, or paid to (i) Evelyn F. Smalls, the President and Chief
Executive Officer of the Bank , and (ii) Brenda M. Hudson-Nelson, Executive Vice
President and Chief Financial Officer of the Bank, the only persons who were
serving as executive officers of the Bank at December 31, 2002 (Ms. Smalls and
Ms. Hudson-Nelson are hereinafter sometimes collectively referred to as the
"Named Executive Officers").

     (1) UBS' executives are not compensated for their services to UBS rather,
because the Bank is the principal subsidiary of UBS, they are compensated as
officers of the Bank.


                                       30

<PAGE>


Summary Compensation Table

     The disclosure regarding the compensation of the Bank's executives includes
the following table that sets forth the compensation paid to the Named Executive
Officers during the last three fiscal years.

<TABLE>
<CAPTION>
                                                                      Annual Compensation(1)
                                                                      ----------------------
                                                                                Stock        All Other
 Name and Principal Position During 2002           Year    Salary     Bonus    Options    Compensation(2)
---------------------------------------            ----    ------    -------   -------    ---------------
                                                                       ($)       (#)            ($)
<S>                                                <C>    <C>         <C>        <C>           <C>
Evelyn F. Smalls                                   2002   $148,009     --        --              --
President and Chief Executive Officer              2001   $141,000     --        --              --
of UBS and the Bank                                2000   $118,921     --        --              --
                                                                       --        --              --
Brenda M. Hudson-Nelson                            2002   $102,112     --        --              --
Executive Vice President and Chief Financial       2001   $100,900     --        --              --
Officer of UBS and the Bank                        2000   $ 96,445     --        --              --

</TABLE>

------------------

(1)  Amounts  are  not  included  in the  Bonus,  Stock  Option  and  All  Other
     Compensation  columns of the table because no  compensation  of this nature
     was paid by UBS or the Bank and the  restricted  stock awards and long term
     incentive payouts columns are not included in the Compensation  Table since
     these benefits are not made available by UBS or the Bank.

(2)  The  Commission's  compensation  disclosure  rules  require the use,  where
     applicable, of a series of tables to describe various types of compensation
     paid to the specified  executive  officers.  The use of a specific table or
     column  in a  table  is  not  required  by  the  Commission's  rules  if no
     compensation was paid or awarded to the named  executives.  Only the tables
     or columns  required to be used by the Commission's  rules,  because of the
     compensation paid to the specified  executive  officers,  have been used in
     this Proxy Statement

Executive Employment Agreements

     The Bank entered into an Employment  Agreement  with Evelyn F. Smalls dated
June 12, 2000 to serve as the Bank's President and Chief Executive Officer.  The
initial term of the Employment  Agreement is two (2) years,  unless  extended or
terminated.  In June 2002,  the  Employment  Agreement  was extended for two (2)
years. The Employment  Agreement  provides for an annual base salary of $135,000
which may be increased,  but not decreased.  Under her Employment Agreement, Ms.
Smalls has an  opportunity to receive an annual initial cash bonus (the "Initial
Cash  Bonus") of 12% of her annual  base  salary and an annual  additional  cash
bonus (the "Additional Cash Bonus") of 12% of her annual base salary in calendar
years 2002 and 2003,  based on performance  targets  specified in the Employment
Agreement which are based on the annual earnings of the Bank.

     The Bank entered into an Employment  Agreement with Brenda M. Hudson-Nelson
dated  June 12,  2000 to serve as the Bank's  Senior  Vice  President  and Chief
Financial  Officer.  The initial  term of the  Employment  Agreement  is two (2)
years, unless extended or terminated. In June 2002, the Employment Agreement was
extended for two (2) years. The Employment Agreement provides for an annual base
salary  of  $95,000  which  may be  increased,  but  not  decreased.  Under  her
Employment Agreement,  Ms. Hudson-Nelson has an opportunity to receive an annual
initial cash bonus (the  "Initial  Cash Bonus") of 12% of her annual base salary
and an annual  additional cash bonus (the "Additional Cash Bonus") of 12% of her
annual base salary in calendar years 2000 and 2001, based on performance targets
specified in the Employment  Agreement which are based on the annual earnings of
the Bank.

Equity Compensation Plan Information

     The Company adopted a Stock Option Plan in 1998.  Under this Plan,  options
to acquire  shares of common stock were  granted to the former  chief  executive
officer.  The Stock Option Plan provides for the granting of options at the fair
market value of the Company's  common stock at the time the options are granted.
Each option granted under the Stock Option Plan may be exercised within a period
of ten years from the date of grant.  However, no option may be exercised within
one year from the date of grant.  In 1998,  options to purchase 29,694 shares of
the  Company's  common  stock at a price of $8.54 per share were  awarded to the
former chief executive officer.


                                       31
<PAGE>

Equity Compensation Plan Table

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                (a)                    (b)                      (c)
--------------------------------------------------------------------------------------------------
<S>                     <C>                     <C>                   <C>
Plan Category           Number of Securities    Weighted average      Number of securities
                        to be issued upon       exercise price        remaining available for
                        exercise of             of outstanding        future issuance under equity
                        outstanding options,    options, warrants,    compensation plans
                        warrants and rights     and rights            (excluding securities
                                                                      reflected in column (a))
--------------------------------------------------------------------------------------------------
Equity compensation
 plans approved by           29,694                  $8.54                    70,306
 security holders
--------------------------------------------------------------------------------------------------
Equity compensation
 plans not approved by           -                     -                          -
 security holders
--------------------------------------------------------------------------------------------------
Total                        29,694                  $8.54                    70,306
==================================================================================================

</TABLE>


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

     The  following  table sets forth  certain  information  known to UBS, as of
March 17, 2003 (1), with respect to the only persons to UBS' knowledge,  who may
be beneficial owners of more than 5% of UBS' Common Stock.

                                                               Percentage of
                                    Amount and Nature of        Outstanding
                                    Beneficial Ownership        Corporation
Name and Address                       of Corporation          Common Stock
of Beneficial Owner                     Common Stock              Owned
--------------------------------------------------------------------------------
Philadelphia Municipal                     71,667                 7.87%
Retirement System
2000 Two Penn Center
Philadelphia, Pennsylvania 19102

First Union Corporation(2)                 50,000                 5.49%
1 First Union Center
Charlotte, NC 28288
------------------
(1)  As of March 17, 2003, there were 907,542 shares of UBS' voting Common Stock
     outstanding.

(2)  First Union  Corporation  owns 241,666  shares of UBS Common Stock of which
     50,000 are voting shares.

     The  following  table sets forth  certain  information  with respect to the
current executive officers of UBS and Bank as of March 17, 2003:

Name, Principal Occupation                                       UBS Stock
and Business Experience       Office with the UBS              Beneficially
For Past 5 Years              and/or Bank                         Owned
--------------------------------------------------------------------------------
Evelyn F. Smalls              President and
                              Chief Executive Officer and           350
                              Director of UBS and Bank

Brenda M. Hudson-Nelson       Executive Vice President and           50
                              Chief Financial Officer
                              of UBS and Bank


                                       32
<PAGE>


            ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Some of the directors  and  executive  officers of the UBS and Bank and the
entities  with which  they are  associated  were  customers  of and had  banking
transactions  with the Bank in the ordinary  course of its  business  during the
year 2002. All loans and commitments to lend were made on substantially the same
terms, including interest rates and collateral,  as those prevailing at the time
for  comparable  transactions  with  other  persons.  In  the  opinion  of  Bank
management,  the  transactions  and loan  commitments  did not involve more than
normal risk of collectively or present other unfavorable features.


                        ITEM 14--CONTROLS AND PROCEDURES

     Within 90 days prior to the date of this report, the Company carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including the Company's Chief Executive Officer,  Evelyn F. Smalls,
and Chief Financial Officer,  Brenda Hudson-Nelson,  of the effectiveness of the
design  and  operation  of the  UBS'  and the  Bank's  disclosure  controls  and
procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation,  the
Chief Executive  Officer and Chief Financial Officer concluded that the UBS' and
the Bank's  disclosure  controls and procedures are effective in timely alerting
them to material  information  relating to the UBS (including  its  consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.

