UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K


(Mark
One)


[ 
]


ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
fiscal year ended December 31, 2009


OR


[ 
]


TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





for the
transition period from 
to





Commission
file number: 0-25976




UNITED
BANCSHARES, INC.


(Exact
name of registrant as specified in its charter)




Pennsylvania
            
            23-2802415(State
      of other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)The
      Graham Building, 30 South 15th
      Street,     Suite 1200, Philadelphia,
      Pennsylvania
            
            19102(Address
      of principal executive offices)
            
            (Zip
      Code)





(215)
351-4600


[Registrant’s
telephone number, including area code]





Name and
fiscal year not changed, but former address was 300 North 3rd
Street Philadelphia, PA 19106


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





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


Title
      of each class
            Name
      of each exchange on
              which
      registeredNONE
            NONE





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





Common
Stock, $ .01 Par Value


(Title of
Class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act





Yes [  ] No
[x]






1







Indicate
by check mark if registrant is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act.


Yes
[  ]      No [x]


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 whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
[  ]    No [  ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§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. [  ]





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





Large
Accelerated filer [  ]  Accelerated filer [ 
]  Non-accelerated filer [x]  Smaller Reporting Company
[  ]





Indicate
by checkmark whether the Registrant is a shell company (as defined by Rule 126-2
of the Exchange Act):


Yes [ 
]     No [x]





The
aggregate market value of shares of common stock held by non-affiliates of
Registrant (including fiduciary accounts administered by affiliates) was [not applicable] on
June 30, 2009.   Not applicable, the Registrant shares are not
publicly traded.





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





The Board
of Directors designated a subclass of the common stock, Class B Common Stock, by
filing of Articles of Amendment to its Articles of Incorporation on September
30, 1998.  This Class B Common Stock has all of the rights and
privileges of Common Stock with the exception of voting rights.  Of
the 2,000,000 shares of authorized Common Stock, 250,000 have been designated
Class B Common Stock.  There is no market for the Common
Stock.  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 3, 2010 the aggregate number of the shares of the Registrant’s Common
Stock outstanding was 1,068,588 (including 191,667 Class B
non-voting).





DOCUMENTS
INCORPORATED BY REFERENCE:





Document
            Parts Into Which
    IncorporatedNone





The
exhibit index is on pages 44 through 45.  There are 76 pages in this
report.











2




















FORM
10-K


United
Bancshares, Inc.


Index





Item No.
            
            PagePART
      I1.
            Business
            41A.
            Risk
      Factors
            111B.
            Unresolved
      Staff Comments
            132.
            Properties
            133.
            Legal
      Proceedings
            144.
            Reserved
            14PART
      II5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            146.
            Selected
      Financial Data
            157.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            167A.
            Quantitative
      and Qualitative Disclosures about Market Risk
            328.
            Financial
      Statements and Supplementary Data
            339.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            339A(T).
            Controls
      and Procedures
            339B.
            Other
      Information
            33PART
      III10.
            Directors,
      Executive Officers, and Corporate Governance
            3411.
            Executive
      Compensation
            3912.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            4213.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            4314.
            Principal
      Accountant Fees and Services
            44PART
      IV15.
            Exhibits
      and Financial Statements Schedules
            45


UNLESS
OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 3, 2010.









3








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.  These forward
looking statements include: (a) statements of goals, intentions and
expectations; (b) statements regarding business prospects, asset quality, credit
risk, reserve adequacy and liquidity.  UBS’ actual results may differ
materially from the results anticipated by the forward-looking statements due to
a variety of factors, including without limitation: (a) the effects of future
economic conditions on UBS and its customers, including economic factors which
affect consumer confidence in the securities markets, wealth creation,
investment and consumer saving patterns; (b) UBS interest rate risk exposure and
credit risk; (c) changes in the securities markets with respect to the fair
market values of financial assets and the stability of particular securities
markets; (d) governmental monetary and fiscal policies, as well as legislation
and regulatory changes; (e) changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan collateral and
securities, as well as interest-rate risks; (f) changes in accounting
requirements or interpretations; (g) the effects of competition from other
commercial banks, thrifts, mortgage companies, consumer finance companies,
credit unions securities brokerage firms, insurance company’s, money-market and
mutual funds and other financial institutions operating in the UBS’ trade market
area and elsewhere including institutions operating locally, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the internet; (h) any
extraordinary events (such as the September 11, 2001 events) ,the war on
terrorism and the U.S. Government’s response to those events or the U.S.
Government becoming involved in a conflict in a foreign country including the
war in Iraq; (i) the failure of assumptions underlying the establishment of
reserves for loan losses and estimates in the value of collateral, and various
financial assets and liabilities and technological changes being more difficult
or expensive than anticipated; (j) UBS’ success in generating new business in
its existing markets, as well as its success in identifying and penetrating
targeted markets and generating a profit in those markets in a reasonable time;
(k) UBS’ timely development of competitive new products and services in a
changing environment and the acceptance of such products and services by its
customers; (l) the ability of key third party providers to perform their
obligations to UBS and; (m) the Bank and UBS’ success in managing the risks
involved in the foregoing.





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







ITEM1 — 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 The Graham Building, 30 S 15th
Street, Suite 1200, Philadelphia, Pennsylvania 19102.  The
Registrant’s telephone number is (215) 351-4600.





As of March 3, 2010, UBS and the Bank
had a total of 30 employees.








4








United
Bank of Philadelphia





United Bancshares, Inc. is an African
American controlled and managed bank holding company for United Bank of
Philadelphia (the “Bank”), a commercial bank chartered in 1992 by the
Commonwealth of Pennsylvania, Department of Banking.  The deposits
held by the Bank are insured by the Federal Deposit Insurance Corporation
(“FDIC”).  The Bank provides full service community banking in
Philadelphia neighborhoods that are rich in diversity providing a market
opportunity that includes men, women, families, small business owners, skilled
laborers, professionals and many more who value home ownership and need banking
services to help make their dreams come true.





The Bank conducts all its banking
activities through its three offices located as follows:  West
Philadelphia Branch 38th 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 addition, the Bank leases and concurrently subleases
to another company, the retail space on the bottom floor of its Center City
Graham Building corporate office. The Bank has an automated teller machine in
the lobby of this space that allows it to have a branding presence in Center
City Philadelphia without incurring additional occupancy expense. Through its
locations, the Bank offers a broad range of commercial and consumer banking
services.  At December 31, 2009, the Bank had total deposits
aggregating approximately $60.3 million and had total net loans outstanding of
approximately $46.9 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 381 census tracts and, based on census data, 249 or 65% of these are
designated as low to moderate-income tracts while 105 or 27.5% are characterized
both as low to moderate-income and minority tracts.  The Bank’s
primary service area consists of a population of 1,517,550, which includes a
minority population of 752,309.





United Bank of Philadelphia, while
state chartered as a commercial bank, is uniquely structured to provide retail
services to its urban communities, while maintaining and establishing a solid
portfolio of commercial relationships that include small businesses, churches
and corporations.  The Bank has leveraged its CDFI (community
development financial institution) designation as established by the United
States Department of Treasury to attract deposits from universities and
corporations in the region seeking Community Reinvestment Act (the “CRA Act”)
credit.  In prior years, it was awarded grants from the Commonwealth
of Pennsylvania and City of Philadelphia for loan activity in low to moderate
income communities.  In 2009, the Bank received a grant totaling
$165,500 from U.S. Treasury CDFI Bank Enterprise Award Fund for its small
business lending activity.  Management intends to actively pursue
additional CDFI and other government funding in 2010 to support its lending
activity.





The Bank will seek to strengthen
communities in the Philadelphia region with innovative products and services
including remote deposit capture and other electronic banking services. The Bank
engages in commercial banking business 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.





A broad range of credit products is
offered to the businesses and consumers in the Bank’s service area, including
commercial loans, student loans, home improvement loans, auto loans, personal
loans, home equity loans and secured credit card loans.  At March 3,
2010, the Bank’s maximum legal lending limit was approximately $1,113,000 per
borrower.  However, the Bank’s internal Loan Policy limits the Bank’s
lending to $500,000 per borrower in order to diversify the credit risk in 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.





United Bank
of Philadelphia has the 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 and
other local agency credit enhancement programs including the Small Business
Administration (“SBA”) and Department of Transportation (DOT), and Philadelphia
Industrial Development Corporation (“PIDC”) when deemed
appropriate.  These programs offer guarantees of up to 90% of the loan
amount.  These guarantees are 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.






5





Other services the Bank offers include
safe deposit boxes, travelers’ checks, money orders, direct deposit of payroll
and Social Security checks, wire transfers, access to regional and national
automated teller networks and most recently, remote deposit
capture.





Segments





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 it 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.





Access
to the Bank’s Website and the United States Securities and Exchange Commission
Website





Reports filed electronically by United
Bancshares, Inc.’s with the Securities and Exchange Commission including proxy
statements, reports on Form 10-K, reports on Form 10-Q, and current event
reports on Form 8–K, as well as any amendment of those reports, and other
information about UBS and the Bank are accessible at no cost on the Bank’s web
site at www.ubphila.com  under
the “investor information” section.  These files are also accessible
on the Commission’s website  at  www.sec.gov .





Competition





There is increasing competition among
financial institutions in the Bank’s service area.  Money center banks
have positioned new branches in once abandoned neighborhoods seeking to grow
market share in minority communities.  The Bank competes with local,
regional and national commercial banks, as well as savings banks, credit unions
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 including
cash management, investment and trust services.  The Bank has
attracted, and believes it will continue to attract its customers from the
deposit base of such existing banks and financial institutions largely due to
the Bank’s mission to service groups of people who have traditionally been under
served and by its devotion to personalized customer service.  In
addition, the recent flurry of bank failures and the financial troubles of some
of the nation’s largest financial institutions have created a “movement back to
community banking” in which the Bank continues to seek to
capitalize.





The Bank focuses its efforts on the
needs of individuals and small and medium-sized businesses.  In the
event that 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. In addition, major
corporations with operations in the Philadelphia region will continue to be
targeted for business including deposits and other banking
services.





Supervision
and Regulation





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 use an applicable
exemption from such registration, if available.





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. UBS is subject to the supervision of and
inspection by the Federal Reserve Board and is 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.  The Federal
Reserve Board also conducts inspections of UBS.








6





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 holding company or
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.





Under
Federal Reserve Board Policy, UBS is expected to serve as a source of financial
strength to the Bank and to commit resources to support the
Bank.  Consistent with its “source of strength” policy, the Federal
Reserve Board has stated that as a matter of prudent banking, the bank holding
company generally should not maintain a rate of cash dividends unless its net
income available to common shareholders has been sufficient to fully fund the
dividends and the perspective rate of earnings retention appears to be
consistent with UBS’s capital needs, asset quality and overall financial
condition.





Federal
Law also grants to the federal banking agencies the power to issue cease and
desist orders when a bank or bank holding company, or an officer or director
thereof, is engaged in or is about to engage in unsafe and unsound
practices.





Regulatory
Restrictions on Dividends





Dividend
payments by the Bank to UBS are subject to the Pennsylvania Banking Code and the
FDIC Act.  Under the Banking Code, no dividends may be paid except
from “accumulated net earnings” (generally undivided profits).  Under
the FDIC, an insured bank may not pay dividends if the bank is in arrears and
the payment of any insurance assessment due to the FDIC.  See dividend
restrictions under Item
5 below.





The
Financial Services Act





The
Financial Services Act (the “FSA”), 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
authorizes the establishment of “financial holding companies” (“FHC”) to engage
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. If those requirements are met, a bank holding
company may file a certification 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.






7







Under the
FSA, 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 CRA examination. See “The
Community Reinvestment Act” below.





The
Sarbanes-Oxley Act of 2002 (The” SOX Act”)





The Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley Act”) represents a comprehensive revision of laws affecting
corporate governance, accounting obligations and corporate reporting. The
Sarbanes-Oxley Act is applicable to all companies with equity or debt securities
registered under the Securities Exchange Act of 1934. In accordance with the
requirements of Section 404(a) of the Sarbanes-Oxley Act, management’s report on
internal controls is included herein at Part 9. In November 2009, the House
Financial Services Committee introduced legislation that enactment would
permanently exempt non-accelerated filers from the auditor attestation
requirement of the Act.  Legislation is pending.





UBS, in compliance with the
Sarbanes-Oxley Act of 2002, has made the determination that the Audit Committee
of UBS has a “financial expert” on the committee. This “financial expert” is
Joseph Drennan, an independent director of the Bank, who is not associated with
the daily management of UBS.  Mr. Drennan is a former bank executive
and currently serves as Chief Financial Officer for a venture capital
firm.  He has an understanding of financial statements and generally
accepted accounting principles.





The Bank has a Code of Ethics for the
Chief Executive Officer and Chief Financial Officer of the Bank in compliance
with the Sarbanes-Oxley Act.





The Bank
is subject to supervision, regulation and examination by the Pennsylvania
Department of Banking and the FDIC.  In addition, the Bank is subject
to a variety of local, state and federal laws that affect its operation. Those
laws and regulations which have material impact on the operations and expenses
of the Bank and thus UBS are summarized below.





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.





FDIC
Membership Regulations





The FDIC
(i) is empowered 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) is
authorized to remove executive officers who have participated in such violations
or unsound practices; (iii) has restricted lending by the Bank to its executive
officers, directors, principal shareholders or related interests thereof; (iv)
has 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 FDIC has been given 60-days prior written
notice and within that time has not disapproved of the acquisition or extended
the period for disapproval.





Federal
Law also grants to the federal banking agencies the power to issue cease and
desist orders when a bank or bank holding company, or an officer or director
thereof, is engaged in or is about to engage in unsafe and unsound
practices.





Federal
Deposit Insurance Assessments





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.





The Bank
is insured by the FDIC, which insures the Bank’s deposits up to applicable
limits per insured depositor. For this protection, each insured bank pays a
quarterly statutory insurance assessment and is subject to certain rules and
regulations of the FDIC. The amount of FDIC assessments paid by individual
insured depository institutions, such as the Bank, is based on their relative
risk as measured by regulatory capital ratios and certain other factors. Under
this system, in establishing the insurance premium assessment for each bank, the
FDIC will take into consideration the probability that the deposit insurance
fund will incur a loss with respect to an institution, and will charge an
institution with perceived higher inherent risks a higher insurance
premium.  The FDIC will also consider the different categories and
concentrations of assets and liabilities of the institution, the revenue needs
of the deposit insurance fund, and any other factors the FDIC deems
relevant.  Increases in the assessment rate and additional special
assessments with respect to insured deposits could have an adverse impact on the
results of operations and capital levels of the Bank and/or UBS.






8







In
February 2006, the Federal Deposit Insurance Reform Act was enacted. The
Reform Act gives the FDIC the authority to set the reserve ratio of the combined
Deposit Insurance Fund at a level between 1.15% and 1.50%, and permits the FDIC
to establish assessments to be paid by insured banks to maintain the minimum
ratios. In October 2008, the FDIC established a restoration plan which has been
updated to respond to deteriorating economic conditions.   In
2009, the FDIC (1) adopted final regulations modifying the risk-based assessment
system and setting initial base assessment rates beginning April 1, 2009, at 12
to 45 basis points; (2) due to extraordinary circumstances, extended the period
of the plan established in October 2008 to seven years by when the reserve ratio
must be returned to 1.15 percent.; and (3) adopted an interim rule imposing an
emergency 5 basis point special assessment as of June 30, 2009 collected in
September 30, 2009 and allow for the imposition of additional special
assessments up to 10 basis points thereafter to maintain public confidence in
the Deposit Insurance Fund.  The final rule provides for the following
adjustments to an institution’s assessment rate: (1) a decrease for long-term
unsecured debt, including most senior and subordinated debt and, for small
institutions, a portion of Tier 1 capital; (2) an increase for secured
liabilities above a threshold amount; and (3) for non-Risk Category I
institutions, an increase for brokered deposits above a
threshold.   As part of the Reform Act, Congress provided credits
to institutions that paid high premiums in the past to bolster the FDIC’s
insurance reserves. As a result, according to the FDIC, the Bank had an
assessment credit to offset a portion of its premium. The assessment credit
continued to be used to reduce deposit premiums that would otherwise have been
due through 2009 when they were completely exhausted.  As a result of
these changes and many other factors, including the Bank’s current safety and
soundness (CAMELS) rating and other financial ratios, the Bank’s net assessment
for 2009 was $97,240, including a special assessment of $30,836 paid in
September 2009.