As of the date of this report, there have not been any significant changes in
the UBS' and the Bank's internal controls or in any other factors that could
significantly affect those controls subsequent to the date of the evaluation.















                                       33
<PAGE>

                                     PART IV

  ITEM 15 -- EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

     The  following  documents  are  filed  as  part of this  report  of  United
Bancshares, Inc.:

(a) 1.  Financial Reports of United Bancshares, Inc.                        Page
        --------------------------------------------                        ----

        Report of Independent Certified Public Accountants, March 12, 2003.. 39

        Consolidated Balance Sheets at December 31, 2002 and 2001........... 40

        Consolidated Statements of Operations for the three years ended
            December 31, 2002............................................... 41

        Consolidated Statements of Changes in Shareholders' Equity for the
            three years ended December 31, 2002............................. 42

        Consolidated Statements of Cash Flows for the three years ended
            December 31, 2002............................................... 43

        Notes to Consolidated Financial Statements.......................... 44

    2.  Financial Statement Schedules

        Financial Statement Schedules are omitted because the required
        information is either not applicable, not required or is shown in
        the respective financial statements or in the notes thereto.


    4.  The following Exhibits are filed herewith or incorporated by reference
        as a part of this Annual Report:

     Exhibit Number                         Item
     --------------                         ----

      (3(i))    Articles of Incorporation
                (Incorporated by reference to Registrant's 1998 Form 10-K).

      (3(ii))   Bylaws
                (Incorporated by reference to Registrant's 1997 Form 10-K).

      (9.1)     Voting Trust Agreement with NationsBank
                (Incorporated by reference to Registrant's 1997 Form 10-K).

      (9.2)     Voting Trust Agreement with Fahnstock
                (Incorporated by reference to Registrant's 1997 Form 10-K).

      (10)      Material Contracts

         a)     Lease for branch office located at Two Penn Center
         b)     Lease for branch office located at 1620 Wadsworth Avenue
         c)     Lease for branch office located at 3750 Lancaster Avenue
         d)     Lease for branch office located at 1015 North Broad Street
         e)     Evelyn F. Smalls' Employment Agreement
         f)     Brenda Hudson-Nelson's Employment Agreement
         g)     Brokerage Services Agreement (Dual Employee Program) by and
                between UVEST Financial Services Group, Inc. and the
                United Bank of Philadelphia, dated July 17, 2002
         h)     Long Term Incentive Compensation Plan (incorporated by
                reference to Registrant's 1992 Form 10)

      (11)      Statement of Computation of Earnings Per Share.
                Included at Item 8 hereof.

      (12)      Statement of Computation of Ratios.
                Included at Item 8 hereof.




                                       34

<PAGE>


         c)     Not applicable.

      (13)      Annual Report to Security Holders

      (21)      Subsidiaries of Registrant

                Name                                 State of Incorporation
                ----                                 ----------------------
                United Bank of Philadelphia          Pennsylvania


      (99)      Additional Exhibits

         (A)    Exhibit 99
                Registrants Proxy Statement for its Annual Shareholders Meeting
                held on July 26, 2002 is attached hereto as Exhibit 99(A).

         (B)    Exhibit 99.1
                Certification Pursuant to 18U.S.C. Section 1350, as adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                the Chief Executive Officer attached hereto as Exhibit 99.1.

         (C)    Exhibit 99.2
                Certification Pursuant to 18U.S.C. Section 1350, as adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                the Chief Financial Officer attached hereto as Exhibit 99.2.


b) No  reports on Form 8-K have been filed  during the last  quarter  covered by
this report.












                                       35
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized

UNITED BANCSHARES, INC.                                               DATE


/s/  Evelyn F. Smalls                                            March 31, 2003
-------------------------------------------
Evelyn F. Smalls, President & CEO, Director

/s/  Brenda M. Hudson-Nelson                                     March 31, 2003
-----------------------------------------
Brenda M. Hudson-Nelson, EVP, CFO


/s/  James F. Bodine                                             March 31, 2003
-----------------------------------------
James F. Bodine, Co-Chairman, Director


/s/  L. Armstead Edwards                                         March 31, 2003
------------------------------------------
L. Armstead Edwards, Co-Chairman, Director


/s/  Marionette Y. Wilson(Frazier)                               March 31, 2003
-----------------------------------------
Marionette Y. Wilson(Frazier), Assistant Secretary, Director


/s/  Angela M. Huggins                                           March 31, 2003
-----------------------------------------
Angela M. Huggins, Treasurer, Director


/s/  William B. Moore                                            March 31, 2003
-----------------------------------------
William B. Moore, Secretary, Director


/s/  Bernard E. Anderson                                         March 31, 2003
-----------------------------------------
Bernard E. Anderson, Director


/s/  David R. Bright                                             March 31, 2003
-----------------------------------------
David R. Bright, Director


/s/  Luis A. Cortes                                              March 31, 2003
-----------------------------------------
Luis A. Cortes, Director


/s/  Wanda M. Richards                                           March 31, 2003
-----------------------------------------
Wanda M. Richards, Director


/s/  Steven L. Sanders                                           March 31, 2003
-----------------------------------------
Steven L. Sanders, Director


/s/  Ernest L. Wright                                            March 31, 2003
-----------------------------------------
Ernest L. Wright, Director



                                       36
<PAGE>


                                 CERTIFICATIONS

I, Evelyn F. Smalls, Chief Executive Officer, certify that:

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

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

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

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

          c)  presented  in  this  annual  report  our  conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: March 31, 2003                 /s/  Evelyn F. Smalls
                                     -----------------------------------------
                                     Evelyn F. Smalls, Chief Executive Officer




                                       37
<PAGE>

                                 CERTIFICATIONS


I, Brenda Hudson-Nelson, Chief Financial Officer, certify that:

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

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

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

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

          c)  presented  in  this  annual  report  our  conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 31, 2003              /s/  Brenda Hudson-Nelson
                                  -----------------------------------------
                                  Brenda Hudson-Nelson, Chief Financial Officer




                                   38


<PAGE>


               Report of Independent Certified Public Accountants


Shareholders and Board of Directors
United Bancshares, Inc. and Subsidiary


     We have audited the accompanying consolidated balance sheets of United
Bancshares, Inc. and Subsidiary as of December 31, 2002 and 2001, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2002. 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 audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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, 2002 and 2001, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.

     As discussed in note 14 to the financial statements, the Bank entered into
a written agreement with the Federal Reserve Bank of Philadelphia and the
Pennsylvania Department of Banking dated February 23, 2000.




/s/ Grant Thornton LLP
--------------------------
Philadelphia, Pennsylvania
March 12, 2003



                                       39


<PAGE>

                     United Bancshares, Inc. and Subsidiary

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

<TABLE>
<CAPTION>
Assets                                                                                 2002              2001
                                                                                   ------------      ------------
<S>                                                                                <C>                <C>
Cash and due from banks......................................................      $  4,541,667       $ 5,747,131
Interest-bearing deposits with banks.........................................           865,421           256,847
Federal funds sold...........................................................        10,122,000         7,778,000
                                                                                   ------------      ------------
          Cash and cash equivalents..........................................        15,529,088        13,781,978

Investment securities:
    Available-for-sale, at fair market value.................................        14,334,360        14,339,643
    Held-to-maturity, at amortized cost (fair market value of $7,442,870
       and $11,735,146 in 2002 and 2001, respectively).......................         7,183,403        11,466,372
Loans, net of unearned discount of $87,124 and $141,267 in 2002
    and 2001, respectively...................................................        44,133,190        42,999,877
Less allowance for loan losses...............................................          (674,550)         (708,156)
                                                                                   ------------      ------------
          Net loans..........................................................        43,458,640        42,291,721

Bank premises and equipment, net.............................................         2,612,608         2,978,265
Accrued interest receivable..................................................           555,006           911,470
Foreclosed real estate.......................................................                 -            45,000
Intangible assets............................................................         1,937,221         2,118,868
Prepaid expenses and other assets............................................           433,793           734,741
                                                                                   ------------      ------------
          Total assets.......................................................      $ 86,044,119      $ 88,668,058
                                                                                   ============      ============