On
November 12, 2009, the FDIC adopted a final rule amending the assessment
regulations to require insured depository institutions to prepay their quarterly
risk-based assessments for the fourth quarter of 2009, and for all of 2010,
2011, and 2012, on December 30, 2009, along with the institution's risk-based
assessment for the third quarter of 2009.  As a result, the Bank
remitted a prepayment totaling $502,011--$32,923 for 2009, $135,784 for 2010,
$162,587 for 2011, and $170,716 for 2012.  The prepaid assessment for
the fourth quarter of 2009 and for all of 2010 was determined by multiplying the
total base assessment rate that the institution would have paid for the third
quarter of 2009 — had the institution's CAMELS ratings in effect on September
30, 2009, and, where applicable, long-term debt issuer ratings in effect on
September 30, 2009, been in effect for the entire third quarter of 2009 (its
prepaid assessment rate) — times the corresponding prepaid assessment
base.  The prepaid assessment for each quarter of 2011 and 2012 was
determined by multiplying its prepaid assessment rate plus .75 basis points
times the corresponding prepaid assessment base (described below) for each
quarter. For each
quarter of the prepayment period, the prepaid assessment base was calculated by
increasing its third quarter 2009 assessment base at an annual rate of 5
percent.




The FDIC
insurance premiums are “risk based.”  Accordingly, higher premiums
would be charged to banks that have lower capital ratios or higher risk
profiles.  As a result, a decrease in the bank’s capital ratios, or a
negative evaluation by the FDIC, the Bank’s primary federal banking regulator,
may increase the bank’s net funding cost and reduce its net income.





Economic
Stabilization Act




In
response to the financial crisis affecting the overall banking system and
financial markets, on October 3, 2008, the Emergency Economic Stabilization Act
of 2008 (“EESA”) was enacted.  On October 14, 2008 the United States
Treasury and banking regulators announced in a joint statement the details of
new government programs under EESA.  These programs are the Trouble
Asset Relief Program (“TARP”) and the FDIC Temporary Liquidity Guaranty Program
(“TLGP”). Under TARP, the Treasury will use $250 billion of its $700 billion
available under EESA to purchase $125 billion of preferred stock in nine major
financial institutions.  The remaining $125 billion will be available
for the purchase of preferred stock in qualified smaller financial
institutions.  The preferred stock pays a five percent per annum
dividend for the first five years and a nine percent per annum dividend
thereafter.  The Treasury will receive warrants to purchase a
participating institution’s common stock equal to fifteen percent of the
Treasury’s total investment in the participating institution.  The
participating institution’s executives must agree to certain compensation
restrictions and the participating institutions must agree to certain other
restrictions.   While the Bank submitted an application for a
$1.4 million preferred stock investment under this program, it was withdrawn in
favor of less costly funding from the U.S. Treasury CDFI Fund.






9







In
addition to creation of TARP, the EESA included a provision increasing the
amount of deposits insured by the FDIC from $100,000 to $250,000 until December,
31, 2013.  Under TLGP, the FDIC is temporarily providing a one hundred
percent guaranty of the senior debt of all FDIC insured institutions and their
holding companies, as well as deposits in non-interest bearing transaction
deposit accounts.  Non-interest bearing deposit transaction accounts
under this program will have full insurance coverage through June 30,
2010.




Also,
under TLGP, senior unsecured debt issued before June 30, 2009 will be fully
insured.  All FDIC insured institutions were covered immediately under
this program for the first thirty days at no charge.  After thirty
days or December 5, 2008, an institution had to make an election to opt out or
incur an annualized fee of seventy-five basis points on the amount of debt
insured under this program.  Coverage of newly issued debt will extend
to June 30, 2012, even if the maturity of the debt is after that
date.  The newly issued unsecured senior debt covered by the program
includes promissory notes, commercial paper, interbank funding and any unsecured
portion of secured debt.





The Bank
elected to “opt-in” to the TLGP program to generate deposit growth from existing
and potential customers who seek to deposit up to the increased FDIC insurance
limit.




The
Community Reinvestment Act





The Bank is required, by the Community
Reinvestment Act (“CRA”) and its 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 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 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 examination the Bank was given an “outstanding” CRA
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.  The BSA also requires the Bank to file suspicious activity
reports for transactions that involve more than $5,000 and which the Bank knows,
suspects or has reason to suspect, involves illegal fund is designed to evade
the requirements of the BSA or has no lawful purpose.





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 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 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 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.








10





The
Patriot Act





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, such as the Bank, which include appropriate policies and
procedures and controls to detect, prevent, and report money laundering and
terrorist financing and to verify the identity of their customers all of which
involve additional expenses for the Bank.  Failure to comply with the
Patriot Act could have serious legal and reputational consequences for a
financial institution.





Future
Litigation





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. A number of wide ranging and
comprehensive proposals for altering the structure of regulation of financial
institutions have been discussed in the Unites States Congress.  It is
impossible to predict whether any proposals will be enacted into law or, even if
enacted, the effect which they may have on the business and earnings of USB and
the Bank. There is no assurance that the recently enacted legislation discussed
in regulatory matters above will stabilize the financial industry as
intended.  Because these programs are relatively new and are
continuously changing, it is difficult to accurately determine the impact of
participating or not participating in these programs on USB and the
Bank.





ITEM1A--RISK FACTORS





Below is a list of the significant
risks that concern UBS, the Bank and the banking industry.  The list
should not be considered an all inclusive list and has not been prepared in any
certain order.




Changes in the economy,
especially in the Philadelphia region, could have an adverse affect on the
Company




Economic conditions have continued to
worsen creating historic levels of financial institution failures and increased
unemployment rates. The economic turmoil has led to elevated levels of
commercial and consumer loan delinquencies.  The business and earnings
of the Bank and UBS are directly affected by general conditions in the U.S. and
in particular, economic conditions in the Philadelphia region.  These
conditions include legislative and regulatory changes, inflation, and changes in
government and monetary and fiscal policies, increases in unemployment rates,
and declines in real estate values, all of which are beyond the Bank’s
control.  Continued weakness in the economy could result in a decrease
in products and service demand, decrease in deposits and deterioration of
customer credit quality, an increase in loan delinquencies, non-accrual loans
and increases in problem assets.  Real estate pledged as collateral
for loans made by the Bank may decline in value, reducing the value of assets
and collateral associated with the Bank’s existing loans.  Because of
the Bank’s concentration in the Philadelphia region, it is less able to respond
or diversify credit risk among multiple markets.  These factors could
result in an increase in the provision for loan losses, thus reducing net
income.





Future loan losses may
exceed the Bank’s allowance for loan losses




The Bank and UBS are subject to credit
risk, which is the risk of losing principal or interest due to borrowers’
failure to repay loans in accordance with their terms.  The downturn in the
economy and the real estate market in Bank’s market area could have a negative
effect on collateral values and borrowers’ ability to repay. This downturn in
economic conditions could result in losses to UBS in excess of loan loss
allowances. To the extent loans are not paid timely by borrowers, the loans are
placed on non-accrual, thereby reducing interest income. To the extent loan
charge-offs exceed the Bank’s projections, increased amounts allocated to the
provision for loan losses would reduce income.




Exposure to Credit Risk on
Commercial Lending can Adversely Affect Earnings and Financial
Condition





The Bank’s loan portfolio contains a
significant number of commercial real estate and commercial and industrial
loans.  These loans may be viewed as having a higher credit risk than
residential real estate or consumer loans because they usually involve larger
loan balances to a single borrower and are more susceptible to a risk of a
default during an economic down turn.  A deterioration of these loans
may cause a significant increase in non-performing loans.  An increase
in non-performing loans could cause an increase in loan charge offs and a
corresponding increase in the provision for loan losses which could adversely
impact the Bank’s earning and financial condition.






11






Changing interest rates
could reduce the Bank’s net interest margin, net interest income, fee income and
net income






Interest and fees on loans and
securities, net of interest paid on deposits and borrowings, are a large part of
the Bank’s and therefore UBS’ net income.  Interest rates are key drivers
of the Bank’s net interest margin and subject to many factors beyond the control
of the Bank’s management.  As interest rates change, net interest income is
affected. Decreases or increases in interest rates could have a negative effect
on the spreads between the interest rates earned on assets and the rates of
interest paid on liabilities, and therefore decrease net interest
income.




Government regulation can
result in limitations on operations




The Bank operates in a highly regulated
environment and is subject to supervision and regulation by a number of
governmental regulatory agencies.  Regulations adopted by these
agencies are generally intended to provide protection for depositors and
customers rather than for the benefit of the shareholders. These regulations
establish permissible activities for the Bank to engage in, require maintenance
of adequate capital levels, and regulate other aspects of
operations.  The laws and regulations applicable to the banking
industry could change at any time, and we cannot predict the effect of these
changes on the Bank’s business and profitability.  The current
economic crisis creates the potential for increased regulation, new federal or
state laws and regulations regarding lending and funding practices and liquidity
standards that could negatively impact the Bank’s operations by restricting the
Bank’s business operations, increase the cost of compliance and adversely affect
profitability.  Losses from operations may result in deterioration of
the Bank’s capital levels below required levels and could result in severe
regulatory action.




The financial services
industry is very competitive




The Bank faces competition in
attracting and retaining deposits, making loans, and providing other financial
services throughout the Bank’s market area. The Bank’s competitors include other
community banks, larger banking institutions, trust companies and a wide range
of other financial institutions such as credit unions, government-sponsored
enterprises, mutual fund companies, insurance companies and other non-bank
businesses.  Many of these competitors have substantially greater
resources, including access to capital markets, than the Bank and are able to
expend greater funds for advertising and marketing.  If the Bank’ is
unable to compete effectively, the Bank will lose market share and income from
deposits, loans, and other products may be reduced.




Higher FDIC assessments
could negatively impact profitability





The FDIC
insurance premiums are “risk based.”  Accordingly, higher premiums
would be charged to banks that have lower capital ratios or higher risk
profiles.  As a result, a decrease in the Bank’s capital ratios, or a
negative evaluation by the FDIC, the Bank’s primary federal banking regulator,
may increase the Bank’s net funding cost and reduce its net income. The FDIC adopted a
final rule that required insured depository institutions to prepay on December
30, 2009, their estimated quarterly risk based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012 along with their quarterly
risk based assessments for the third quarter of 2009.  In September,
2009, the FDIC also adopted a uniform three basis point increase in assessment
rates effective on January 1, 2011.  The FDIC also has authority to
increase regular deposit insurance assessments or impose additional special
emergency assessments if necessary to maintain confidence in the federal deposit
insurance or as a result of deterioration in deposit insurance fund’s
ratio.  The recent increase in assessment rate and any additional
assessments will likely have a continued adverse effect on the Bank’s operating
expenses and results of operations.




Inadequate
liquidity




The Bank may not be able to meet the
cash flow requirements of its 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.  While the Bank actively manages
its liquidity position and is required to maintain minimum levels of liquid
assets, rapid loan growth or unexpected deposit attrition may negatively impact
the Bank’s ability to meet its liquidity requirements. The inability to increase
deposits to fund asset growth represents a potential liquidity risk. The Bank
may need to reduce earning asset growth through the reduction of current
production, sale of assets and/or the participating out of future and current
loans.  This might reduce future net income of the Bank.






12




Lack of
Deposit Growth Could Increase the Bank’s Cost of Funds





A decline
in the aggregate balance of deposits or the failure of deposits to grow at a
rate comparable to loan growth could require the Bank to obtain other sources of
loan funds at higher costs, thus reducing the Bank’s net interest
income.




Ability to attract and
retain management and key personnel may affect future growth and
earnings






The success of UBS and the Bank will be
influenced by its ability to attract and retain management experienced in
banking and financial services and familiar with the communities in the Bank’s
market areas.  The Bank’s ability to retain executive officers,
management team, and support staff is important to the successful implementation
of the Bank’s strategic plan.  It is critical, as the Bank grows, to
be able to attract and retain qualified staff with the appropriate level of
experience and knowledge in community banking.  The unexpected loss of
services of key personnel, or the inability to recruit and retain qualified
personnel in the future could have an adverse effect on the Bank’s business,
financial condition, and results of operations.




The ability to maintain
adequate levels of capital to meet regulatory minimums and support
growth





The Bank and UBS may not be able to
maintain the requisite minimum regulatory capital levels to support asset
growth.  While management may seek additional capital through
available government programs, unforeseen economic events may negatively impact
the Bank’s and UBS’ profitability and result in erosion of capital. This might
restrict growth and reduce future net income of the Company.





The
Soundness of Other Financial Services Institutions May Adversely Affect USB and
the Bank.





Routine
funding transactions may be adversely affected by the actions and soundness of
other financial institutions.  Financial service institutions are
interrelated as a result of trading, clearing, lending, borrowing or other
relationships.  As a result, a rumor, default or failures within the
financial services industry could lead to market wide liquidity problems which,
in turn, could materially impact the financial condition of USB and the
Bank.





USB’s Controls and
Procedures may Fail or be Circumvented.





USB
diligently reviews and updates its internal controls and financial reporting,
disclosure controls and procedures and corporate governance policies and
procedures.  Any failure or undetected circumvention of these controls
could have material adverse impact on USB and the Bank’s financial condition and
results of operations.




Additional, risk factors
also include the following all of which may reduce revenues and/or increase
expenses and/or pull the Bank’s management attention away from core banking
operations which may ultimately reduce the Bank’s net income




■
            New
      developments in the banking
industry


■
            Variations
      in quarterly or annual operating
results


■
            Revision
      of or the issuance of additional regulatory actions affecting UBS or the
      Bank


■
            Litigation
      involving UBS or the Bank


■
            Changes
      in accounting policies or
procedures





Investments
in UBS common shares involve risk.  There is no trading market for
UBS’ common shares.







ITEM1B—UNRESOLVED STAFF COMMENTS






None.






ITEM2 —
PROPERTIES





Corporate
Headquarters





United Bank of Philadelphia’s corporate
office is located in The Graham Building, 30 S. 15th
Street, Suite 1200, Center City Philadelphia.   In February 2005,
the Bank began a 10-year lease for its new Center City headquarters
location.  The Graham building is located in the heart of the
Philadelphia business district, directly across from City Hall. The Bank
occupies approximately 10,000 square feet on the 12th
Floor that provides adequate and suitable space for executive offices,
operations, finance, human resource, and security and loss prevention
functions.  The average monthly lease rate over the term of the lease
is $15,170.






13





In August 2005, the Bank assumed the
remaining term from another financial institution of a lease for retail space on
the ground level of the Graham Building that expired in 2009.  The
Bank simultaneously subleased this space to another company with the exception
of the lobby in which its automated teller machine (ATM) is
located.   In September 2009, at expiration of the sublease, the
Bank amended its corporate office lease to include this retail space for which
the term will be co-terminus. The Bank’s sublease with its tenant expires in
September 2010 at which time management will evaluate the feasibility of
establishing a branch office.  The Bank’s average aggregate gross
monthly rental is $7,500 of which the tenant pays an average monthly rent of
$6,000. The Bank pays $1,500 per month for the ATM lobby plus one third of
common area maintenance.