Liabilities and Shareholders' Equity

Liabilities:
    Demand deposits, noninterest-bearing.....................................      $ 20,453,455      $ 19,471,758
    Demand deposits, interest-bearing........................................        12,837,464        12,613,507
    Savings deposits.........................................................        20,494,208        23,227,604
    Time deposits, under $100,000............................................        10,882,722        10,313,657
    Time deposits, $100,000 and over.........................................        12,261,455        13,795,997
                                                                                   ------------      ------------
                                                                                     76,929,304        79,422,523

    Accrued interest payable.................................................           156,219           263,550
    Accrued expenses and other liabilities...................................           458,455           424,274
                                                                                   ------------      ------------
          Total liabilities..................................................        77,543,978        80,110,347
                                                                                   ------------      ------------

Shareholders' equity:
    Series A preferred stock, noncumulative, 6%, $0.01 par value,
       500,000 shares authorized; 143,150 issued and outstanding
       in 2002 and 2001......................................................             1,432             1,432
    Common stock, $0.01 par value; 2,000,000 shares authorized;
       1,102,088 and 1,100,388 issued and outstanding in 2002 and
       2001, respectively....................................................            11,021            11,004
    Additional paid-in-capital...............................................        14,749,453        14,729,070
    Accumulated deficit......................................................        (6,499,197)       (6,282,614)
    Accumulated other comprehensive income ..................................           237,432            98,819
                                                                                   ------------      ------------
          Total shareholders' equity.........................................         8,500,141         8,557,711
                                                                                   ------------      ------------
          Total liabilities and shareholders' equity.........................      $ 86,044,119      $ 88,668,058
                                                                                   ============      ============
</TABLE>
        The accompanying notes are an integral part of these statements.


                                       40


<PAGE>
                     United Bancshares, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,
<TABLE>
<CAPTION>

                                                                      2002              2001             2000
                                                                  ------------      ------------     ------------
<S>                                                                 <C>               <C>              <C>
Interest income:
    Interest and fees on loans.................................     $3,006,367        $3,595,477       $4,655,329
    Interest on investment securities..........................      1,446,072         1,750,549        3,150,160
    Interest on federal funds sold.............................        169,071           281,540          339,348
    Interest on time deposits with other banks.................         10,921             8,701            8,469
                                                                    ----------        ----------       ----------

          Total interest income................................      4,632,431         5,636,267        8,153,306
                                                                    ----------        ----------       ----------
Interest expense:
    Interest on time deposits..................................        662,493         1,080,533        1,387,091
    Interest on demand deposits................................        114,399           178,059          602,194
    Interest on savings deposits...............................        129,227           317,489          496,764
    Interest on borrowed funds.................................              -                75          252,515
                                                                    ----------        ----------       ----------
          Total interest expense...............................        906,119         1,576,156        2,738,564
                                                                    ----------        ----------       ----------
          Net interest income..................................      3,726,312         4,060,111        5,414,742

Provision for loan losses......................................        175,000           335,000          565,000
                                                                    ----------        ----------       ----------
          Net interest income after provision for loan losses..      3,551,312         3,725,111        4,849,742
                                                                    ----------        ----------       ----------
Noninterest income:
    Gain on sale of loans......................................              -               -             18,931
    Customer service fees......................................      1,927,838         2,202,489        2,617,845
    Gain (loss) on sale of investments.........................         25,789            78,456         (200,070)
    Gain on sale of deposits...................................              -                 -          253,527
    Gain on sale of fixed assets...............................         48,054            84,090          329,237
    Other income...............................................        325,337            77,998          177,464
                                                                    ----------        ----------       ----------
          Total noninterest income.............................      2,327,018         2,443,033        3,196,934
                                                                    ----------        ----------       ----------
Noninterest expense:
    Salaries, wages and employee benefits......................      2,344,746         2,664,660        3,075,523
    Occupancy and equipment....................................      1,293,803         1,609,539        1,790,356
    Office operations and supplies.............................        433,557           454,200          777,112
    Marketing and public relations.............................         82,692           109,367          158,698
    Professional services......................................        283,671           232,662          544,083
    Data processing............................................        639,854           808,012          971,503
    Deposit insurance assessments..............................         36,258           150,042          169,102
    Other operating............................................        980,332         1,009,165        1,315,019
                                                                    ----------        ----------       ----------
          Total noninterest expense............................      6,094,913         7,037,647        8,801,396
                                                                    ----------        ----------       ----------
          Net loss.............................................     $ (216,583)       $ (869,503)      $ (754,720)
                                                                    ==========        ==========       ==========
Net loss per common share--basic and diluted....................    $    (0.20)       $    (0.79)      $    (0.72)
                                                                    ==========        ==========       ==========
Weighted average number of common shares.......................      1,101,247         1,099,520        1,049,166
                                                                    ==========        ==========       ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       41
<PAGE>

                     United Bancshares, Inc. and Subsidiary

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                  Years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                               Series A                                                        Accumulated     Total       Compre-
                            preferred stock      Common stock       Additional                    other        share-      hensive
                           ----------------   ------------------     paid-in     Accumulated  comprehensive   holders'     income
                            Shares   Amount    Shares    Amount      capital       deficit    income (loss)    equity      (loss)
                           --------  ------   --------  --------   -----------  ------------  ------------   ---------     ------
<S>                        <C>       <C>      <C>        <C>       <C>          <C>            <C>          <C>            <C>
Balance at
 December 31, 1999........ 143,150   $1,432   1,028,753  $10,288   $13,870,169  $(4,658,391)   $(196,183)   $9,027,315
  Proceeds from issuance
    of common stock.......      -        -       70,668      706       847,315            -            -       848,021
  Unrealized gains on
    investment securities       -        -           -        -             -             -      228,893       228,893      228,893
  Net loss................      -        -           -        -             -      (754,720)           -      (754,720)    (754,720)
                           -------   ------   ---------  -------   -----------  -----------   ----------    ----------    ---------
Total comprehensive
  income (loss)...........                                                                                                $(525,827)
                                                                                                                          =========
Balance at
 December 31, 2000........ 143,150   $1,432   1,099,421  $10,994   $14,717,484  $(5,413,111)   $  32,710    $9,349,509
  Proceeds from issuance
     of common stock......                          967       10        11,586                                  11,596
  Unrealized gains on
     investment securities                                                                        66,109        66,109    $  66,109
  Net loss................                                                         (869,503)                  (869,503)    (869,503)
                           -------   ------   ---------  -------   -----------  -----------   ----------    ----------    ---------
Total comprehensive
  income (loss)...........                                                                                                $(803,394)
                                                                                                                          =========
Balance at
 December 31, 2001........ 143,150    1,432   1,100,388   11,004    14,729,070   (6,282,614)      98,819     8,557,711
  Proceeds from issuance
    of common stock.......                        1,700       17        20,383                                  20,400
  Unrealized gains on
    investment securities.                                                                       138,613       138,613      138,613
  Net loss................                                                         (216,583)                  (216,583)    (216,583)
                           -------   ------   ---------   -------  -----------  -----------   ----------    ----------    ---------
Total comprehensive
  income (loss)...........                                                                                                $ (77,970)
                                                                                                                          =========
Balance at
  December 31, 2002....... 143,150   $1,432   1,102,088  $11,021  $14,749,453   $(6,499,197)  $  237,432    $8,500,141
                           =======   ======   =========  =======  ===========   ===========   ==========    ==========
</TABLE>

         The accompanying notes are an integral part of this statement.



                                       42


<PAGE>
                     United Bancshares, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                  -----------------------------------------------
                                                                      2002              2001             2000
                                                                  ------------      ------------     ------------
<S>                                                                <C>               <C>              <C>
Cash flows from operating activities:
    Net loss...................................................    $  (216,583)      $  (869,503)     $  (754,720)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
       Provision for loan losses...............................        175,000           335,000          565,000
       Gain on sale of loans...................................                              -            (18,931)
       Gain on sale of fixed assets............................        (48,054)          (84,090)        (329,237)
       (Gain)loss on sale of investment securities.............        (25,789)          (78,456)         200,070
       Depreciation and amortization...........................        673,361           772,742          959,158
       (Increase) decrease in accrued interest receivable and
         other assets..........................................        702,412           (35,995)       1,470,150
       Decrease in accrued interest payable and
         other liabilities.....................................        (73,151)         (257,763)      (1,065,172)
                                                                    ----------        ----------       ----------
         Net cash provided by  (used in) operating activities..      1,187,196          (218,065)       1,026,318
                                                                    ----------        ----------       ----------

Cash flows from investing activities:
    Purchase of available-for-sale investments.................    (10,792,294)      (14,859,870)      (1,737,678)
    Purchase of held-to-maturity investments...................     (2,247,096)       (3,145,558)      (2,636,746)
    Proceeds from maturity and principal reductions of
       available-for-sale investments..........................      9,936,685         8,674,401          951,885
    Proceeds from maturity and principal reductions of
       held-to-maturity investments............................      6,568,297        15,315,665          982,708
    Proceeds from sale of investments available-for-sale.......      1,091,063         3,487,208       18,888,327
    Proceeds from sale of student loans........................                              -          2,574,775
    Proceeds from sale of deposits to other financial
       institutions                                                                          -         (6,544,666)
    Net (increase)decrease in loans............................     (1,341,919)        2,116,573       11,580,215
    Purchase of premises and equipment.........................       (182,004)          (78,265)      (1,566,672)
                                                                   -----------       -----------      -----------
          Net cash used in investing activities................      3,032,732        11,510,154       22,492,148
                                                                   -----------       -----------      -----------

Cash flows from financing activities:
    Net decrease in deposits...................................     (2,493,218)       (3,815,587)     (34,983,620)
    Repayments on long-term debt...............................                               -            (9,203)
    Net proceeds from issuance of common stock.................         20,400            11,596          848,021
                                                                   -----------       -----------      -----------
          Net cash used in financing activities................     (2,472,818)       (3,803,991)     (33,144,802)
                                                                   -----------       -----------      -----------
          Net increase (decrease) in cash and cash equivalents.      1,747,110         7,488,098      (10,626,336)
                                                                   -----------       -----------      -----------
Cash and cash equivalents at beginning of year.................     13,781,978         6,293,880       16,920,216
                                                                   -----------       -----------      -----------
Cash and cash equivalents at end of year.......................    $15,529,088       $13,781,978      $ 6,293,880
                                                                   ===========       ===========      ===========
Supplemental disclosure of cash flow information:
    Cash paid during the year for interest.....................    $ 1,013,450       $ 1,542,963      $ 3,108,753
                                                                   ===========       ===========      ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       43


<PAGE>

                     United Bancshares, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2002, 2001, and 2000


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 to maturity 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

     The Bank has both the  positive  intent  and  ability  to hold its loans to
     maturity. These 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.  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.

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

                                   (Continued)


                                       44

<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2001, 2000, and 1999


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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. The Bank had no loans held for sale as of December 31, 2002.

     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."  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 that
     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 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.  However,  actual  losses  on
     specific  loans,  which  are  encompassed  in the  analysis,  may vary from
     estimated losses.


     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.

     On January 1, 2002,  the Company  adopted SFAS No. 144,  Accounting for the
     Impairment  or  Disposal  of  Long-Lived  Assets.  SFAS No. 144 retains the
     existing requirements to recognize and measure the impairment of long-lived
     assets to be held and used or to be disposed of by sale. However,  SFAS No.
     144 makes  changes to the scope and  certain  measurement  requirements  of
     existing  accounting  guidance.  SFAS No. 144 also changes the requirements
     relating to  reporting  the effects of a disposal or  discontinuation  of a
     segment of a  business.  The  adoption  of this  statement  did not have an
     impact on the financial condition or results of operations of the Company.




                                       45

<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2001, 2000, and 1999


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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.


     Earnings (Loss) Per Share

     The  Company  follows the  provisions  of SFAS No.  128,  which  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.


     Stock-based Compensation

     The Bank  accounts for stock  options  under SFAS No. 123,  Accounting  for
     Stock-Based Compensation, as amended by SFAS No. 148, which contains a fair
     value-based method for valuing  stock-based  compensation that entities may
     use, which measures  compensation  cost at the grant date based on the fair
     value of the  award.  Compensation  is then  recognized  over  the  service
     period,  which is usually the vesting period.  Alternatively,  SFAS No. 123
     permits  entities to continue  accounting  for employee  stock  options and
     similar equity instruments under Accounting  Principles Board (APB) Opinion
     25,  Accounting  for Stock Issued to  Employees.  Entities that continue to
     account for stock  options  using APB  Opinion 25 are  required to make pro
     forma  disclosures  of net income and  earnings  per share,  as if the fair
     value-based method of accounting defined in SFAS No. 123 had been applied.

     At December 31, 2002, the Company had one stock-based employee compensation
     plan,  which is more fully  described in note 12. The Bank account for this
     plan  under the  recognition  and  measurement  principles  of APB No.  25,
     Accounting  for Stock  Issued to  Employees,  and related  interpretations.
     Stock-based employee compensation costs are not reflected in net income, as
     all  options  granted  under the plans had an  exercise  price equal to the
     market value of the underlying common stock on the date of grant.


                                   (Continued)


                                       46


<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     The  following  table  illustrates  the effect on net  income and  earnings
     (loss)  per  share if the  Bank had  applied  the  fair  value  recognition
     provisions  of SFAS No.  123,  to  stock-based  employee  compensation  (in
     thousands, except per share amounts).


                                                        Year ended December 31,
       (In thousands)                                     2002         2001
                                                        --------     --------
       Net loss
          As reported.................................. $  (217)      $  (870)
              Less: Stock-based compensation costs
                determined under fair value-based
                Method for all awards .................       -             -
          Pro forma.................................... $  (217)      $  (870)

       Basic and Diluted loss per share
          As reported.................................. $ (0.20)      $ (0.79)
          Pro forma.................................... $ (0.20)      $ (0.79)

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted average
     assumptions  used for  grants  in 1998:  no  dividends  declared;  expected
     volatility of 20%; a risk-free  interest rate of 4.7%, and expected life of
     10 years.

     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,  SFAS No. 133,  "Accounting  for Derivative  Instruments  and
     Hedging  Activities" was issued in June, 1999 by SFAS No. 137,  "Accounting
     for  Derivative  Instruments  and  Hedging  Activities  -  Deferral  of the
     Effective Date of FASB  Statement No. 133," and in June,  2000, by SFAS No.
     138,  "Accounting  for Certain  Derivative  Instruments and Certain Hedging
     Activities,"  (collectively  SFAS No.  133).  SFAS No.  133  requires  that
     entities  recognize all  derivatives as either assets or liabilities in the
     statement of financial  condition  and measure  those  instruments  at fair
     value.

                                  (Continued)


                                       47

<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Under SFAS No. 133,  an entity may  designate  a  derivative  as a hedge of
     exposure  to either  changes in: (a) fair value of a  recognized  assets or
     liability or firm commitment,  (b) cash flows of a recognized or forecasted
     transaction,  or (c)  foreign  currencies  of a net  investment  in foreign
     operations, firm commitments, available-for-sale securities or a forecasted
     transaction.  Depending  upon the  effectiveness  of the hedge  and/or  the
     transaction  being hedged,  any changes in the fair value of the derivative
     instrument is either  recognized in earnings in the current year,  deferred
     to future  periods,  or recognized as hedge  accounting  are  recognized in
     current year earnings.  SFAS No. 133 is required for all fiscal quarters or
     fiscal years  beginning  after June 15, 2000. On April 1, 2000, the Company
     adopted  SFAS  No.  133.   Concurrent   with  the  adoption,   the  Company
     reclassified  approximately  $6.1  million of  investment  securities  from
     held-to-maturity to available-for-sale. Subsequent to the reclassification,
     the Company transferred approximately $9.5 million of investment securities
     from  available-for-sale  to trading.  In June 2000, the Company recorded a
     loss on the sale of these securities of $127,000.