Mt.
Airy Branch





The Bank operates a branch at 1620
Wadsworth Avenue, in the Mt. Airy section of Philadelphia. This facility is
located in a densely populated residential neighborhood and in close proximity
to small businesses/retail stores. To further enhance its appeal, the internal
appearance of this branch was updated in 2006 to include new paint, flooring,
and furnishings.  This facility, includes a retail banking lobby,
teller area, offices, and vault and storage space.  In December 2008,
the Bank began a new 10-year lease term for which the average monthly rent is
$5,285.




West
Philadelphia Branch





The Bank owns and operates the branch
location at 3750 Lancaster Avenue.  This branch is located in close
proximity to two major universities and hospitals.   It is
comprised of approximately 3,000 square feet.  Internal and external
renovations were completed in 2008. 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.





Progress
Plaza Branch





The Bank leases a branch facility
located at 1015 North Broad Street, Philadelphia, Pennsylvania.  The
Progress Plaza branch is a very active branch with the largest number of
customers seeking service on a daily basis.   This area of North
Philadelphia is an important area for the Bank and its mission. The facility is
comprised of teller and customer service areas, lobby and
vault.  Extensive improvements to the shopping plaza in which this
branch is located are well underway.   In April 2008, the Bank’s
branch was relocated within the shopping plaza to a newly constructed space at
which time it began a 10-year lease for which the average aggregate gross
monthly rent is $5,996.





ITEM3 — LEGAL PROCEEDINGS





No material litigation or claims have
been instituted or threatened by or against UBS or the Bank.





ITEM4 - RESERVED








PART II





ITEM5 — MARKET FOR THE REGISTRANT’S COMMON EQUITY,


RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Common
Stock





UBS’ Common Stock is not traded on any
national exchange or otherwise traded in any recognizable market. There is no
established public trading market for UBS’ common stock.  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 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.






14





There were no capital stock
transactions during 2009 and 2008.





As of March 3, 2010 there were 3,143
shareholders of record of UBS’ voting Common Stock and two shareholders of
record of UBS’ Class B Non-voting Common Stock.





Dividend
Restrictions





UBS has never declared or paid any cash
or stock dividends.  The Pennsylvania Banking Code of 1965, as
amended, provides that cash dividends may be declared and paid only from
accumulated net earnings and that, prior to the declaration of any dividend, if
the surplus of a bank is less than the amount of its capital, the bank shall,
until surplus is equal to such amount, transfer to surplus an amount which is at
least ten percent 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 the 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 Federal Reserve Board if the total of all cash
dividends declared by a bank in any calendar year, including the proposed cash
dividend, exceeds the total of the 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 UBS, whose only source of income is
dividends from the Bank, will be unable to pay any dividends while an
accumulated deficit exists.  UBS does not anticipate that dividends
will be paid for the foreseeable future.





Securities
Authorized for Issuance Under Equity Compensation Plans





There were no equity compensation
instruments outstanding at December 31, 2009.





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





ITEM6 — SELECTED FINANCIAL DATA








Selected
Financial Data


Year ended(Dollars
      in thousands, except per share data)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Net
      interest income
            
            $
            3,124
            
            
            $
            3,291
            
            
            $
            3,600
            
            
            $
            3,622
            
            
            $
            3,571Provision
      for loan losses
            
            
            235
            
            
            
            368
            
            
            
            120
            
            
            
            137
            
            
            
            558Noninterest
      income
            
            
            1,313
            
            
            
            1,209
            
            
            
            1,320
            
            
            
            1,415
            
            
            
            1,582Noninterest
      expense
            
            
            4,747
            
            
            
            4,785
            
            
            
            4,753
            
            
            
            4,780
            
            
            
            4,864Net
      income (loss)
            
            
            (545
            )
            
            
            (653
            )
            
            
            47
            
            
            
            119
            
            
            
            (269
            )Net
      income (loss) per share – basic
            
            
            (0.51
            )
            
            
            (0.61
            )
            
            
            0.04
            
            
            
            0.11
            
            
            
            (0.25
            )Net
      income (loss) per share – fully diluted
            
            
            (0.51
            )
            
            
            (0.61
            )
            
            
            0.04
            
            
            
            0.11
            
            
            
            (0.25
            )Balance
      sheet totals:Total
      assets
            
            $
            68,318
            
            
            $
            69,435
            
            
            $
            75,232
            
            
            $
            73,935
            
            
            $
            72,210Net
      loans
            
            
            46,860
            
            
            
            48,077
            
            
            
            44,594
            
            
            
            41,957
            
            
            
            45,950Investment
      securities
            
            
            11,834
            
            
            
            12,562
            
            
            
            13,921
            
            
            
            15,891
            
            
            
            13,706Deposits
            
            
            60,307
            
            
            
            60,904
            
            
            
            66,084
            
            
            
            64,924
            
            
            
            63,324Shareholders’
      equity
            
            
            7,531
            
            
            
            8,050
            
            
            
            8,685
            
            
            
            8,614
            
            
            
            8,492Ratios:Tangible
      Equity to average assets
            
            
            9.89
            %
            
            
            10.32
            %
            
            
            10.17
            %
            
            
            9.93
            %
            
            
            9.87
            %Equity
      to Assers
            
            
            11.02
            %
            
            
            11.59
            %
            
            
            11.54
            %
            
            
            11.65
            %
            
            
            11.76
            %Return
      on assets
            
            
            (0.79
            )%
            
            
            (0.87
            )%
            
            
            0.06
            %
            
            
            0.16
            %
            
            
            (0.37
            )%Return
      on equity
            
            
            (7.66
            )%
            
            
            (8.21
            )%
            
            
            0.62
            %
            
            
            1.63
            %
            
            
            (3.78
            )%





15














ITEM7 — 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 UBS 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.








Critical
Accounting Policies


Allowance
for Loan Losses




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





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





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





Impairment
is measured on a loan by loan basis for commercial loans by either the present
value of expected future cash flows discounted at the loans effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.  Large groups of smaller balance
homogeneous loans are collectively evaluated for
impairment.  Accordingly, the Bank does not separately identify
individual consumer and residential loans for impairment
disclosures.







16


Executive
Brief





United Bank of Philadelphia is the only
African American-owned and controlled community development financial
institution headquartered in Philadelphia. Management continues to seek to
maximize the Bank’s “community bank” competitive advantage by leveraging its
strategic partnerships and relationships to increase market penetration and to
help ensure that the communities it serves have full access to financial
products and services.





The
financial results for the year-ending December 31, 2009 were less than
favorable.  The recessionary economy adversely affected the financial
services industry in general and the Bank specifically, creating margin
compression and increased credit quality challenges.  The following
core factors directly impact the ability of the Company to achieve and sustain
profitability:





·
            Proactive management of asset
      quality to minimize loan losses.  The Bank’s level of
      noncurrent loans continues to trend upward.  Although collection
      strategies have been implemented to manage delinquencies and reverse this
      trend, many borrowers have been adversely affected by the downturn in the
      economy that has resulted in a reduction in their cashflow—the “trickle
      down” effect. Management convenes regular asset quality meetings to review
      and proactively manage these credits in an attempt to avoid further
      deterioration in credit quality. Also, the Bank will utilize programs that
      provide credit enhancements (i.e. Small Business Administration,
      Department of Transportation, etc.) for its new originations to mitigate
      risk.





Also, at
December 31, 2009, approximately 39.9%, or $14.6 million, 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.  Management is closely monitoring these loans to avoid
further deterioration in credit quality in the current economic environment that
could negatively impact tithes and offerings.





·
            The ability to achieve core
      deposit growth.  Deposit growth continues to be one of
      management’s primary challenges.  This challenge is compounded
      by competition from regional and money center banks as well as the current
      low interest rate environment.  For the year ended December 31,
      2009, the Bank experienced deposit attrition totaling approximately
      $600,000. Utilizing its competitive advantage as a community development
      bank and increased FDIC limits, management has identified and continues to
      call on corporations in the region to request core depository
      relationships to support its small business lending strategies. The
      development of these relationships typically has long lead
      times.  However, several significant organizations in the region
      have made commitments to support the Bank’s initiatives with the placement
      of deposits. In addition, a robust sales, marketing and communications
      plan for key target markets will be developed to recruit new customers and
      encourage existing customers to expand their use of banking
      services.




·
            The ability to control and
      manage noninterest expense.   Management has stepped
      up the Bank’s cost control efforts through total employee involvement.
      Processes and protocols are in place to facilitate discussions that drive
      reductions in expenses on an ongoing basis. The goal is to ensure that the
      Bank is doing more with less and paying attention to
      details.  In 2009, data processing contracts were re-negotiated
      and branch capture (the electronic capture and transmission of items for
      processing) was introduced to reduce data processing expenses while
      creating operating efficiencies.  Management will continue to
      seek additional savings and
efficiencies.








17








Results
of Operations





In 2009, the Company recorded a net
loss of approximately $545,000 ($0.51 per share) compared to a net loss of
approximately $653,000 ($0.61 per share) in 2008 and net income of approximately
$47,000 ($0.04 per share) in 2007.  A detailed explanation for each
component of earnings is included in the sections below.





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





2009
            
            
            2008
            
            
            2007Average
            
            
            
            
            
            Average
            
            
            Average
            
            
            
            
            
            Yield/
            
            
            Average
            
            
            Average
            
            
            Yield/(Dollars
      in thousands)
            
            balance
            
            
            Interest
            
            
            Balance
            
            
            balance
            
            
            Interest
            
            
            rate
            
            
            balance
            
            
            balance
            
            
            rateAssets:Interest-earning
      assets:Loans
            
            $
            48,568
            
            
            $
            3,039
            
            
            
            6.26
            %
            
            $
            48,199
            
            
            $
            3,335
            
            
            
            6.92
            %
            
            $
            43,674
            
            
            $
            3,516
            
            
            
            8.05
            %Investment
      securities held-to-maturity
            
            
            9,888
            
            
            
            439
            
            
            
            4.44
            
            
            
            9,366
            
            
            
            447
            
            
            
            4.77
            
            
            
            11,917
            
            
            
            585
            
            
            
            4.91Investment
      securities available-for-sale
            
            
            2,211
            
            
            
            108
            
            
            
            4.84
            
            
            
            3,040
            
            
            
            161
            
            
            
            5.30
            
            
            
            3,249
            
            
            
            170
            
            
            
            5.23Interest
      bearing balances with other banks
            
            
            299
            
            
            
            7
            
            
            
            2.34
            
            
            
            292
            
            
            
            8
            
            
            
            2.40
            
            
            
            281
            
            
            
            16
            
            
            
            5.69Federal
      funds sold
            
            
            3,396
            
            
            
            8
            
            
            
            0.24
            
            
            
            5,398
            
            
            
            130
            
            
            
            2.41
            
            
            
            10,294
            
            
            
            525
            
            
            
            5.10Total
      interest-earning assets
            
            
            64,362
            
            
            
            3,601
            
            
            
            5.59
            
            
            
            66,295
            
            
            
            4,081
            
            
            
            6.15
            
            
            
            69,415
            
            
            
            4,812
            
            
            
            6.93Noninterest-earning
      assets:Cash
      and due from banks
            
            
            2,294
            
            
            
            
            
            
            
            
            
            
            
            2,603
            
            
            
            
            
            
            
            
            
            
            
            3,052Premises
      and equipment, net
            
            
            1,492
            
            
            
            
            
            
            
            
            
            
            
            1,417
            
            
            
            
            
            
            
            
            
            
            
            1,046Other
      assets
            
            
            1,863
            
            
            
            
            
            
            
            
            
            
            
            1,925
            
            
            
            
            
            
            
            
            
            
            
            2,349Less
      allowance for loan losses
            
            
            (626
            )
            
            
            
            
            
            
            
            
            
            
            ( 697
            )
            
            
            
            
            
            
            
            
            
            
            (561
            )Total
            
            $
            69,385
            
            
            
            
            
            
            
            
            
            
            $
            71,543
            
            
            
            
            
            
            
            
            
            
            $
            75,301Liabilities
      and shareholders’ equity:Interest-bearing
      liabilities:Demand
      deposits
            
            $
            11,161
            
            
            
            89
            
            
            
            0.80
            %
            
            $
            10,836
            
            
            
            122
            
            
            
            1.12
            %
            
            $
            10,576
            
            
            
            171
            
            
            
            1.61
            %Savings
      deposits
            
            
            15,988
            
            
            
            34
            
            
            
            0.21
            
            
            
            17,952
            
            
            
            103
            
            
            
            0.52
            
            
            
            20,302
            
            
            
            287
            
            
            
            1.41Time
      deposits
            
            
            20,803
            
            
            
            353
            
            
            
            1.70
            
            
            
            20,793
            
            
            
            565
            
            
            
            2.72
            
            
            
            21,640
            
            
            
            754
            
            
            
            3.49Total
      interest-bearing liabilities
            
            
            47,952
            
            
            
            476
            
            
            
            0.99
            
            
            
            49,581
            
            
            
            790
            
            
            
            1.59
            
            
            
            52,518
            
            
            
            1,212
            
            
            
            2.31Noninterest-bearing
      liabilities:Demand
      deposits
            
            
            13,248
            
            
            
            
            
            
            
            
            
            
            
            13,117
            
            
            
            
            
            
            
            
            
            
            
            13,885Other
            
            
            268
            
            
            
            
            
            
            
            
            
            
            
            388
            
            
            
            
            
            
            
            
            
            
            
            570Shareholders’
      equity
            
            
            7,917
            
            
            
            
            
            
            
            
            
            
            
            8,457
            
            
            
            
            
            
            
            
            
            
            
            8,328Total
            
            $
            69,385
            
            
            
            
            
            
            
            
            
            
            $
            71,543
            
            
            
            
            
            
            
            
            
            
            $
            75,301Net
      interest income
            
            
            
            
            
            $
            3,125
            
            
            
            
            
            
            
            
            
            
            $
            3,291
            
            
            
            
            
            
            
            
            
            
            $
            3,600Spread
            
            
            
            
            
            
            
            
            
            
            4.60
            %
            
            
            
            
            
            
            
            
            
            
            4.56
            %
            
            
            
            
            
            
            
            
            
            
            4.62
            %Net
      yield on interest-earning assets
            
            
            
            
            
            
            
            
            
            
            4.85
            %
            
            
            
            
            
            
            
            
            
            
            4.96
            %
            
            
            
            
            
            
            
            
            
            
            5.19
            %


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








Net
Interest Income





Net interest income is an effective
measure of how well management has balanced the Bank’s interest rate-sensitive
assets and liabilities.  Net interest income, the difference between
(a) interest and fees on interest-earning assets and (b) interest paid on
interest-bearing liabilities, is a significant component of the Bank’s
earnings.  Changes in net interest income result primarily from
increases or decreases in the average balances of interest-earning assets, the
availability of particular sources of funds and changes in prevailing interest
rates.





Net interest income totaled
approximately $3,125,000 in 2009, a decrease of approximately $167,000, or 5.07%
compared to 2008.  Net interest income totaled approximately
$3,291,000 in 2008, a decrease of approximately $309,000, or 8.58% compared to
2007.








18














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


2009 compared to 2008
            
            
            2008 compared to 2007Increase (decrease) due to
            
            
            Increase (decrease) due to(Dollars
      in thousands)
            
            Volume
            
            
            Rate
            
            
            Net
            
            
            Volume
            
            
            Rate
            
            
            NetInterest
      earned on:Loans
            
            $
            23
            
            
            $
            (319
            )
            
            $
            (296
            )
            
            $
            313
            
            
            $
            (494
            )
            
            $
            (181
            )Investment
      securities held-to-maturity
            
            
            23
            
            
            
            (31
            )
            
            
            (8
            )
            
            
            (122
            )
            
            
            (16
            )
            
            
            (138
            )Investment
      securities available-for-sale
            
            
            (40
            )
            
            
            (13
            )
            
            
            (53
            )
            
            
            (11
            )
            
            
            2
            
            
            
            (9
            )Interest-bearing
      deposits with other banks
            
            
            -
            
            
            
            (1
            )
            
            
            (1
            )
            
            
            -
            
            
            
            (8
            )
            
            
            (8
            )Federal
      funds sold
            
            
            (5
            )
            
            
            (117
            )
            
            
            (122
            )
            
            
            (117
            )
            
            
            (278
            )
            
            
            (395
            )Total
      Interest-earning assets
            
            
            1
            
            
            
            (481
            )
            
            
            (480
            )
            
            
            63
            
            
            
            (794
            )
            
            
            (731
            )Interest
      paid on:Demand
      deposits
            
            
            3
            
            
            
            (36
            )
            
            
            (33
            )
            
            
            2
            
            
            
            (51
            )
            
            
            (49
            )Savings
      deposits
            
            
            (4
            )
            
            
            (65
            )
            
            
            (69
            )
            
            
            (13
            )
            
            
            (171
            )
            
            
            (184
            )Time
      deposits
            
            
            -
            
            
            
            (212
            )
            
            
            (212
            )
            
            
            (22
            )
            
            
            (167
            )
            
            
            (189
            )Total
      interest-bearing liabilities
            
            
            ( 2
            )
            
            
            (312
            )
            
            
            (314
            )
            
            
            ( 33
            )
            
            
            (389
            )
            
            
            (422
            )Net
      interest income
            
            $
            2
            
            
            $
            (168
            )
            
            $
            (166
            )
            
            $
            96
            
            
            $
            (405
            )
            
            $
            (309
            )


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


In 2009, there was an increase in net
interest income of approximately $2,000 due to changes in volume but a decrease
of approximately $168,000 due to changes in rate.   In 2008,
there was an increase in net interest income of approximately $96,000 due to
changes in volume but a decrease of $405,000 due to changes in
rate.





In 2009,
average earning assets declined to approximately $64.4 million compared to
approximately $66.3 million in 2008 and approximately $69.4 million in
2007.   In addition, the net interest margin of the Bank declined
to 4.85% in 2009 from 4.96% in 2008 and 5.19% in 2007. The margin compression
was driven by the sharp reduction in the prime rate and the federal funds sold
rate to historical lows of 3.25% and 0.25%, respectively.  The average
federal funds yield fell to .24% in 2009 from 2.41% in 2008 and 5.10% in 2007.
The reduction in the Bank’s net interest income during 2009 is also related to
an increase in the level of non-accrual loans created by the “trickle down”
effect of the recessionary economy. Management continues to focus on growing its
core assets and reducing the level of nonaccrual loans to increase net interest
income.  In addition, rates on loan and deposit products continue to
be reviewed and modified to manage interest rate risk and minimize margin
compression.





The average yield on the investment
portfolio declined to 4.50% in 2009 compared to 4.90% in 2008 and 4.98% in 2007.
The decline in yield was the result of the call of higher yielding agency
securities that were replaced with lower yielding securities available in the
current market.  In addition, some of the Bank’s floating rate
mortgage-backed securities that had Treasury and LIBOR indices repriced in 2008
and 2009 in a lower interest rate environment.  The average yield is
projected to continue to decline as a result of the projected calls of higher
yielding agency securities and their replacement in the current low interest
rate environment as well as an increased prepayment rates due to a higher level
of foreclosures.





Provision
for Loan Losses





The provision for loan losses 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 loan losses, past loan loss experience, the general
economic outlook and other factors management feels are
appropriate.





The net provision for loan losses
charged against earnings in 2009 was $235,000 compared to $368,000 in 2008
and  $120,000 in 2007. The Bank’s provision is based on a review and
analysis of the loan portfolio, and is therefore subject to fluctuation based on
qualitative factors like delinquency trends, charge-offs, economic conditions,
concentrations, etc. Management monitors its credit quality closely by working
with borrowers in an effort to identify and control credit risk. Systematic
provisions are made to the allowance for loan losses to cover probable loan
losses in the portfolio.  Based on its analysis, management believes
the level of the allowance for loan losses is adequate as of December 31,
2009.Refer to the Allowance
for Loan Loss section below for further discussion/analysis of the Bank’s credit
quality.








19





Noninterest
Income





Noninterest income increased
approximately $104,000, or 8.58% compared to 2008;  and declined
approximately $111,000, or 8.44%, in 2008 compared to 2007.





The customer service fee component of
noninterest income reflects the volume of 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.  During 2009, customer service fees declined approximately
$65,000, or 11.72%, compared to 2008 and declined approximately $36,000, or
6.11%, compared to 2007.  In April 2009, the Bank re-activated and/or
escheated a number of dormant accounts for which it was collecting inactivity
and/or low balance fees that resulted in a reduction in customer
fees.




During 2009, surcharge income on the
Bank’s ATM network declined approximately $17,000, or 3.74%, compared to
2008.  During 2008, surcharge income on the Bank’s ATM network
remained flat compared to 2007 at approximately $454,000.  Many of the
Bank’s ATMs have experienced significant reductions in volume because
competitors have placed machines in close proximity to existing high volume ATMs
of the Bank. In addition, studies show that consumers continue to move towards
the use of non-cash payment systems including debit cards and credit
cards.  In 2008, management imposed a 50% increase in its surcharge
fee in attempt to offset the reduction in volume and stabilize the overall
profitability of the network.  Methods to reduce cost and increase
revenues associated with the ATM network continue to be evaluated.





Since 2002, the Bank has served as
arranger/agent for loan syndications for several major corporations throughout
the country.  In this capacity, the Bank arranges back-up
lines/letters of credit with other minority banks for which it receives
agent/administrative fees.  In 2009, these fees totaled $140,000
compared to $130,000 in 2008 and $120,000 in 2007. The Bank serves as
agent/arranger for two (2) facilities.  Fees on these facilities are
received annually for the administration of the credit
facilities.   Due to the turmoil in the capital/credit markets
and continued economic uncertainty, management does not anticipate significant
growth in this line of business.





In September 2009, the Bank received a
$165,500 Bank Enterprise Award (“BEA”) grant from the Community Development
Financial Institutions Fund of the US Treasury for small business lending
activity.  In 2007, the Bank was awarded $50,000 by the City of
Philadelphia to match a grant it had received from the Commonwealth of
Pennsylvania to support a loan program for small businesses and non-profit
organizations.





In 2007, the Bank sold a commercial
property it had assumed from a former loan customer in foreclosure that was
included in other real estate for a net gain of $24,000.  This gain is
included in other income.  There were no such sales in 2009 and
2008.





Noninterest
Expense





Noninterest expense decreased
approximately $38,000, or .79%, in 2009 compared to 2008 and increased
approximately $32,000, or 0.67%, in 2008 compared to 2007.




Salaries and benefits increased
approximately $50,000, or 3.19%, in 2009 compared to 2008 and decreased
approximately $69,000, or 4.26%, in 2008 compared to 2007.  The
increase in 2009 is related to the hiring of two new officers—Vice
President/Business Development and Vice President/Commercial Lending. Both of
these positions were deemed critical to increasing the Bank’s business
development opportunities to achieve profitability. Management continues to
review the organizational structure to maximize efficiencies and increase
business development activity.





Occupancy and equipment expense
decreased approximately $24,000, or 2.14%, in 2009 compared to 2008 and
increased approximately $103,000, or 10.08%, in 2008 compared to 2007. The
reduction in 2009 is attributable to lower depreciation expense as a result of
computer equipment and furniture becoming fully depreciated and a negotiated
reduction in Use and Occupancy Tax the Bank pays to the City of Philadelphia. In
addition, in September 2008, the Bank entered a new sublease for retail space it
leases at the Graham building which serves to offset its rent
expense.  During 2009, the Bank received a full year of rental income
from its sub-tenant.  The increases in 2007 and 2008 were primarily
attributable to branch improvements to enhance the Bank’s brand
appeal.  These leasehold improvements resulted in increased
depreciation expense in those years.






20







Office operations and supplies expense
decreased approximately $15,000, or 4.60%, in 2009 compared to 2008 and
decreased approximately $1,000, or 0.33%, in 2008 compared to 2007. The decrease
is primarily related to a reduction in courier expense as a result of the
movement to a new courier service for currency and coin delivery and a
streamlined delivery schedule.  Management continues to review all
office operations expenses including supplies, storage, security, etc. to
determine if additional expense reductions can be made.





Marketing and public relations expense
decreased approximately $48,000, or 45.68%, in 2009 compared to 2008 and
decreased approximately $17,000, or 13.90%, in 2008 compared to
2007.  All formal marketing in radio and print were curtailed during
2009 in favor of more direct outreach through office receptions and direct
calling by business development staff.





Professional services expense increased
approximately $10,000, or 3.90%, in 2009 compared to 2008 and decreased
approximately $12,500, or 4.87% in 2008 compared to 2007. The increase is
primarily related a higher level of accounting and audit fees.





Data processing expenses are a result
of the management’s decision 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.  The Bank experiences a higher level of
data processing expenses relative to its peer group because of the nature of its
deposit base--low average balance and high transaction volume.  In
addition, the Bank uses outside loan servicing companies to service its
mortgage, credit card, and student loan portfolios.  To better serve
its customers, the Bank also has an extensive ATM network of twenty-eight (28)
machines for which it pays processing fees.  This network is larger
than most banks in its peer group.





Data processing expenses increased
approximately $15,000, or 2.90%, in 2009 compared to 2008 and increased
approximately $57,000, or 12.48%, in 2008 compared to 2007. The increase partly
relates to an annual increase of 6% by the Bank’s core service
provider.  It is also related to the Bank’s ATM processing
expense—specifically, net interchange expense.  More Bank customers
are using non-proprietary ATMs for which the Bank is charged a fee versus
non-customers using the Bank’s ATM network for which it receives a
fee.  In September 2009, negotiations for contract extensions were
completed that resulted in a reduction in processing fees during the quarter
ended December 31, 2009.  The Bank also converted to an electronic
transmission of its items processing by utilizing “Check 21” technology and
branch capture processing that resulted in a reduction in its processing fees
for the quarter then ended.





Federal deposit insurance premiums
decreased approximately $56,000, or 36.52%, in 2009 compared to 2008 and
decreased approximately $1,400, or 0.91%, in 2008 compared to
2007.  Assessments are based on many factors including the Bank’s
deposit size and composition and its current regulatory ratings.  The
reduction in 2009 was the result of an improvement in the Bank’s regulatory
rating in December 2008 as well as lower deposit levels.  In February
2009, the FDIC adopted new rules, including a special assessment to stabilize
the Deposit Insurance Fund which, for the Bank, amounted to
$30,836.  However, because of the Bank’s improved regulatory rating,
this was more than offset by a decline in the Bank’s basic FDIC assessment.
(Refer to “The Federal Deposit
Insurance Act” above)





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






21





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
$1,933,000, or 2.92%, in 2009 compared to 2008 and decreased $3,120,000, or
4.49%, in 2008 compared to 2007.








Table
3—Sources and Use of Funds Trends


2009
            
            
            
            
            
            
            
            
            2008Increase
            
            
            
            
            
            
            
            
            IncreaseAverage
            
            
            (decrease)
            
            
            
            
            
            Average
            
            
            (decrease)(Dollars
      in thousands)
            
            balance
            
            
            amount
            
            
            Percent
            
            
            balance
            
            
            amount
            
            
            PercentFunding
      uses:Loans
            
            $
            48,568
            
            
            $
            369
            
            
            
            0.77
            %
            
            $
            48,199
            
            
            $
            4,525
            
            
            
            10.36
            %Investment
      securitiesHeld-to-maturity
            
            
            9,888
            
            
            
            522
            
            
            
            5.57
            
            
            
            9,366
            
            
            
            (2,551
            )
            
            
            (21.41
            )Available-for-sale
            
            
            2,211
            
            
            
            (829
            )
            
            
            (27.27
            )
            
            
            3,040
            
            
            
            (209
            )
            
            
            (6.43
            )Interest-bearing
      balances with other banks
            
            
            299
            
            
            
            7
            
            
            
            2.40
            %
            
            
            292
            
            
            
            11
            
            
            
            3.91Federal
      funds sold
            
            
            3,396
            
            
            
            (2,002
            )
            
            
            (37.09
            )
            
            
            5,398
            
            
            
            (4,896
            )
            
            
            (47.56
            )Total
      uses
            
            $
            64,362
            
            
            $
            (1,933
            )
            
            
            
            
            
            $
            66,295
            
            
            $
            (3,120
            )Funding
      sources:Demand
      deposits:Noninterest-bearing
            
            $
            13,248
            
            
            $
            131
            
            
            
            1.00
            %
            
            $
            13,117
            
            
            
            (768
            )
            
            
            (5.53
            )%Interest-bearing
            
            
            11,161
            
            
            
            325
            
            
            
            3.00
            
            
            
            10,836
            
            
            
            260
            
            
            
            2.46Savings
      deposits
            
            
            15,988
            
            
            
            (1,964
            )
            
            
            (10.94
            )
            
            
            17,952
            
            
            
            (2,350
            )
            
            
            (11.58
            )Time
      deposits
            
            
            20,803
            
            
            
            10
            
            
            
            0.05
            
            
            
            20,793
            
            
            
            (847
            )
            
            
            (
      3.91
            )Total
      sources
            
            $
            61,200
            
            
            $
            (1,498
            )
            
            
            
            
            
            $
            62,698
            
            
            $
            (3,705
            )








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 decreased
approximately $307,000, or 2.45%, in 2009 compared to 2008 and decreased
approximately $2.8 million, or 18.20%, in 2008 compared to 2007.  The
decrease in investments was primarily a result of called agency securities and
increased prepayment speeds of mortgage-backed securities.  The Bank's
current investment portfolio primarily consists of mortgage-backed pass-through
agency securities and other government-sponsored agency debt
securities.  The Bank does not invest in high-risk securities or
complex structured notes.  The most significant risk associated with
the Bank’s investments is “optionality” whereby callable debt securities are
called or the speeds at which mortgage-backed securities pay quicken creating
additional liquidity in a declining rate environment.  The result is a
reduction in yield on the portfolio.





As
reflected in Table 4 below, the average maturity of the portfolio is 1.50 years
in 2009 compared to 1.36 years in 2008. At December 31, 2009, 60% of the
investment portfolio consisted of callable agency securities for which the
duration shortened as a result of a high level of projected call activity in the
current low interest rate environment.  The remainder of the portfolio
consists of government sponsored agency (GSA) mortgage-backed pass-through
securities.  These securities do not have the same risk
characteristics of pooled subprime mortgages for which many financial
institutions have experienced valuation declines and losses.  The
payments of principal and interest on these pools of GSA loans are guaranteed by
these entities that bear the risk of default.  The Bank’s risk is
prepayment risk when defaults accelerate the repayment
activity.  These loans have longer-term con­tractual maturities
but are sometimes paid off/down before maturity or have repricing
characteristics that occur before final maturity.  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. 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 constant one
year prepayment rate (CPR) at December 31, 2009 increased to 21.00% compared to
13.20% at December 31, 2008.  Home foreclosures in the current
recessionary economy and lower interest rates results in increased prepayment
speeds; thereby, increasing the monthly cashflow from this segment of the
portfolio.