     Statement of Financial  Accounting  Standards  No. 119,  "Disclosure  About
     Derivative Financial Instruments and Fair Value of Financial  Instruments,"
     (SFAS No. 119) requires disclosures about financial instruments,  which are
     defined as futures, forwards, swap and option contracts and other financial
     instruments with similar characteristics.  On-balance sheet receivables and
     payables are excluded  from this  definition.  The Company did not hold any
     derivative financial instruments as defined by SFAS No. 119 at December 31,
     2002 or 2001.

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

     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.


                                   (Continued)


                                       48


<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Intangible Assets

     On September  24, 1999,  the Bank  acquired  four branches from First Union
     Corporation  with  deposits  totaling  $31.5  million.  As a result  of the
     acquisition,  the Bank recorded a core deposit intangible of 2,449,488. The
     core deposit  intangible  is being  amortized  over 14 years.  Amortization
     totaled  $178,078,  $178,078 and  $176,818 for the year ended  December 31,
     2002,  2001 and  2000,  respectively.  The  Bank  tested  the core  deposit
     intangible for impairment. No impairment has been recognized

     On October 1, 2002, the Financial  Accounting Standards Board (FASB) issued
     SFAS No. 147,  "Acquisitions of Certain Financial  Institutions."  SFAS No.
     147 removes  acquisitions of financial  institutions from the scope of SFAS
     72,   "Accounting   for   Certain   Acquisitions   of   Banking  or  Thrift
     Institutions,"  and requires  that those  transactions  be accounted for in
     accordance  with SFAS No.  141,  "Business  Combinations  and SFAS No. 142,
     "Goodwill  and  Intangible  Assets."  SFAS No. 147 also  requires  that the
     acquisition of a less-than-whole  financial institution,  such as a branch,
     be accounted for as a business  combination if the  transferred  assets and
     activities  constitute a business.  In  addition,  SFAS No. 147 amends SFAS
     144,  "Accounting for the Impairment of Disposal of Long-Lived  Assets," to
     include within its scope long-term customer relationship  intangible assets
     of financial institutions such as depositor-relationship intangible assets.

     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 accounting
     principles  generally  accepted  in the United  States of America  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.


                                   (Continued)


                                       49


<PAGE>

                    United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     Segments

     SFAS No. 131 establishes  standards for the way public business enterprises
     report information about operating segments in annual financial  statements
     and requires  that those  enterprises  report  selected  information  about
     operating  segments  in  subsequent  interim  financial  reports  issued to
     shareholders.  It also establishes  standards for related disclosures about
     products and services, geographic areas, and major customers. The statement
     requires that a public business enterprise report financial and descriptive
     information about its reportable operating segments. Operating segments are
     components of an enterprise about which separate  financial  information is
     available that is evaluated regularly by the chief operating decision-maker
     in deciding how to allocate resources and assess performance. The statement
     also requires that public enterprises report a measure of segment profit or
     loss,  certain  specific  revenue and expense items and segment assets.  It
     also requires that  information be reported about revenues derived from the
     enterprises'  products or  services,  or about the  countries  in which the
     enterprises  earn  revenues  and hold  assets,  and about major  customers,
     regardless  of  whether  that  information  is  used  in  making  operating
     decisions.

     The Company has one  reportable  segment,  "Community  Banking." All of the
     Company's  activities are interrelated,  and each activity is dependent and
     assessed  based on how each of the  activities of the Company  supports the
     other. For example, commercial lending is dependent upon the ability of the
     Bank to fund itself with retail deposits and other borrowings and to manage
     interest rate and credit risk.  This situation is also similar for consumer
     and residential mortgage lending.  Accordingly,  all significant  operating
     decisions are based upon  analysis of the Company as one operating  segment
     or unit.

     Reclassifications

     Certain  reclassifications  have been made to the  prior  year's  financial
     statements to conform to the 2002 presentation.

     Comprehensive Income

     The  Bank  follows  SFAS No.  130,  which  establishes  new  standards  for
     reporting  comprehensive income that includes net income as well as certain
     other  items that  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
     (loss) are as follows:





                                   (Continued)


                                       50


<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

<TABLE>
<CAPTION>
                                                                        December 31, 2002
                                                           --------------------------------------------
                                                            Before tax        Tax           Net of tax
                                                              amount     benefit(expense)     amount
                                                            ----------   ---------------    ----------
<S>                                                         <C>             <C>             <C>
    Unrealized  gains on securities
       Unrealized holding losses arising during period      $ 232,674       $ (76,782)      $ 155,892
       Less: reclassification adjustment for gains
          realized in net income                               25,789          (8,510)         17,279
                                                            ---------       ---------       ---------
    Other comprehensive income, net                         $ 206,885       $ (68,272)      $ 138,613
                                                            =========       =========       =========
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 31, 2001
                                                           --------------------------------------------
                                                            Before tax         Tax          Net of tax
                                                              amount     benefit(expense)     amount
                                                            ----------   ---------------    ----------
<S>                                                         <C>             <C>             <C>
   Unrealized gains on securities
       Unrealized holding gains arising during period       $ 177,126       $ (58,451)      $ 118,675
       Less: reclassification adjustment for gains
          realized in net income                               78,456         (25,890)         52,566
                                                            ---------       ---------       ---------

    Other comprehensive income, net                         $  98,670       $ (32,561)      $  66,109
                                                            =========       =========       =========
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 31, 2000
                                                           --------------------------------------------
                                                            Before tax         Tax          Net of tax
                                                              amount     benefit(expense)     amount
                                                            ----------   ---------------    ----------
<S>                                                         <C>             <C>             <C>
    Unrealized gains on securities
       Unrealized holding gains arising during period       $ 543,166       $(180,826)      $ 362,340
       Less reclassification adjustment for losses
          realized in net income                             (200,070)         66,623        (133,447)
                                                            ---------       ---------       ---------

    Other comprehensive income, net                         $ 343,096       $(114,203)      $ 228,893
                                                            =========       =========       =========
</TABLE>

     New Accounting Pronouncements

     In January 2003, FASB issued FASB  Interpretation No. 46,  Consolidation of
     Variable  Interest Entities ("FIN 46"). FIN 46 requires a variable interest
     entity to be  consolidated  by a a company if that  company is subject to a
     majority of the risk of loss from the variable interest entity's activities
     or  entitled  to receive a majority  of the risk of loss from the  variable
     interest  entity's  activities  or  entitled  to receive a majority  of the
     entity's residual returns, or both. FIN 46 also requires  disclosures about
     variable  interest  entities that a company is not required to consolidate,
     but it which it has a  significant  variable  interest.  The  consolidation
     requirements  of FIN 46 apply  immediately  to variable  interest  entities
     created after January 31, 2003.  The  consolidation  requirements  apply to
     existing  entities  in the first  fiscal year or interim  period  beginning
     after June 15,  2003.  The  Company is in the  process  of  determing  what
     impact, if any, the adoption of the provisions of FIN 46 will have upon its
     financial condition or results of operations.



                                       51


<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


2.   CASH AND DUE FROM BANK BALANCES

     The Bank maintains various deposit accounts with other banks to meet normal
     fund  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, 2002.