22





Management’s
goal is to maintain a portfolio with a relatively short duration to allow for
adequate cash flow to fund loan origination activity and to manage interest rate
risk.  The Bank will continue to take steps to control the level of
optionality in the portfolio by identifying replacement securities that
diversify risk and provide some level of monthly cash flow.








Table
4—Analysis of Investment Securities





Within
      one year
            
            
            After
      one but
              within
      five years
            
            
            After
      five but
              within
      ten years
            
            
            After
      ten years(Dollars
      in thousands)
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            TotalOther
      government securities
            
            $
            -
            
            
            
            -
            %
            
            $
            250
            
            
            
            4.08
            %
            
            $
            5,530
            
            
            
            3.83
            %
            
            $
            794
            
            
            
            3.06
            %
            
            $
            6,574Mutual
      funds and other
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            129Mortgage-backed
      securities
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            5,055Total
      securities
            
            $
            -
            
            
            
            
            
            
            $
            250
            
            
            
            
            
            
            $
            5,530
            
            
            
            
            
            
            $
            794
            
            
            
            
            
            
            $
            11,758Average
      maturity
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1.50 years





The above
table sets forth the maturities of investment securities at December 31, 2009
and the weighted average yields of such securities (calculated on the basis of
the cost and effective yields weighted for the scheduled maturity of each
security).


Loans





Average
loans increased approximately $369,000, or 0.77%, in 2009 compared to 2008 and
increased approximately $4,525,000, or 10.36%, in 2008 compared to 2007. The
growth was primarily concentrated in commercial real estate loans.  In
the current recessionary economic environment, the Bank continues to maintain
more stringent underwriting standards especially related to non-owner occupied
real estate lending.  Management has shifted its focus to small
business loans ranging from $50,000 to $250,000 for which credit enhancements
through the Small Business Administration or other loan guaranty programs may be
available.  The Bank has aligned itself with “feeder” entities (i.e.
Philadelphia Industrial Development Corporation, Department of Transportation,
etc.) that have loan guaranty programs.  In addition, management will
seek to identify and align with Small Business Development Centers of area
colleges and universities including University of Pennsylvania, Temple, Rutgers
and Widener.




As
reflected in Table 5 below, the Bank’s loan portfolio is concentrated in
commercial loans that comprise approximately $36.6 million, or 77%, of total
loans at December 31, 2009. Approximately $16.2 million of these loans are
secured by owner occupied commercial real estate that may serve to minimize the
risk of loss. The Bank continues to have a strong niche in lending to religious
organizations for which total loans at December 31, 2009 were $14.6 million, or
39.9%, of the commercial portfolio. In light of the economic uncertainty and the
potential “trickle down” effect that may impact the level of tithes and
offerings that provide cash flow for repayment, management has heightened its
monitoring of this concentration to proactively identify and manage credit
risk.





As
reflected in Table 6 below, approximately 43.96% of the Bank’s loan portfolio
has scheduled maturities or repricing in five years or more.  This
position is largely a result of the relatively high level of loans in the
commercial real estate portfolio that typically have five to seven year balloon
structures.  While scheduled maturities and repricing exceed five
years, the actual duration of the portfolio may be much shorter because of
changes in market conditions and refinancing activity.






23





Table
5—Loans Outstanding, Net of Unearned Income





December 31, 2009(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Commercial
      and industrial
            
            $
            4,066
            
            
            $
            4,286
            
            
            $
            4,463
            
            
            $
            5,323
            
            
            $
            4,544Commercial
      real estate
            
            
            32,582
            
            
            
            32,199
            
            
            
            28,640
            
            
            
            27,016
            
            
            
            28,441Residential
      mortgages
            
            
            5,313
            
            
            
            6,110
            
            
            
            6,549
            
            
            
            5,551
            
            
            
            7,546Consumer
      loans
            
            
            5,626
            
            
            
            6,068
            
            
            
            5,532
            
            
            
            4,628
            
            
            
            5,891Total
      loans
            
            $
            47,587
            
            
            $
            48,663
            
            
            $
            45,184
            
            
            $
            42,518
            
            
            $
            46,422





Table
      6—Loan Maturities and Repricing(Dollars
      in thousands)
            
            Within
              one year
            
            
            After
      one but
              within five years
            
            
            After
              five years
            
            
            TotalCommercial
      and industrial
            
            $
            2,484
            
            
            $
            1,185
            
            
            $
            397
            
            
            $
            4,066Commercial
      real estate
            
            
            4,808
            
            
            
            13,876
            
            
            
            13,898
            
            
            
            32,582Residential
      mortgages
            
            
            752
            
            
            
            52
            
            
            
            4,509
            
            
            
            5,313Consumer
      loans
            
            
            3,268
            
            
            
            239
            
            
            
            2,119
            
            
            
            5,626Total
      loans
            
            $
            11,312
            
            
            $
            15,352
            
            
            $
            20,923
            
            
            $
            47,587Loans
      maturing after one year with:Fixed
      interest rates maturing after one year
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            6,843Variable
      interest rates maturing after one year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,432








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





(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Nonaccrual
      loans
            
            $
            3,783
            
            
            $
            1,701
            
            
            $
            745
            
            
            $
            626
            
            
            $
            683Impaired
      loans
            
            
            3,581
            
            
            $
            2,531
            
            
            
            1,745
            
            
            
            896
            
            
            
            386Interest
      income on nonaccrual loans included in net income for the
    year
            
            
            219
            
            
            
            9
            
            
            
            35
            
            
            
            39
            
            
            
            37Interest
      income that would have been recorded under original terms
            
            
            195
            
            
            
            121
            
            
            
            65
            
            
            
            51
            
            
            
            56Interest
      income recognized on impaired loans
            
            
            37
            
            
            
            64
            
            
            
            112
            
            
            
            76
            
            
            
            37Loans
      past due 90 days and still accruing
            
            
            370
            
            
            
            578
            
            
            
            1,067
            
            
            
            170
            
            
            
            -Troubled
      Debt Restructured loans
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





At
December 31, 2009, nonaccrual loans totaled approximately $3.8 million compared
to approximately $1.7 million at December 31, 2008 as some of the Bank’s
borrowers have been adversely affected by the downturn in the economy that has
resulted in a reduction in their cashflow—the “trickle down”
effect.  Non-accrual loans primarily include commercial loans with SBA
guarantees or strong loan-to-value ratios that help to mitigate potential
losses. Management is actively working with these borrowers to develop suitable
repayment plans.
   24


Impaired
loans totaled approximately $3,581,000 at December 31, 2009 compared to
$2,531,000 at December 31, 2008.  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
increase is primarily concentrated in several significant commercial real estate
loans.  The valuation allowance associated with these loans was
$187,000 and $97,000, at December 31, 2009 and 2008, respectively and included
in the overall allowance for loan and lease losses .  The allowance
was determined based on careful review and analysis including collateral
liquidation values and/or guarantees and is deemed adequate to cover shortfalls
in loan repayment    Management is working aggressively to
resolve the potential credit risk associated with its impaired loans by
detailing specific payment requirements in forbearance
agreements.  Requirements might also include the sale of underlying
collateral or obtaining take-out financing.





Interest
income recognized on impaired loans during the year ended December 31, 2009 and
2008 was $37,000 and $64,000, 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.





Management may 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.  At December 31, 2009 and 2008, there were no restructured
loans.





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, 2009, approximately
39.9% 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 are primarily for expansion and repair of church
facilities.  At December 31, 2009, several of these loans are showing
signs of weakness and are included in the Bank’s classified loans and analysis
of allowance for loan losses.  The Bank is actively managing these
credits to avoid any further deterioration in asset quality.





Allowance
for Loan Losses





The allowance for loan losses reflects
management’s continuing evaluation of the loan portfolio.  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, 2009 and 1.21% at December
31, 2008. Systematic provisions are made to the allowance for loan losses in
accordance with a detailed periodic analysis.  This analysis includes
specific reserves allocated to classified and impaired loans based on underlying
recovery values as well as a general reserve for the portfolio based on many
factors including charge-off history, migration analysis, economic conditions,
concentrations of credit risk and other relevant data.  Although the
level of impaired loans totaled $3,783,000, or 520% of the allowance for loan
losses, significant reserves/provisions were not required because of the
strength of the liquidation value of underlying collateral. (Refer to Nonperforming Loans
discussion above.)





Table
8—Allocation of Allowance for Loan Losses





2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Percent
                of
      loans
                in
      each
                category
                to
              
              
              
              
              
              Percent
                of
      loans
                in
      each
                category
                to
              
              
              
              
              
              Percent
                of
      loans
                in
      each
                category
                to
              
              
              
              
              
              Percent
                of
      loans
                in
      each
                category
                to
              
              
              
              
              
              Percent
                of
      loans
                in
      each
                category
                toAmount
              
              
              Total loans
              
              
              Amount
              
              
              total loans
              
              
              Amount
              
              
              total loans
              
              
              Amount
              
              
              total loans
              
              
              Amount
              
              
              total loans(Dollars
      in thousands)Commercial
      and industrial
              
              $
              324
              
              
              
              8.54
              %
              
              $
              282
              
              
              
              8.81
              %
              
              $
              517
              
              
              
              9.88
              %
              
              $
              362
              
              
              
              12.52
              %
              
              $
              267
              
              
              
              9.79
              %Commercial
      real estate
              
              
              298
              
              
              
              68.47
              
              
              
              210
              
              
              
              66.17
              
              
              
              28
              
              
              
              63.38
              
              
              
              140
              
              
              
              63.54
              
              
              
              66
              
              
              
              61.27Residential
      mortgages
              
              
              38
              
              
              
              11.17
              
              
              
              33
              
              
              
              12.56
              
              
              
              8
              
              
              
              14.49
              
              
              
              22
              
              
              
              13.06
              
              
              
              17
              
              
              
              16.25Consumer
      loans
              
              
              65
              
              
              
              11.82
              
              
              
              62
              
              
              
              12.47
              
              
              
              37
              
              
              
              12.25
              
              
              
              37
              
              
              
              10.88
              
              
              
              79
              
              
              
              12.69Unallocated
              
              
              2
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              4
              
              
              
              -$
              727
              
              
              
              100.00
              %
              
              $
              587
              
              
              
              100.00
              %
              
              $
              590
              
              
              
              100.00
              %
              
              $
              561
              
              
              
              100.00
              %
              
              $
              472
              
              
              
              100.00
              %








25





Management believes that the allowance
for loan losses is adequate at December 31, 2009.  While available
information is used 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





Year ended December 31,(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Balance
      at January 1
            
            $
            587
            
            
            $
            590
            
            
            $
            561
            
            
            $
            472
            
            
            $
            603Charge-offs:Commercial
      and industrial
            
            
            (22
            )
            
            
            (464
            )
            
            
            (91
            )
            
            
            (70
            )
            
            
            (762
            )Commercial
      real estate
            
            
            (62
            )
            
            
            (4
            )
            
            
            -
            
            
            
            -
            
            
            
            -Residential
      mortgages
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer
      loans
            
            
            (57
            )
            
            
            (51
            )
            
            
            (139
            )
            
            
            (202
            )
            
            
            (219
            )(141
            )
            
            
            (519
            )
            
            
            (230
            )
            
            
            (272
            )
            
            
            (981
            )Recoveries—commercial
      loans
            
            
            2
            
            
            
            107
            
            
            
            92
            
            
            
            57
            
            
            
            165Recoveries—consumer
      loans
            
            
            44
            
            
            
            41
            
            
            
            46
            
            
            
            168
            
            
            
            12746
            
            
            
            148
            
            
            
            138
            
            
            
            225
            
            
            
            292Net
      recoveries (charge-offs)
            
            
            (95
            )
            
            
            (371
            )
            
            
            (91
            )
            
            
            (47
            )
            
            
            (689
            )Provisions
      charged to operations
            
            
            235
            
            
            
            368
            
            
            
            120
            
            
            
            137
            
            
            
            558Balance
      at December 31
            
            $
            727
            
            
            $
            587
            
            
            $
            590
            
            
            $
            561
            
            
            $
            472Ratio
      of net (recoveries) charge-offs to average loans
    outstanding
            
            
            0.20
            %
            
            
            0.77
            %
            
            
            0.21
            %
            
            
            0.10
            %
            
            
            1.50
            %





Deposits





Average
deposits declined approximately $1,498,000, or 2.39%, in 2009 compared to 2008
and declined approximately $3,705,000, or 5.58%, in 2008 compared to 2007. In
2009, savings account balances for which the Bank once offered premium interest
rates declined by $1,964,000, or 10.94%, compared to 2008.  With
increased competition in the region as well as declining interest rates, the
Bank is no longer able to utilize rates to attract deposits. Also, during the
current recession, deposit attrition has occurred as a result of increased
liquidity needs of customers.




Management
continues to seek to distinguish the Bank as a community development bank
through which corporations in the region can work collaboratively to impact
community.  Placing deposits in the Bank provides the necessary funds
for small business loans that improve the financial capacity of these businesses
and result in job creation.  Therefore, management continues to focus
its marketing efforts on large corporations headquartered or doing business in
the region to drive deposit growth. Management has identified and been calling
directly on corporations in the region to request core depository relationships
to support its small business lending strategies. Significant corporate
relationships generally have long lead times to move beyond the “introduction”
phase to a full depository relationship.  However, several entities in
the region have communicated the desire to support the Bank with
deposits.




The
Bank has approximately $12.4 million in certificates of deposit with balances of
$100,000 or more, of which approximately $8 million, or 66%, are with
governmental or quasi-governmental entities that have a long history with the
Bank and are considered stable/core relationships. Based on discussions with
these entities, no further reduction in certificates held is
anticipated.








26










Table
10—Average Deposits by Class





2009
            
            
            2008
            
            
            2007(Dollars
      in thousands)
            
            Amount
            
            
            Rate
            
            
            Amount
            
            
            Rate
            
            
            Amount
            
            
            RateNoninterest-bearing
      demand deposits
            
            $
            13,248
            
            
            
            -
            %
            
            $
            13,117
            
            
            
            -
            %
            
            
            13,885
            
            
            
            -
            %Interest-bearing
      demand deposits
            
            
            11,161
            
            
            
            0.80
            
            
            
            10,836
            
            
            
            1.12
            
            
            
            10,576
            
            
            
            1.61Savings
      deposits
            
            
            15,988
            
            
            
            0.21
            
            
            
            17,952
            
            
            
            0.57
            
            
            
            20,302
            
            
            
            1.42Time
      deposits
            
            
            20,803
            
            
            
            1.70
            
            
            
            20,793
            
            
            
            2.72
            
            
            
            21,640
            
            
            
            3.49








Other
Borrowed Funds





The Bank did not borrow funds during
2009.  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. The Bank’s contingent funding
source is the Discount Window at the Federal Reserve Bank for which it currently
has $1.75 million in securities pledged that result in borrowing capacity of
$1.5 million.





Off
Balance Sheet Arrangements





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:


2009
            
            
            2008Commitments
      to extend credit
            
            $
            8,558,100
            
            
            $
            10,968,300Outstanding
      letters of credit
            
            
            -
            
            
            
            -





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.  The decrease in commitments at December 31, 2009 is primarily
related to the completion and term out of several construction loans that were
in process at December 31, 2009. Management believes the Bank has adequate
liquidity to support the funding of unused commitments.





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
must maintain minimum levels of liquid assets.  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, 2009, management believes the Bank’s
liquidity is satisfactory.






27







The
Bank's principal sources of asset liquidity include investment securities
consisting principally of U.S. Government and agency issues, particularly those
of shorter maturities, and mortgage-backed securities with monthly repayments of
principal and interest.  Other types of assets such as federal funds
sold, as well as maturing loans, are also sources of
liquidity.  Approximately $10.6 million in loans are scheduled to
mature within one year.





By
policy, the Bank’s minimum level of liquidity is 6.00% of total
assets.  At December 31, 2009, the Bank had total short-term
liquidity, including cash and federal funds sold, of approximately $6.3 million,
or 9.21%, of total assets compared to approximately $5.5 million, or 7.87%, at
December 31, 2008.  The increase in liquidity is primarily related to
a widely fluctuating deposit relationship with a non-profit entity and its
funding patterns.  Therefore, the increase is considered temporary. In
December 2009, the Bank’s liquidity was negatively impacted by the requirement
to prepay four years  of FDIC insurance premiums to stabilize the
insurance fund.  This prepayment was approximately
$535,000.





The portion of the Bank’s
investment portfolio classified as available-for-sale could also provide
liquidity. However, the majority of these securities are pledged as collateral
for deposits of governmental/quasi-governmental agencies as well as the Discount
Window at the Federal Reserve Bank.  Therefore, they are restricted
from use to fund loans or to meet other liquidity requirements.  To
ensure the ongoing adequacy of liquidity, the following strategies will be
utilized in order of priority:






            Seek
      additional non-public deposits from new and existing private sector
      customers


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





While
management continues to seek additional non-public core deposits to support
ongoing loan demand, liquidity levels have been adequate.  As a
result, it was not necessary to sell loan participations to other
institutions.





The
Bank’s contingent funding sources  include the Discount Window at the
Federal Reserve Bank for which it currently has $1.75 million in securities
pledged that result in borrowing capacity of $1.5 million. This arrangement
replaced a fully secured $2 million Federal Funds Purchased line of credit the
Bank had with its correspondent bank.  Liquidity will continue to be
closely monitored and managed to minimize risk and ensure that adequate funds
are available to meet daily customer requirements and loan demand.





The Bank’s overall liquidity has been
enhanced by a high 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.  These deposits include $8 million in
deposits of governmental and quasi-governmental organizations that have
short-term maturities.  All are expected to continue to renew at
maturity as they have for more than 10 years.




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


(Dollars
      in thousands)3
      months or less
            
            $
            9,061Over
      3 through 6 months
            
            
            934Over
      6 months through 1 year
            
            
            2,372Over
      1 through five years
            
            
            -Over
      five years
            
            
            -Total
            
            $
            12,367








28














The following table sets forth
contractual obligations and other commitments representing required and
potential cash outflows as of December 31, 2009:





Table
12—Contractual Obligations and Other Commitments





(Dollars
      in thousands)
            
            Total
            
            
            Less
      than one year
            
            
            One
      to three years
            
            
            Four
      to five years
            
            
            After
      five yearsCertificates
      of Deposit
            
            $
            20,785
            
            
            $
            19,804
            
            
            $
            649
            
            
            $
            273
            
            
            $
            59Operating
      Lease Obligations
            
            
            3,183
            
            
            
            439
            
            
            
            1,378
            
            
            
            482
            
            
            
            884Total
            
            $
            23,968
            
            
            $
            20,243
            
            
            $
            2,027
            
            
            $
            755
            
            
            $
            943





In August 2005, the Bank assumed the
remaining term from another financial institution of a lease for retail space on
the ground level of the Graham Building that expired in 2009.  The
Bank simultaneously subleased this space to another company with the exception
of the lobby in which its automated teller machine (ATM) is
located.   In September 2009, at expiration of the sublease, the
Bank amended its corporate office lease to include this retail space for which
the term will be co-terminus. The Bank’s average aggregate gross monthly rental
is $7,500. This transaction is reflected in the Bank’s long-term operating lease
obligations noted above.





In April 2008, the Bank began a 10-year
lease for a new branch with increased visibility in the Progress Plaza shopping
center.  The lease requires annual rental payments of $66,482 for
years 1-5 and $75,431 for Years 5-10.  This transaction is reflected
in the Bank’s long-term operating lease obligations noted above.





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 13 sets forth the
earliest repricing distribution of the Bank’s interest-earning assets and
interest-bearing liabilities at December 31, 2009, 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, 2009, an asset-sensitive position is maintained on a cumulative
basis through one year of 5.95%.  Generally, because of the positive
gap position of the Bank, in shorter time frames, the Bank can anticipate that
increases in market rates will have a positive impact on the net interest
income, while decreases will have the opposite effect.  Although
increasing, this level is well within the Bank’s policy guidelines of +/-15% on
a cumulative one-year basis.    In the current low interest
rate environment, this positive gap position creates margin
compression.  Management has minimized the impact by shifting excess
funds to commercial loan originations that are fixed for at least five years and
reducing the interest rates it pays on its premium savings and interest-bearing
deposit products.





For purposes of the gap analysis, 50%
of 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.








29










Table
13—Interest Sensitivity Analysis


Interest rate sensitivity gaps as of December 31,
      2009(Dollars
      in thousands)
            
            3
      months or less
            
            
            Over
      3 through 12 months
            
            
            Over
      1 year Through 3
years
            
            
            Over
      3 through 5 years
            
            
            Over
      5 years
            
            
            CumulativeInterest-sensitive
      assets:Interest-bearing
      deposits with banks
            
            $
            -
            
            
            $
            303
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            303Investment
      securities
            
            
            4,208
            
            
            
            1,593
            
            
            
            741
            
            
            
            594
            
            
            
            4,569
            
            
            
            11,705Federal
      funds sold
            
            
            3,491
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,491Loans
            
            
            15,369
            
            
            
            11,155
            
            
            
            6,409
            
            
            
            3,363
            
            
            
            8,154
            
            
            
            44,450Total
      interest-sensitive assets
            
            
            23,068
            
            
            
            13,051
            
            
            
            7,150
            
            
            
            3,957
            
            
            
            12,723
            
            
            $
            59,949Cumulative
      totals
            
            
            23,068
            
            
            
            36,119
            
            
            
            43,269
            
            
            
            47,226
            
            
            
            59,949Interest-sensitive
      liabilities:Interest
      checking accounts
            
            
            1,966
            
            
            
            -
            
            
            
            1,966
            
            
            
            -
            
            
            
            -
            
            
            
            3,932Savings
      accounts
            
            
            10,780
            
            
            
            -
            
            
            
            10,780
            
            
            
            -
            
            
            
            -
            
            
            
            21,560Certificates  $100,000
      or more
            
            
            9,061
            
            
            
            3,306
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,367Certificates
      of less than $100,000
            
            
            2,842
            
            
            
            4,594
            
            
            
            649
            
            
            
            332
            
            
            
            -
            
            
            
            8,417Total
      interest-sensitive liabilities
            
            $
            24,649
            
            
            $
            7,900
            
            
            $
            13,395
            
            
            $
            332
            
            
            $
            -
            
            
            $
            46,276Cumulative
      totals
            
            $
            24,649
            
            
            $
            32,549
            
            
            $
            45,944
            
            
            $
            46,276
            
            
            $
            46,276Interest
      sensitivity gap
            
            $
            (1,581
            )
            
            $
            5,151
            
            
            $
            (6,245
            )
            
            $
            1,130
            
            
            $
            12,723Cumulative
      gap
            
            
            (1,581
            )
            
            
            3,570
            
            
            
            (2,675
            )
            
            
            950
            
            
            
            13,673Cumulative
      gap/total earning assets
            
            
            (2.64
            )%
            
            
            5.95
            %
            
            
            (4.46
            %)
            
            
            1.58
            %
            
            
            22.81
            %Interest-sensitive
      assets to interest-sensitiveLiabilities
            
            
            0.93
            
            
            
            1.65
            
            
            
            0.95
            
            
            
            11.92
            
            
            
            -
            
            
            
            -


Core
deposits such as checking and savings deposits have been placed in repricing
intervals based on historical trends and management’s
estimates.  Nonaccrual loans are not included in the
interest-sensitive asset totals.




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 interest income or “earnings” at risk at December
31, 2009 are as follows:











30














Net
      interest
            
            
            Percent
      ofChanges in rate
            
            income
            
            
            risk(Dollars
      in thousands)+200
      basis points
            
            $
            3,024
            
            
            
            1.31
            %+100
      basis points
            
            
            3,013
            
            
            
            0.94Flat
      rate
            
            
            2,985
            
            
            
            --100 basis
      points
            
            
            2,918
            
            
            
            (2.24
            )-200 basis
      points
            
            
            2,736
            
            
            
            (8.34
            )











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, 2009 are as
follows:








MV
      of equityChanges in rate
            
            MV equity
            
            
            Risk change(Dollars
      in thousands)+200
      basis points
            
            $
            5,312
            
            
            
            (20.00
            )%+100
      basis points
            
            
            6,000
            
            
            
            (9.60
            )Flat
      rate
            
            
            6,639
            
            
            
            --100 basis
      points
            
            
            7,081
            
            
            
            6.70-200 basis
      points
            
            
            7,539
            
            
            
            13.60








The
market value of equity may be impacted by the composition of the Bank’s assets
and liabilities.  A shift in the level of variable versus fixed rate
assets creates swings in the market value of equity.  The Bank’s
market value of equity declines in a rising rate environment because of the high
level of fixed rate loans and investments it has in its portfolio that do not
follow market rate changes or re-price immediately. At December 31, 2009, the
change in the market value of equity in a +200 basis point interest rate change
is 26.7%, in excess of the Bank’s policy limit of 25%.  Management
will seek to mitigate this risk by originating more variable rate loans and/or
purchasing floating rate mortgage-backed securities.





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.  In today’s uncertain economic times, the result of the Bank’s
simulation models is even more uncertain.





The
Bank’s Board of Directors and management consider all of the relevant factors
and conditions in the asset/liability planning process.  Based on the
results of the simulation models, with the exception of the market value
measure, interest-rate exposure is not considered significant and is within the
policy limits of the Bank on all other measures at December 31,
2009.  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.






31








Capital
Resources





Total
shareholders’ equity declined approximately $518,000, or 6.44%, in 2009 compared
to 2008 and declined approximately $636,000 in 2009 compared to 2008. The
decrease in capital in 2009 is attributable to a net loss of approximately
$545,000 offset by other comprehensive income related to an increase in the
unrealized gain on the securities classified as available-for-sale.




The
Company will seek to maintain the requisite minimum regulatory capital levels by
internal capital generation (retained earnings) and by monitoring its asset
growth.  Management submitted applications for funding through US
Treasury programs available to Community Development Financial Institutions
(“CDFIs”) to support growth and provide a “cushion” for unforeseen economic
events that may negatively impact the Bank’s capital position.  In
August 2009, the Bank received a notification of award of a $165,500 Bank
Enterprise Award (“BEA”) grant from the US Treasury CDFI Fund.





Federal
and state banking laws impose on financial institutions such as USB and the Bank
certain minimum requirements for capital adequacies.  The Company and
the Bank are each generally required to maintain a minimum ratio of total
capital to risk rated assets of 8%.  At least half of the total
capital must be composed of “Tier I Capital” which is defined as common equity,
retained earnings and qualified perpetual preferred stock, less certain
intangibles.  The remainder may consist of “Tier II Capital” which is
defined as specific subordinated debt, some hybrid capital instruments and other
qualifying preferred stock and a limited amount of loan loss
allowance.  Also, federal banking regulatory agencies have established
minimum leverage capital requirements for banking
organizations.  Under these requirements, banking organizations must
maintain a minimum of Tier I Capital to adjusted average quarterly assets equal
to 3% to 5%, subject to bank regulatory evaluation of an organization’s overall
safety and soundness.  Under the federal banking regulations, a
financial institution would be deemed to “adequately capitalized” or better if
it exceeds the minimum federal regulatory capital requirements.  A
financial institution would be deemed “undercapitalized” if it fails to meet the
minimum capital requirements and significantly undercapitalized if it has a
total risk base capital ratio that is less than 6%, Tier I risk base capital
ratio is less than 3%, or a leverage ratio that is less than 3% and “critically
undercapitalized” if the institution has a ratio of tangible equity to total
assets that is equal to less than 2%.  USB and the Bank are
“well-capitalized” for regulatory capital purposes.  See Table 14
below for more information regarding USB’s regulatory capital
ratios.





As
indicated in Table 14, UBS’ risk-based capital ratios are above the minimum
requirements, however, the Bank’s growth and operating results may have an
adverse effect on its capital ratios.  UBS and the Bank do not
anticipate paying dividends in the near future.







Table
14—Capital Ratios


(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007Total
      Capital
            
            $
            7,531
            
            
            $
            8,050
            
            
            $
            8,685Less:
      Intangible Assets/Net unrealized   gains (losses) on
      available forsale
            
            
            (720
            )
            
            
            (872
            )
            
            
            (1,026
            )Tier
      I capital
            
            
            6,811
            
            
            
            7,178
            
            
            
            7,659Tier
      II capital
            
            
            596
            
            
            
            587
            
            
            
            571Total
      qualifying capital
            
            $
            7,407
            
            
            $
            7,765
            
            
            $
            8,230Risk-adjusted
      total assets (including off-balance-sheet exposures)
            
            $
            47,569
            
            
            $
            46,862
            
            
            $
            45,667Tier
      I risk-based capital ratio
            
            
            14.32
            %
            
            
            15.32
            %
            
            
            16.77
            %Total
      (Tier I and II) risk-based capital ratio
            
            
            15.57
            
            
            
            16.57
            
            
            
            18.02Tier
      I leverage ratio
            
            
            10.08
            
            
            
            10.27
            
            
            
            10.34





ITEM7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
quantitative and qualitative disclosures about market risks are included in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in the following sections:  Liquidity and Interest Rate
Sensitivity Management, Net Interest Income, Provision for Loan Losses,
Allowance for Loan Losses, Liquidity and Interest Rate Sensitivity Management,
Non-Interest Income, Non-Interest Expense, Non-Performing Loans, and Off Balance
Sheet Arrangements.







32







ITEM8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





See Consolidated Financial Statements
on pages 48 to 76 hereof.





ITEM9 — CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS


ON
ACCOUNTING AND FINANCIAL DISCLOSURE





There
were no changes in or disagreements with accountants on accounting and financial
disclosure during the year ended December 31, 2009.





ITEM9A(T)—CONTROLS AND PROCEDURES





(a)
Evaluation of Disclosure Controls and Procedures.




The
management of the Company, including the Chief Executive Officer and the Chief
Financial Officer, has conducted an evaluation of the effectiveness of the
Company’s disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934 as of the end of the period covered by this
Report (the “Evaluation Date”). Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that, as of the Evaluation
Date, the Company’s disclosure controls and procedures were effective in
ensuring that all material information relating to the Company, including our
consolidated subsidiary, required to be filed in this Report has been made known
to them in a timely manner.




(b)
Management’s Report on Internal Control Over Financial Reporting.




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision and with the
participation of principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on our evaluation under the framework,
management has concluded that our internal control over financial reporting was
effective as of December 31, 2009.




Management’s
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2009 has not been attested to by McGladrey & Pullen, LLP,
an independent registered public accounting firm, as stated in their report
which is included herein.  The effectiveness of our internal controls
over financial reporting was not subject to attestation by the Bank’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Bank to provide only management’s report in this document.




(c)
Changes in Internal Control Over Financial Reporting.




There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the final fiscal quarter of the year to which this Report
relates that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.




ITEM9B—OTHER INFORMATION





A
shareholders’ annual meeting of UBS was held on December 11,
2009.  Proxies for the annual meeting were solicited pursuant to
Regulation 14A of the Exchange Act and there were no solicitation in opposition
to the management’s nominees as listed in the proxy statement and all such
nominees were elected.