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, 2002 and 2001
     are as follows:

<TABLE>
<CAPTION>
                                                                                2002
                                                    -------------------------------------------------------------
                                                                        Gross           Gross
                                                      Amortized      unrealized      unrealized        Market
                                                        cost            gains          losses          value
                                                    -----------      ----------      ----------     -----------
<S>                                                 <C>              <C>             <C>            <C>
       Available-for-sale:
          Other Government securities............   $ 4,299,596      $   62,189      $              $ 4,361,785
          Mortgage-backed securities.............     9,286,548         292,187                       9,578,735
                                                    -----------      ----------      ----------     -----------

          Total debt securities..................    13,586,144         354,376                      13,940,520
          Investments in mutual funds............       106,490                                         106,490
          Other investments......................       287,350                                         287,350
                                                    -----------      ----------      ----------     -----------
                                                    $13,979,984      $  354,376      $        -     $14,334,360
                                                    ===========      ==========      ==========     ===========

       Held-to-maturity:
          Other Government securities............   $   500,000      $    8,985      $              $   508,985
          Mortgage-backed securities.............     6,683,403         250,482                       6,933,885
                                                    -----------      ----------      ----------     -----------
                                                    $ 7,183,403      $  259,467      $        -     $ 7,442,870
                                                    ===========      ==========      ==========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                2001
                                                    -------------------------------------------------------------
                                                                        Gross           Gross
                                                      Amortized      unrealized      unrealized        Market
                                                        cost            gains          losses          value
                                                    -----------      ----------      ----------     -----------
<S>                                                 <C>              <C>             <C>            <C>
       Available-for-sale:
          Other Government securities............   $ 5,048,639      $   49,241      $              $ 5,097,880
          Mortgage-backed securities.............     8,751,555          98,250                       8,849,805
                                                    -----------      ----------      ----------     -----------

          Total debt securities..................    13,800,194         147,491                      13,947,685
          Investments in mutual funds............       104,608                                         104,608
          Other investments......................       287,350                                         287,350
                                                    -----------      ----------      ----------     -----------

                                                    $14,192,152      $  147,491      $        -     $14,339,643
                                                    ===========      ==========      ==========     ===========

       Held-to-maturity:
          Other Government securities............   $ 3,735,435      $  117,612      $              $ 3,853,047
          Mortgage-backed securities.............     7,730,937         151,162                       7,882,099
                                                    -----------      ----------      ----------     -----------

                                                    $11,466,372      $  268,774      $        -     $11,735,146
                                                    ===========      ==========      ==========     ===========
</TABLE>


                                   (Continued)

                                       52


<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


3.  INVESTMENTS - Continued

    Maturities of investment securities classified as available-for-sale and
    held-to-maturity at December 31, 2002 were as follows. Expected maturities
    may differ from contractual maturities.

<TABLE>
<CAPTION>
                                                          Amortized         Market
                                                             cost           value
                                                         -------------   -----------
<S>                                                      <C>             <C>
       Available-for-sale:
          Due after one month through three years....... $         -     $         -
          Due after three year through five years.......     750,000         750,000
          Due after five years through fifteen years....   3,549,596       3,611,785
          Mortgage-backed securities....................   9,286,548       9,578,735
                                                         -----------     -----------
          Total debt securities.........................  13,586,144      13,940,520
          Investments in mutual funds...................     106,490         106,490
          Other investments.............................     287,350         287,350
                                                         -----------     -----------
                                                         $13,979,984     $14,334,360
                                                         ===========     ===========

       Held-to-maturity:
          Due in one month through three years.......... $         -     $         -
          Due after three years through five years......     250,000         255,625
          Due after five years through fifteen years....     250,000         253,360
          Mortgage-backed securities....................   6,683,403       6,933,885
                                                         -----------     -----------
                                                         $ 7,183,403     $ 7,442,870
                                                         ===========     ===========
</TABLE>

     The Bank recorded a gain of $25,789 on the sale of  investments  during the
     year ended  December 31, 2002.  The Bank  recorded a gain of $78,456 on the
     sale of  investments  during the year ended  December  31,  2001.  The Bank
     recorded  a loss of  $200,070  on the sale of  investments  during the year
     ended December 31, 2000.

     As of December 31, 2002 and 2001,  investment  securities with a book value
     of $7,250,989 and $12,839,925,  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:

       Assets                                       2002              2001
                                                 -----------      -----------

       Commercial and industrial...............  $10,854,697      $11,053,584
       Commercial real estate..................   11,897,622        5,504,474
       Residential mortgages...................   13,560,602       18,147,893
       Consumer loans..........................    7,820,269        8,293,926
                                                 -----------      -----------
          Total loans..........................   44,133,190       42,999,877
       Less allowance for loan losses..........     (674,550)        (708,156)
                                                 -----------      -----------

          Net loans............................  $43,458,640      $42,291,721
                                                 ===========      ===========


                                   (Continued)


                                       53


<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


4.   LOANS AND ALLOWANCE FOR LOAN LOSSES - Continued

     As of December  31, 2002 and 2001,  the Bank had loans to certain  officers
     and directors and their affiliated interests in aggregate dollar amounts of
     $839,000 and $1,088,000,  respectively. During 2002 and 2001, there were no
     new loans to related  parties  and  repayments  amounted  to  $249,000  and
     $375,900, respectively.

     The balance of impaired  loans was $ 1,951,000  and $412,000 as of December
     31, 2002 and 2001,  respectively.  The Bank  identifies  a loan as impaired
     when it is probable  that  interest  and  principal  will not be  collected
     according to the contractual terms of the loan agreement. The impaired loan
     balance included $651,000 and $412,000 of non-accrual loans at December 31,
     2002 and 2001,  respectively . The allowance for loan loss  associated with
     the  $1,951,000  of  impaired  loans was  $402,000 at  December  31,  2002.
     Interest  income  recognized  on  impaired  loans  during 2002 and 2001 was
     $104,000 and $25,000,  respectively. The Bank recognizes income on impaired
     loans  under  the cash  basis  when the  loans  are  both  current  and the
     collateral on the loan is sufficient to cover the outstanding obligation to
     the Bank. If these factors do not exist, the Bank will not recognize income
     on such loans.

     At December 31, 2002 and 2001,  unamortized deferred fees and costs totaled
     $108,670 and $93,853, respectively.

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

                                         2002           2001          2000
                                       ---------     ---------     -----------

       Balance, beginning of year..... $ 708,156     $ 562,174     $ 1,566,642
       Provision......................   175,000       335,000         565,000
       Charge-offs....................  (361,656)     (321,681)     (1,720,755)
       Recoveries.....................   153,050       132,663         151,287
                                       ---------     ---------     -----------

       Balance, end of year........... $ 674,550     $ 708,156     $   562,174
                                       =========     =========     ===========

     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, 2002,  approximately  18.71% 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:

<TABLE>
<CAPTION>
                                                  Estimated
                                                  useful life          2002            2001
                                                 ------------      -----------     ------------
<S>                                               <C>              <C>             <C>
       Buildings and leasehold improvements....   10-15 years      $ 2,870,558     $ 3,617,403
       Furniture and equipment.................    3- 7 years        1,411,250       3,140,428
                                                                   -----------     -----------
                                                                     4,281,808       6,757,831
       Less accumulated depreciation...........                     (1,669,200)     (3,779,566)
                                                                   -----------     -----------

                                                                   $ 2,612,608     $ 2,978,265
                                                                   ===========     ===========
</TABLE>

                                   (Continued)


                                       54

<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


5.   BANK PREMISES AND EQUIPMENT - Continued

     The Bank leases other  facilities and other equipment under  non-cancelable
     operating lease agreements.  The amount of expense for operating leases for
     the years ended December 31, 2002, 2001 and 2000 was $364,469, $465,825 and
     $511,836.

     Future minimum lease payments under operating leases are as follows:

                                                     Operating
       Year ending December 31,                        leases
       ------------------------                     ------------

       2003......................................    $  277,278
       2004......................................       240,163
       2005......................................        84,090
       2006......................................        70,433
       2007......................................        47,504
       Thereafter................................        48,929
                                                     ----------
       Total minimum lease payments..............    $  768,397
                                                     ==========

6.   DEPOSITS

     At  December  31,  2002,   the   scheduled   maturities  of  time  deposits
     (certificates of deposit) are as follows (dollars in thousands):

       2003......................................    $   20,678
       2004......................................         1,308
       2005......................................           971
       2006......................................           182
       2007......................................             -
       Thereafter................................             5
                                                     ----------
                                                     $   23,144
                                                     ==========

7.   BORROWINGS

     As  of  December  31,  2002,  the  Bank  has   outstanding   two  borrowing
     arrangements  with  financial  institutions,  collateralized  by investment
     securities. One arrangement is a fully secured Federal Funds line of credit
     with a  correspondent  bank  totaling  $2  million,  the second is a Master
     Repurchase Agreement with another financial  institution.  Borrowings under
     these  agreements  have  interest  rates  that  fluctuate  based on  market
     conditions.   As  of  December  31,  2002,   the  Bank  had  no  borrowings
     outstanding.