The matters voted upon at the
shareholders’ annual meeting of UBS were the reelection of one (1)
Class B director to serve a four year term and the ratification of the
appointment of McGladrey and Pullen LLP as UBS’ independent registered public
accountants for the year 2009.





The votes cast at the meeting for the
election of directors, for, against or withheld, as well as a number of absentee
and non-broker votes as to each matter voted upon at the meeting, including a
separate tabulation with respect to each nominee for office is as
follows:





33








52.197%
      Shares Voted
            456,215.16
      of 874,025.32 Shares13.024%
      Accounts Voted
            410
      of 3,148 Accounts





Question
            YES
            NO
            WITHHOLD/ABSTAINMaurice
      R. Mitts
              (CLASS
      B)
            99.076%
              451,999.16
            0.00%
              0.00
            0.92%
              4,216.00Ratify
      McGladrey and Pullen, LLP
            93.254%
              425,439.83
            0.325%
              1,483.33
            6.421%
              29,292.00





PART III





ITEM10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The following table sets forth certain
biographical information.  Other than as indicated below, each of the
persons named below has been employed in their present principal occupation for
the past five years.





(a)         Directors of the Registrant
and Bank





Principal
      occupation and
            Year
      first
            TermName
            Age
            other directorships
            became director
            will expireBernard
      E. Anderson
            71
            Economist
            2002
            2010Philadelphia,
      PADavid
      R. Bright
            70
            Retired,
      Executive Vice PresidentMeridian
      Bancorp
            2002
            2010Philadelphia,
      PAJoseph
      T. Drennan
            64
            Chief
      Financial Officer
            2004
            2010Universal
      Capital Management, Inc.Wilmington,
      DEL.
      Armstead Edwards
            67
            Chairman
      of the Board,
            1993
            2008United
      Bancshares, Inc.Owner
      and President,Edwards
      Entertainment., Inc.Philadelphia,
      Pennsylvania





Marionette
      Y. Wilson(Frazier)
            65
            Retired
      as co-Founder,
            1996
            2008John
      Frazier, Inc.Philadelphia,
      PennsylvaniaMaurice
      R. Mitts
            48
            Founder/Partner,
            2008
            2010Mitts
      Milavec, LLP, Attorney at LawPhiladelphia,
      PennsylvaniaWilliam
      B. Moore
            67
            Vice
      Chairman of the Board,United
      Bancshares, Inc.Pastor,
      Tenth Memorial
            1993
            2011Baptist
      ChurchPhiladelphia,
      Pennsylvania








34








Principal
      occupation and
            Year
      first
            TermName
            Age
            other
      directorships
            became
      director
            will
      expireEvelyn
      F. Smalls
            64
            President
      and CEO of Registrant
            2000
            2011and
      United Bank of PhiladelphiaErnest
      L. Wright
            81
            Founder,
      President and
            1993
            2008CEO
      of Ernest L. WrightConstruction
      CompanyPhiladelphia,
      Pennsylvania





(b)         Executive Officers of
Registrant and Bank





Name
            Age
            OfficeEvelyn
      F. Smalls
            64
            President
      and Chief Executive OfficerBrenda
      M. Hudson-Nelson
            48
            Executive
      Vice President/Chief Financial
Officer





BOARD
OF DIRECTORS QUALIFICATIONS





United
Bank of Philadelphia has a very engaged and committed Board of
Directors.  The board takes its governance responsibilities very
seriously and challenges management to meet its targeted goals and
objectives.  Currently, the board has eight (8) outside directors and
one (1) insider.  This leadership group has diverse experiences in
business, banking, and community development that are important to fulfill their
oversight responsibilities.





L. Armstead Edwards serves as
Chairman and is one of
two remaining founding members currently active on the board.  Mr.
Edwards spent a number of years as an educator and small business
owner.  He understands the plight of small business owners and
combined with his experience in organizational dynamics, he brings a unique
perspective to the role.  He chairs the Executive Committee and serves
on the Asset Liability, Loan and Audit/Compliance Committees.  Mr.
Edwards has encouraged deliberations to take place at the committee level so the
board meeting can focus more on strategic initiatives and engage management on
execution and performance measures.





Rev. William B. Moore is a
founding member of the board and serves as Vice Chairman and is a member
of the Executive and Audit/Compliance Committees.  The Chairman and
Vice Chairman alternate in leading the board meetings.  Rev. Moore has
a rich history in the faith community and has been the Senior Pastor of Tenth
Memorial Baptist Church for over 30 years. He serves as a strong catalyst in
rallying the faith community to support the Bank which is evidenced with the
high percentage of loans to churches in the loan portfolio.  Rev.
Moore also leads an informal Advisory Group of Pastors who offer advice to the
Bank’s management regarding the financial needs of the urban community to
continue to bridge the economic divide in the region.  As a former
executive with a quasi-governmental agency, he has a broad based consistency and
is very effective in building multi-sector coalitions to ensure economic
inclusion.





Joseph T. Drennan,a director
since 2002, serves as Treasurer
of the Board and is Chairman of the Audit/Compliance Committee and member
of the Executive and Asset Liability committees.  In addition, he has
expertise in generally accepted accounting principles, financial statements, and
internal control over financial reporting, as well as an understanding of audit
committee functions.  Mr. Drennan has over 30 years banking experience
as an executive in commercial, consumer and strategic
planning.  Currently, he is a partner in Universal Capital Management,
Inc. providing equity to start-up and emerging companies.





Marionette Y. Wilson a
director since 1993 serves as Secretary of the Boardand
member of the Executive and Asset Liability Committees.  Prior to her
retirement, Ms. Wilson was co-founder of a construction management company and
her expertise in this area is very helpful as the Bank works to provide
financing to emerging contractors in the region.  In addition, she is
a leader in the faith community and has been instrumental in directing
relationships to the Bank.






35








Evelyn F. Smalls serves as an
inside director since 2000 when she was appointed President and Chief Executive
Officer of the Bank.  She serves on the Executive, Asset
Liability and Loan Committees.  Ms. Smalls brings versatile skills
with over 25 years experience in banking and community and economic development
know-how.  Her leadership is propelled by her passion to move more
inner city communities into the economic mainstream.





David R. Bright a retired Bank
President has a rich history in commercial lending and credit
administration.  Mr. Bright, a director since 2001, serves as Chairman
of the Loan Committee and a member of the Executive Committee.  In
addition, he brought to the Bank a keen knowledge of community reinvestment
initiatives that can propel economic inclusion and impact. Mr. Bright’s
community interests include his participation on a number of boards including
Greater Philadelphia Urban Affairs Coalition, West Oak Lane Charter School, and
Allegheny West CDC.





Dr. Bernard E. Andersona
director since 2002 and chairs the Asset Liability Committee.  Dr.
Anderson as an economist brings a dynamic perspective to the Bank as a recently
retired Whitney E. Young, Jr., Professor of Management, The Wharton School,
University of PennsylvaniaAs an Advisor to the
Urban League of Philadelphia as well as the National Urban League, Dr. Anderson
firmly believes that economic disparities among minority groups can be
remediated through public and private policies aided at expanding economic
opportunity for all with the Philadelphia region specifically and across the
country in general.





Ernest L. Wright a director
since 1992 serves as member of the Loan and Asset Liability
Committees.  His passion is sales and his expertise is in the
construction field.  He is the proprietor of Wright Construction
Management.  Mr. Wright was very helpful when the Bank upgraded its
branch facilities by conceptualizing affordable designs and sharing his project
management skills.  He has been instrumental in referring new clients
to the Bank particularly from the faith and small business sectors.





Maurice Mitts,the newest
director, joined the board in 2008 and serves on the Loan
Committee.  Mr. Mitts’ relationship with the Bank started as a
customer as he launched his law practice as co-founding partner of Mitts &
Milavec, LLC, a multi-disciplined law firm that provides business and litigation
counsel to public and private enterprises, government entities and non-profit
clients.  His legal expertise and that of his colleagues has filled an
important void on the board.





CORPORATE
GOVERNANCE





Board
Leadership Structure





The
positions of the Board Chairman and President and Chief Executive Officer are
held by two individuals.  The Board believes this structure is
appropriate for USB and the Bank because of the need for the Chairman to have
independence in leading the Board of Directors to oversee and direct management
and the President and CEO’s direct involvement in leading management of USB and
the Bank.





Directors’
Qualifications




In considering any individual nominated
to be a director on UBS’ and the Bank’s Board of Directors’, the Board of
Directors considers a variety of factors, including whether the candidate is
recommended by the Bank’s executive management and the Board’s Nominating
Committee, the individual’s professional or personal qualifications, including
business experience, education and community and charitable activities and the
individual’s familiarity with the communities in which UBS or the Bank is
located or is seeking to locate.




Nomination
for Directors
  Section
3.4 of Article 3 UBS’ Bylaws provides that no shareholder shall be permitted to
nominate a candidate for election as a director, unless such shareholder shall
provide to the Secretary of UBS information about such candidate as is
equivalent to the information concerning candidates nominated by the Board of
Directors that was contained in the UBS Proxy Statement for the immediately
preceding Annual Meeting of shareholders in connection with election of
directors.  Such information consists of the name, age, any position
or office held with UBS or the Bank, a description of any arrangement between
the candidate and any other person(s), naming such persons pursuant to which he
or she was nominated as a director, his/her principal occupation for the five
(5) years prior to the meeting, the number of shares of UBS stock beneficially
owned by the candidate and a description of any material transactions or series
of transactions to which UBS or the Bank is a party and in which the candidate
or any of his affiliates has a direct or indirect material interest, which
description should specify the amount of the transaction and where practicable
the amount of the candidates interest in the transaction.
 
 Such information shall be provided in
writing not less than one hundred twenty (120) days before the first anniversary
preceding the annual meeting of UBS’ shareholders.  The Chairman of
the Board of Directors is required to determine whether the director nominations
have been made in accordance with the provisions of the UBS’ Bylaws, and if any
nomination is defective, the nomination and any votes cast for the nominee(s)
shall be disregarded.
 
 The Nominating Committee’s process for
identifying and evaluating nominees for director, including nominees recommended
by security holders and for incumbent directors whose terms of office are set to
expire, include review of the directors’ overall service during their terms,
including meetings attended, level of participation, quality of performance, and
contributions towards advancing UBS’s interests and enhancing shareholder value;
with respect to new directors, the procedure includes a review of the candidates
biographical information and qualifications and a possible check of candidates
references.  All potential candidates are interviewed by all members
of the Committee and other members of the board.  Using this
information, the committee evaluates the nominee and determines whether it
should recommend to the board that the board nominate or elect to fill a vacancy
with the prospectivecandidate.
 
 The
Committee believes the following qualifications must be met by a
nominee:  a good character, have reputations, personally and
professionally, consistent with UBS’s image and reputation; be active or former
leaders of organizations; possess knowledge in the field of financial services;
have an understanding of the Bank’s marketplace; be independent; be able to
represent all of the shareholders; be willing to commit the necessary time to
devote to board activities, and be willing to assume fiduciary
responsibility.
 36
 Communicating
with the Board of Directors
  Shareholders
may communicate with any UBS or Bank director or member of a Committee of the
Board of Directors of UBS or the Bank by writing to United Bancshares, Inc., Attention:
Board of Directors, P.O. Box 54212, Philadelphia, PA
19105.The written communications will be provided to
Marionette Y. Wilson, a director and Corporate Secretary of the Board of
Directors, who will determine the further distribution of the communications
which are appropriate based on the nature of the information contained in the
communications.  For example, communications concerning accounting
internal controls and auditing matters will be shared with the Chairman of the
Audit/Compliance Committee of UBS’ Board of Directors.





Risk
Oversight





The Board
of Directors establishes and revises policies to identify and manage various
risks inherent in the business of the Company, and both directly and through its
committees, periodically receives and reviews reports from management to ensure
compliance with and evaluate the effectiveness of risk
controls.  Employees who oversee day-to-day risk management duties,
including the Vice President/Chief Risk Officer and Compliance Officer who
report their findings to the Audit Committee.  The Audit Committee
assists the Board in fulfilling its oversight responsibilities with respect to
areas of financial reporting, internal controls and compliance with accounting
regulatory requirements.




General
Information About UBS’ and Bank’s Boards of Directors





The Board
of Directors of the Company and the Bank has determined that all of its members
are independent and meet the independence requirements of National Association
of Securities Dealers (“ NASDAQ”) except Evelyn F. Smalls.  Because
Ms. Smalls is the President and Chief Executive Officer of the Company and the
Bank she is not independent as defined by NASDAQ. In determining the
independence of its directors, other than Ms. Smalls, the Board of Directors
considered routine banking transactions between the Bank and each of the
directors, their family members and businesses with whom they are
associated.  In each case, the Board of Directors determined that none
of the transaction relationships or arrangements impaired the independence of
the director.





UBS’
Board of Directors meets when necessary and during 2009 held eleven (11)
meetings, including UBS’ organization meeting. In 2009, the Bank’s Board of
Directors was scheduled to meet at least monthly, except in August and during
2009 held eleven (11) meetings.   The independent directors of
the UBS’ and the Bank are Board of Directors hold executive sessions on a
regular basis, but, in any event, not less than twice a year.  During
2009, two (2) executive sessions were held.  Each director attended at
least 75% of the Board meetings held during 2009 and the committee meetings held
by each committee on which the director served.




Policy
for Attendance at Annual Meetings




UBS has a
policy requiring all of its directors to attend UBS’ annual
meeting.  At the annual meeting held on December 11, 2009, all of the
directors attended the meeting.





INFORMATION
ABOUT THE COMMITTEES OF THE BOARDS





Information
About the Committees of the Board of Directors of the Corporation and the
Bank





The
Committees of UBS’ Board of Directors are the Executive Committee,
Audit/Compliance Committee, and the Nominating Committee. The Corporation and
the Bank have the same committees with the same members for each committee,
except that the Bank also has an Asset Liability Management Committee and a Loan
Committee.





Executive
Committee  The Executive Committee, comprised of L. Armstead
Edwards (Chairman), William B. Moore, Joseph T. Drennan, David R. Bright, Evelyn
F. Smalls and Marionette Y. Wilson meets, when necessary, at the call of the
Chairman, to exercise the authority and powers of the  Board of
Directors of the Corporation and the Bank at intervals between meetings of the
Board of Directors insofar as may be permitted by law. The Executive Committee
also meets to discuss and approve certain human resource matters including
compensation, and to ratify and approve certain of the Bank’s loans. The
Executive Committee held eleven (11) meetings during 2009.





The  Board
of Directors does not have a Compensation Committee; the Executive Committee
performs that function without Evelyn Smalls who serves as an executive officer
of the Bank. The Executive Committee, without Evelyn Smalls, who is not
independent, serves as the compensation committee and meets to discuss
compensation matters.  It annually reviews and approves corporate
goals and objectives relevant to CEO compensation, evaluates the CEO’s
performance in light of those goals and objectives and determines and approves
the compensation and benefits to be paid or provided to Evelyn F. Smalls the
President of UBS and Brenda M. Hudson-Nelson Executive Vice President and Chief
Financial Officer.  The Committee has the responsibility to review and
provide recommendations to the full Board regarding compensation and benefit
policies, plans and programs.  Each member of the Compensation
Committee is independent as defined by NASDAQ. During 2009, the Executive
Committee held one (1) meeting as the Compensation Committee to discuss the
performance and compensation of the executive officers.  There is no
charter for the Executive Committee acting as a compensation
committee.