                                       55

<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


8.   CAPITAL STOCK OFFERINGS

     In June 2002, the Bank received $20,400 and issued 1,700 shares as a result
     of the purchase of common stock by members of the Bank's board of directors
     in a limited offering at a price of $12.00 per share.

     In May 2001 and December 2001,  respectively,  the Bank received $2,000 and
     $9,596  and  issued 167 and 800  shares,  respectively,  as a result of the
     purchase  of common  stock by two  individuals  in a limited  offering at a
     price of $12.00 per share.

     In June 2000 and December 2000,  respectively,  the Bank received  $411,809
     and $436,212 and issued 34,317 and 36,351 shares, respectively, as a result
     of the purchase of common stock by members of the Bank's board of directors
     in a limited offering at a price of $12.00 per share.


9.   INCOME TAXES

     At December 31, 2002,  the Bank has net  operating  loss  carryforwards  of
     approximately $4,680,000 for income tax purposes that begin to expire in
     2008 through 2020.

     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 $1,783,520  and
     $1,781,306  as of  December  31,  2002  and  2001,  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>
                                                                         2002             2001
                                                                      -----------      -----------
<S>                                                                   <C>              <C>
       Deferred tax assets:
          Provision for loan losses................................   $   105,778      $   139,875
          Unrealized (gains) losses on investment securities.......      (116,944)         (48,672)
          Depreciation.............................................       308,844          189,844
          Net operating loss carryforwards.........................     1,592,020        1,597,884
          Other....................................................      (106,178)         (97,625)
          Valuation allowance for deferred tax assets..............    (1,783,520)      (1,781,306)
                                                                      -----------      -----------
              Net deferred tax assets..............................   $         -      $         -
                                                                      ===========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        2002             2001             2000
                                                     ---------        -----------      -----------
<S>                                                  <C>              <C>              <C>
       Effective rate reconciliation:
          Tax at statutory rate................      $ (73,638)       $  (295,631)     $  (256,073)
          Nondeductible expenses...............          3,152              2,416            4,903
          Increase in valuation allowance......         70,486            174,938          155,997
          Other................................              -            118,277           95,173
                                                     ---------        -----------      -----------
              Total tax expense................      $       -        $         -      $         -
                                                     =========        ===========      ===========
</TABLE>



                                       56

<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


10.  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:

                                                      2002            2001
                                                  -----------     -----------

       Commitments to extend credit............   $ 7,939,136     $ 5,325,662

       Outstanding letters of credit...........        57,155          64,625

     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.


11.  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.  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.











                                   (Continued)


                                       57


<PAGE>


                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000



11.  FAIR VALUES OF FINANCIAL INSTRUMENTS-Continued

<TABLE>
<CAPTION>
                                                                     2002                          2001
                                                            -----------------------        ----------------------
                                                            Carrying        Fair           Carrying        Fair
  (Dollars in thousands)                                     amount         value           amount         value
                                                            --------       --------        --------      --------
<S>                                                         <C>            <C>             <C>           <C>
       Assets:
          Cash and cash equivalents.....................    $ 15,529       $ 15,529        $ 13,781      $ 13,781
          Investment securities.........................      21,518         21,777          25,806        26,075
          Loans, net of allowance for loan losses.......      43,459         41,942          42,291        41,866

       Liabilities:
          Demand deposits...............................      33,291         33,291          32,085        32,085
          Savings deposits..............................      20,494         20,494          23,228        23,228
          Time deposits.................................      23,144         23,144          24,110        25,127

       Off-balance-sheet:
          Commitments to extend credit..................       7,939          7,939           5,326         5,326
          Outstanding letters of credit.................          57             57              65            65
</TABLE>


12.  EMPLOYEE COMPENSATION

     In June 2000, the Bank entered into two-year employment agreements with its
     chief executive officer and its chief financial officer covering such items
     as salaries,  bonuses and benefits. The agreements expired in 2002 and were
     renewed for two more years. These agreements provide for guaranteed minimum
     annual  compensation  over the term of the  contracts.  The Company made no
     stock-based compensation awards to any employee during 2002, 2001 and 2000.


     In 1998,  the Company  adopted a Stock Option Plan with the approval of its
     shareholders.  In  accordance  with the  contractual  terms with its former
     chief executive officer,  the Bank granted the right 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. Under this Plan, options to acquire shares
     of common  stock were granted to the former chief  executive  officer.  The
     Stock  Option Plan  provides for the granting of options at the fair market
     value of the  Company's  common  stock at the time the options are granted.
     Each option  granted under the Stock Option Plan may be exercised  within a
     period  of ten  years  from the date of grant.  However,  no option  may be
     exercised  within  one year from the date of  grant.  In 1998,  options  to
     purchase  29,694 shares of the  Company's  common stock at a price of $8.54
     per share were awarded, to the former chief executive officer.







                                       58

<PAGE>
                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001 and 2000


13.  CONSOLIDATED FINANCIAL INFORMATION--PARENT COMPANY ONLY

                            Condensed Balance Sheets
<TABLE>
<CAPTION>
                                                                        December 31,
                                                                  -----------------------
       (Dollars in thousands)                                       2002         2001
                                                                  --------     --------
<S>                                                               <C>          <C>
       Assets:
          Due from banks (subsidiary)...........................  $    289     $    289
          Investment in United Bank of Philadelphia.............     8,211        8,278
                                                                  --------     --------
              Total assets......................................  $  8,500     $  8,567
                                                                  ========     ========
       Shareholders' equity:
          Series A preferred stock..............................  $      1     $      1
          Common stock..........................................        11           11
          Additional paid-in capital............................    14,750       14,729
          Accumulated deficit...................................    (6,499)      (6,283)
          Net unrealized holding gains (losses)
            on securities available-for-sale....................       237           99
                                                                  --------     --------
              Total shareholders' equity........................  $  8,500     $  8,557
                                                                  ========     ========
</TABLE>

                       Condensed Statements of Operations
<TABLE>
<CAPTION>

                                                               Year ended December 31,
                                                           ------------------------------
       (Dollars in thousands)                                2002        2001       2000
                                                           -------     -------     ------
<S>                                                        <C>         <C>        <C>
       Equity in net loss of subsidiary................... $ (217)     $ (870)    $ (755)
                                                           -------     -------    -------
       Net loss........................................... $ (217)     $ (870)    $  755)
                                                           =======     =======    =======
</TABLE>

                       Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                           ------------------------------
       (Dollars in thousands)                                2002        2001       2000
                                                           -------     -------     ------
<S>                                                        <C>         <C>         <C>
       Cash flows from operating activities:
          Net loss........................................ $ (217)     $ (870)     $ (755)
          Equity in net loss of subsidiary................    217         870         755
                                                           ------      ------      ------
              Net cash provided by operating activities...      -           -           -
                                                           ------      ------      ------
       Cash flows from investing activities:
       Investment in subsidiary...........................    (20)        (12)       (847)
                                                           ------      ------      ------
       Net cash used in investing activities..............    (20)        (12)       (847)
                                                           ------      ------      ------
       Cash flows from financing activities:
          Issuance of preferred stock.....................      -           -           -
          Issuance of common stock........................     20          12         847
                                                           ------      ------      ------
              Net cash provided by financing activities...     20          12         847
                                                           ------      ------      ------
              Net increase in cash and cash equivalents...      -           -           -
       Cash and cash equivalents at beginning of year.....    289         289         289
                                                           ------      ------      ------
       Cash and cash equivalents at end of year........... $  289      $  289      $  289
                                                           ======      ======      ======
</TABLE>

                                       59
<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000



14.  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 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 I capital (as defined in the  regulations)  for
     capital adequacy purposes to risk-weighted assets (as defined).

     In February  2000,  as a result of a  regulatory  examination  completed in
     December 1999, the Bank entered into a Written  Agreement  (Agreement) with
     its primary  regulators with regard to, among other things,  achievement of
     agreed-upon capital levels,  implementation of a viable  earnings/strategic
     plan,  adequate funding of the allowance for loan losses, the completion of
     a  management  review and  succession  plan,  and  improvement  in internal
     controls.  The current Agreement  requires the Bank to increase its capital
     ratio to 6.5% by June 30,  2000 and to 7% at all  times  thereafter.  As of
     December 31, 2000,  the Bank had met the  required  ratios by  implementing
     strategies that included: increasing profitability, consolidating branches,
     and soliciting new and additional sources of capital.  Management continues
     to address all matters outlined in the Agreement.  Management believes that
     the Bank is  "substantially"  in compliance with the Agreement's  terms and
     conditions.  Failure  to  comply  could  result  in  additional  regulatory
     supervision and/or actions.

     As of December 31, 2001, the Bank's tier one leverage capital ratio fell to
     6.80% , below the 7%  minimum  capital  ratio  required  by the  Agreement.
     However,  at December 31, 2002, the tier one leverage ratio had improved to
     7.12% as a result of the smaller average asset size of the Bank. Management
     continues to review and revise its capital plan to address the  development
     of new equity.  In addition,  a profit  restoration  plan was developed and
     implemented  during 2002 to include numerous  expense  reduction and profit
     enhancement strategies.



                                   (Continued)


                                       60


<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000



14.  REGULATORY MATTERS - Continued

    The most recent notification dated February 26, 2003, from the Federal
    Reserve Bank categorized the Bank as "adequately 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 I
    risk-based, and Tier I leverage ratios as set forth in the table below. The
    Bank's growth, continued losses and the additional provisions to the
    allowance for loans losses may have an adverse effect on its capital ratios.

    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, 2002:
       Total capital to risk-weighted assets:
          Consolidated........................  $ 6,854      16.28%    $ 3,391    =>  8.00%        N/A        N/A
          Bank................................    6,565      15.59       3,368        8.00     $ 4,210      10.00%

       Tier I capital to risk-weighted assets:
          Consolidated........................    6,326      15.02       1,696        4.00         N/A        N/A
          Bank................................    6,037      14.34       1,684        4.00     $ 2,526      >6.00%

       Tier I capital to average assets:
          Consolidated........................    6,326       7.46       3,402        4.00         N/A        N/A
          Bank................................    6,037       7.12       3,390        4.00     $ 4,238      >5.00%

</TABLE>

<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, 2001:
       Total capital to risk-weighted assets:
          Consolidated........................  $ 6,850      16.46%    $ 3,353    =>  8.00%        N/A       N/A
          Bank................................    6,561      15.76       3,330        8.00     $ 4,162     10.00%

       Tier I capital to risk-weighted assets:
          Consolidated........................    6,340      15.23       1,665        4.00         N/A       N/A
          Bank................................    6,051      14.90       1,625        4.00     $ 2,497     >6.00%

       Tier I capital to average assets:
          Consolidated........................    6,340       7.12       3,573        4.00         N/A       N/A
          Bank................................    6,051       6.80       3,562        4.00     $ 4,452     >5.00%
</TABLE>


                                       61

<PAGE>
                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000

15.  COMMITMENTS AND CONTINGENCIES

     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.

     The Bank had a One Million Dollar ($1,000,000) unsecured loan participation
     in a $40.4 million  ($40,400,000) line of credit to KMART Corporation.  The
     Bank was repaid the One Million Dollar  ($1,000,000) loan  participation in
     full on January 8,  2002.  KMART  Corporation  filed for  protection  under
     Chapter  11 of the  federal  bankruptcy  laws  on  January  22,  2002.  The
     bankruptcy  filing by KMART  Corporation  could expose the Bank to a future
     claim  that  the  repayment  to the Bank of its  loan  participation  was a
     preference payment. If the preference claim is made and is successful,  the
     Bank may be  required to return the One Million  Dollar  ($1,000,000)  loan
     repayment  and incur a loss in that  amount to the extent that the Bank can
     not obtain repayment of the loan participation from KMART Corporation or as
     an unsecured creditor in the bankruptcy  proceeding.  As of March 12, 2003,
     the Bank has not  received  any  notification  in  regard  to this  matter.
     Management does not believe it is probable that the Bank will have to repay
     the $1,000,000 loan repayment to the bankruptcy court.

16.  EARNINGS PER SHARE COMPUTATION

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

<TABLE>
<CAPTION>
                                                              Year ended December 31, 2002
                                                   ---------------------------------------------
                                                       Loss            Shares         Per share
                                                   (numerator)      (denominator)       amount
                                                   -----------      -------------     ---------
<S>                                                <C>                <C>             <C>
       Net loss..................................  $ (216,583)
                                                   ==========
          Basic EPS
              Income available to stockholders...  $ (216,583)        1,101,247       $ (0.20)
                                                   ==========        ==========       ========
</TABLE>
<TABLE>
<CAPTION>
                                                              Year ended December 31, 2001
                                                   --------------------------------------------
                                                       Loss            Shares        Per share
                                                   (numerator)     (denominator)       amount
                                                   -----------     -------------     ---------
<S>                                                <C>               <C>              <C>
       Net loss..................................  $ (869,503)
                                                   ==========
          Basic loss per share
              Loss available to stockholders.....  $ (869,503)       1,099,520        $ (0.79)
                                                   ==========        =========        ========
</TABLE>

<TABLE>
<CAPTION>
                                                              Year ended December 31, 2000
                                                   --------------------------------------------
                                                       Loss            Shares        Per share
                                                   (numerator)     (denominator)       amount
                                                   -----------     -------------     ----------
<S>                                                <C>               <C>              <C>
       Net loss..................................  $ (754,720)
                                                   ==========
          Basic loss per share
              Loss available to stockholders.....  $ (754,720)       1,049,166        $ (0.72)
                                                   ==========        =========        ========
</TABLE>

     Options to purchase  29,694 shares of common stock were not included in the
     computation of diluted EPS for the years ended December 31, 2002,  2001 and
     2000 because the Company is in a loss position.

                                       62
<PAGE>

                     United Bancshares, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2002, 2001, and 2000



17.  SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

    The following summarizes the consolidated results of operations during 2002
    and 2001, on a quarterly basis, for United Bancshares, Inc. and Subsidiary:

<TABLE>
<CAPTION>
                                                                    2002
    (Dollars in thousands)                     ------------------------------------------------
                                                Fourth        Third       Second        First
                                                quarter      quarter      quarter      quarter
                                               ---------    --------     --------     --------
<S>                                            <C>          <C>          <C>          <C>
       Interest income                         $  1,131     $  1,157     $  1,169     $  1,175
       Interest expense                             201          208          232          265
                                               --------     --------     --------     --------
          Net interest income                       930          949          937          910

       Provisions for loan losses                    63           37           38           37
                                               ---------    --------     --------     --------

          Net interest after provisions
            for loan losses                         867          912          899          873

       Non-interest income                          492          760          544          531
       Non-interest expense                       1,482        1,487        1,508        1,618
                                               --------     --------     --------     --------
          Net (loss) income                    $   (123)    $    185     $    (65)    $   (214)
                                               ========     ========     ========     ========
 </TABLE>

<TABLE>
<CAPTION>
                                                                    2001
                                               ------------------------------------------------
                                                Fourth        Third       Second        First
                                                quarter      quarter      quarter      quarter
                                               ---------    --------     --------     --------
<S>                                            <C>          <C>          <C>          <C>
       Interest income                         $  1,247     $  1,351     $  1,514     $  1,524
       Interest expense                             317          402          412          445
                                               --------     --------     --------     --------
          Net income                                930          949        1,102        1,079

       Provisions for loan losses                   275           30           20           10
                                               --------     --------     --------     --------

          Net interest after provisions
            for loan losses                         655          919        1,082        1,069

       Non-interest income                          630          576          652          585
       Non-interest expense                       1,769        1,768        1,779        1,722
                                               --------     --------     --------     --------
          Net loss                             $   (484)    $   (273)    $    (45)    $    (68)
                                               ========     ========     ========     ========
</TABLE>


                                       63