Audit/ComplianceCommittee  The
Audit/Compliance Committee of UBS’ Board of Directors is comprised of Joseph T.
Drennan (Chairman), L. Armstead Edwards, Marionette Y. Wilson (Frazier) and
William B. Moore, meets when necessary at the call of the Chairman. The
Committee meets with the internal auditor to review audit programs and the
results of audits of specific areas, as well as other regulatory compliance
issues.  The Committee selects the independent registered public
accountants. In addition, the Committee meets with UBS’ independent registered
public accountants to review the results of the annual audit and other related
matters,as
well as other regulatory compliance issues.   Each member of the
Committee is “independent” as defined in the applicable listing standards of the
NASDAQ. The Committee held four (4) meetings during 2009.






37







Each
member of the Audit/Compliance Committee is financially literate as defined by
NASDAQ.  The Boards of Directors of the Company and the Bank have
determined that Joseph T. Drennan is the “Financial Expert,” as defined in the
Commission’s regulations.





The Compliance Committee was combined
with the Audit Committee and is comprised of the same members.  On a
quarterly basis compliance matters are addressed to include the review of
regulatory compliance matters, the Bank’s compliance programs and the CRA Act
activities.





Nominating
Committee.  The Nominating Committee, comprised of L. Armstead
Edwards (Chairman), Ernest L. Wright, and Joseph T. Drennan meets at the call of
the Chairman. The Committee is responsible for considering and recommending
future director nominees to the Board of Directors of UBS and the Bank and the
Committee is independent and meets the requirements for independence of NASDAQ.
The Nominating Committee does not currently have a formal policy with respect to
diversity.  However, in considering nominees for director, the
Nominating Committee also considers the Board’s desire to be a diverse body with
diversity reflecting gender, ethic background and professional
experience.  The Board and the Nominating Committee believe it is
essential that the Board members represent diverse viewpoints. The Nominating
Committee charter will be made available, without charge, upon written request
by the shareholders of UBS to the corporate secretary of UBS.  A copy
of the charter is not available on UBS’ website but can be found as Exhibit B to
our 2007 Proxy Statement filed with the SEC on October 30, 2007.The Committee
held one (1) meeting during 2009 resulting in the nomination of Maurice R.
Mitts for re-election as a Class B director.





Asset Liability Management
Committee.  The Asset Liability Management Committee, comprised
of Bernard E. Anderson (Chairman), L. Armstead Edwards, Joseph T. Drennan,
Evelyn F. Smalls and Ernest L. Wright meets, when necessary, at the call of the
Chairman, to review and manage the Bank’s exposure to interest rate risk, market
risk and liquidity risk. . During 2009, the Asset and Liability Management
Committee held four (4) meetings.





Loan Committee. 
The Loan Committee, comprised of David R. Bright (Chairman), L. Armstead
Edwards, Evelyn F. Smalls, and Ernest Wright meets when necessary to review and
approve loans that are $200,000 and over and to discuss other loan-related
matters.  During 2009, the Loan Committee held ten (10)
meetings.





BOARD
OF DIRECTORS COMPENSATION





Directors
Fees





The
normal non-officer director fee paid by the Bank is Three Hundred Fifty Dollars
($350) for attending each Board meeting and One Hundred Seventy-five Dollars
($175) per quarter for attending the Board of Directors’ Committee meetings.
Directors’ fees are not paid to officer directors for attending Bank Board of
Directors or Committee meetings. UBS does not pay any fees to any directors for
attending UBS’ Board of Directors or Committee meetings.  Effective
April 1, 2002, the Board of Directors elected to waive all fees for an
indefinite period of time.  Therefore, no table summarizing
the compensation paid to non-employee directors is required for the fiscal year
ended December 31, 2009.





Audit Committee
Report







In connection with the preparation and
filing of UBS’ Annual Report on Form 10-K for the year ended December 31, 2009,
the Audit Committee (i) reviewed and discussed the consolidated audited
financial statements with UBS’ management, (ii) discussed with McGladrey and
Pullen, LLP, UBS’ independent registered public accounting firm, the matters
required to be discussed by Statement on Auditing Standards No. 61 (as modified
or supplemented), (iii) discussed the independence of   McGladrey
and Pullen, LLP, and (iv) has received the written disclosures and the letter
from McGladrey and Pullen, LLP required by Public Company Accounting Oversight
Board (United States)Rule 3526. Based on the review and discussions referred to
above, the Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements be included in UBS’ Annual Report on
Form 10-K for the year ending December 31, 2009.





UBS’ Audit Committee is composed
of   Joseph T. Drennan (Chairman), L. Armstead Edwards, William
B. Moore, and Marionette Y. Wilson who each endorsed this report.




Respectfully
      submitted:Joseph
      T. Drennan (Chairman), William B. MooreL.
      Armstead Edwards, Marionette Y. Wilson (Frazier)






38







UBS’S
AND BANK’S EXECUTIVE OFFICERS





The following table sets forth certain
information with respect to the current executive officers of UBS and Bank as
of  March 3, 2010:





Name,
      Principal Occupation and
              Business Experience For Past 5
      Years
            Age
      as of
              March 3, 2010
            Office with the UBS and/or
    Bank
            UBS
      Stock
              Beneficially
              OwnedEvelyn
      F. Smalls(1)(2)
            64
            President
      and Chief Executive Officer and
              Director
      of UBS and Bank
            500Brenda
      M. Hudson-Nelson (3)
            48
            Executive
      Vice President and Chief Financial Officer
              of
      UBS and Bank
            50


Footnote
Information Concerning Executive Officers


(1)
            Ms.
      Smalls was elected as a director and was appointed as President and Chief
      Executive Officer in June 2000. Prior to that, Ms. Smalls was Senior Vice
      President of Human Resources and Compliance from October 1993 to May
      2000.


(2)
            The
      President and Chief Executive Officer, currently Evelyn F. Smalls, acts as
      Trustee of certain voting trust agreements (the “Voting Trusts”) pursuant
      to which Fahnstock, Inc deposited 5,209 shares of Common Stock of
      UBS.


(3)
            Ms.
      Hudson-Nelson was appointed Senior Vice President and Chief Financial
      Officer in June 2000. Prior to that, Ms. Hudson-Nelson was Vice President
      and Controller from January 1992 to May 2000.  In May 2002, Ms.
      Hudson-Nelson was promoted to Executive Vice President and Chief Financial
      Officer.





CODE
OF CONDUCT AND ETHICS





UBS  and
the Bank has adopted a Code of Business Conduct and Ethics ( the “Code”) that
applies to all its directors, employees and  officers and including
its Chief Executive Officer and its Chief Financial Officer.  The Code
meets the requirement of a code of ethics for the UBS’ and the Bank’s principal
executive officer and  principal  financial officer or
persons performing similar functions under Item 406 of  the SEC’s
Regulation S-K.  Any amendments to the Code, or any waivers of the
Code for directors or executive officers will be disclosed promptly on a Form
8-K filed with the SEC or by any other means approved by the SEC.The Code complies with
requirements of Sarbanes – Oxley Act and the listing standards of NASDAQ and UBS
provides a copy of the Code to each director, officer and employee.





UBS
will provide, without charge, a copy of its Code of Business Conduct and Ethics
to any person who requests a copy of the Code.  A copy of the Code may
be requested by writing to the President of UBS at United Bank of Philadelphia
at 30 S. 15th
Street, Suite 1200, Philadelphia, PA  19102.





SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section 16(a) of the Exchange Act
requires that UBS’ directors and executive officers file reports of their
holdings of UBS’ Common Stock with the SEC. Based on UBS’ records and other
information available to UBS believes that the SEC’s Section 16(a) reporting
requirements applicable to UBS’ directors and executive officers were complied
with for UBS’ fiscal year ended December 31, 2009.





ITEM11 — EXECUTIVE COMPENSATION





The
Executive Committee, comprised of L. Armstead Edwards (Chairman of the Board),
William B. Moore(Vice Chairman of the Board), Marionette Y. Wilson, Joseph T.
Drennan, and David R. Bright but without Evelyn Smalls, who is not independent,
serves as the compensation committee and meets to discuss compensation
matters.  It annually reviews and approves corporate goals and
objectives relevant to CEO compensation, evaluates the CEO’s performance in
light of those goals and objectives and determines and approves the compensation
and benefits to be paid or provided to the Evelyn F. Smalls the President of UBS
and Brenda M. Hudson-Nelson Executive Vice President and Chief Financial
Officer.  Each member of the Compensation Committee is independent as
defined by NASDAQ. During 2009, the Executive Committee held one (1) meeting as
the Compensation Committee.






39







Compensation
Discussion and Analysis





The
primary objectives of our compensation policy are:






            To attract and retain highly
      qualified key executive officers essential to our long-term
      success;



            To
      reward properly executive officers for performance, achievement of goals
      and enhancement of shareholder
value.



            Succession
      Planning to ensure adequate replacement for key
  executives





Compensation
Philosophy





The
compensation philosophy is to compensate our executive officers for performance.
However, because  of the Bank’s prior designation as a “troubled
financial institution”, non-salary benefits had limitations including the
inability to offer executives significant deferred compensation, post-retirement
benefits or compensation in the event of a change in control.





The
Committee’s Process





Because
of the continued focus on achieving stability and core profitability, no salary
increases were given to executive officers in 2009 and executive contract
renewal deliberations were deferred.  As a result, compensation levels
outlined in the expired contracts of the executive officers remained in effect
in 2009.





Components
of Compensation for 2009





For the
fiscal year ended December 31, 2009, the components of executive compensation
were:





•
            Salary;


•
            Life
      Insurance in the amount of two times salary;
and


•
            Automobile
      Allowance.





Salary





Salary
provides the compensation base rate and is intended to be internally fair among
executive officers at the same level of responsibility.





In
setting the salary for the chief executive officer, the committee considers
financial results, organizational development, marketing initiatives, board
relations, management development, work on representing us to our customers,
clients and the public, and results in developing, expanding and integrating our
products and services. The committee also takes into account the effects of
inflation. The committee exercises discretion in setting the chief executive
officer’s salary and may increase or decrease the chief executive officer’s
salary based on our financial performance or on non-financial performance
factors, if it so decides. However, the employment contract with Ms. Smalls,
chief executive officer, sets a minimum salary of $160,000 per
year.





The
committee receives evaluations of the other executive officers performance from
Ms. Smalls and her recommendations for base salaries for those officers. The
recommendations are based on the officer’s level of responsibility and
performance of duties. The committee then reviews and modifies, where
appropriate, the recommendations and sets the salaries for the other executive
officers.





Life
Insurance and Auto Allowance





These
benefits help to attract and retain qualified personnel within the current
financial constraints.








40





Summary
Compensation Table





The table below summarizes the total
compensation paid or earned by each of the Named Executive Officers for the year
ended December 31, 2009.


Name
      and Principal
              Position
            
            Year
            
            
            Salary ($)
            
            
            Bonus
              ($)(1)
            
            
            Stock
              Awards
              ($)(1)
            
            
            Option
              Awards
              ($)(1)
            
            
            Non-Equity
              Incentive
      Plan
              Compensation(1)
            
            
            Change
      in
              Pension
              Value
      and
              Nonqualified
              Deferred
              Compensation
              Earnings
              ($)(1)
            
            
            All
      Other
              Compensation
              ($)(2)
            
            
            Total
              ($)Evelyn
      F. Smalls
            
            
            2009
              2008
            
            
            $
            160,000
              160,000
            
            
            $
            0
              0
            
            
            $
            0
              0
            
            
            $
            0
              0
            
            
            $
            0
              0
            
            
            $
            0
              0
            
            
            $
            6,209
              6,209
            
            
            $
            166,209
              166,209President
      and Chief Executive OfficerBrenda
      Hudson-Nelson,
            
            
            2009
              2008
            
            
            
            115,000
              115,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            6,095
              6,095
            
            
            
            121,095
              121,095Executive
      Vice President and Chief Financial Officer





(1)
            Amounts
      are not included in the Bonus, Stock Awards, Option Awards, Non-equity
      Incentive Plan Compensation, Change in Pension and Nonqualified Deferred
      Compensation Earnings 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 incentivepayouts columns are
      not included in the Compensation Table since these benefits are not made
      available by UBS or the Bank.(2)
            UBS’
      executives receive a $500 per month automobile allowance. UBS’ executive
      are provided with life insurance policies equivalent to two times their
      annual salary for which the cost is $209/annually for Evelyn Smalls and
      $98/annually for Brenda
Hudson-Nelson





Executive
Employment Agreements





The Bank
entered into an Employment Agreement with Evelyn F. Smalls in November 2004 to
continue to serve as the Bank’s President and Chief Executive Officer. The term
of the Employment Agreement was three (3) year.  The contract expired
in November 2007. Renewal terms are under review by the Compensation
Committee.  Ms. Smalls is currently working under the provisions of
the expired contract which provide for an annual base salary of $160,000 that
may be increased, but not decreased as well as life insurance equivalent to two
times her base salary, and a $500 per month automobile allowance.





The Bank
entered into an Employment Agreement with Brenda M. Hudson-Nelson in November
2004 to continue to serve as the Bank’s Executive Vice President and Chief
Financial Officer. The term of the Employment Agreement was three (3)
years.  Renewal terms are under review by the Compensation
Committee.  Ms. Hudson-Nelson is currently working under the
provisions of the expired contract which provide for an annual base salary of
$115,000 that may be increased, but not decreased as well as life insurance
equivalent to two times her base salary, and a $500 per month automobile
allowance.





Payments
Upon Termination





The named
executive officers are only entitled to payment of their salary, life insurance,
and automobile allowance through the date of termination.





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.  No options were granted in 2009 and no options were
outstanding as of December 31, 2009.







41





Other
Compensation Tables





We have
not included a grant of plan-based awards table, an outstanding equity awards
table, options exercises and stock vested table, and pension benefits table
because those tables are not applicable.





COMPENSATION
COMMITTEE REPORT





The
Executive Committee serving as the Compensation Committee has reviewed and
discussed the Compensation Discussion and Analysis required by Item 402(b)
of Regulation S-K with management and, based on such review and discussions, the
committee recommended that the Compensation Discussion and Analysis be
included  our Annual Report on Form 10-K for the year ended December
31, 2009.





Respectfully
      submitted:L.
      Armstead EdwardsWilliam
      B. MooreMarionette
      Y. WilsonJoseph
      T. DrennanDavid
      R. Bright








ITEM12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT





The
following table sets forth certain information known to UBS, as of March 3, 2010
(1), with respect to the only persons to UBS’ knowledge, who may be beneficial
owners of more than 5% of UBS’ Common Stock.


Name
      and Address
              of Beneficial Owner
            Amount
      and Nature of
              Beneficial
      Ownership
              of
      Corporation
              Common Stock
            Percentage
      of
              Outstanding
              Corporation
              Common
      Stock
              OwnedPhiladelphia
      Municipal
            71,667
            8.17%Retirement
      System2000
      Two Penn CenterPhiladelphia,
      Pennsylvania 19102Wachovia
      Corporation, (formerly, First Union Corporation)2
            50,000
            5.70%301
      S College Street, Floor 27Charlotte,
      NC 28288Greater
      Philadelphia Urban Affairs Coalition
            47,500
            5.42%1207
      Chestnut Street, Floor 7Philadelphia,
      PA  19107The
      Estate of James F. Bodine
            44,583
            5.08%401
      Cypress StreetPhiladelphia,
      PA  19106




(1)
            As
      of March 3, 2010, there were 876,921 shares of UBS’ voting Common Stock
      outstanding.


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


(3)
            UBS
      does not know of any person having or sharing voting power and/or
      investment power with respect to more than 5% of the UBS’ Common Stock
      other than Wachovia Corporation (formerly First Union Corporation),
      Philadelphia Municipal Retirement System, Greater Philadelphia Urban
      Affairs Coalition, and the Estate of James F.
  Bodine.






42





The
following table lists the beneficial ownership of shares of the UBS’ Common
Stock as of March 3, 2010 for each of the UBS’ directors and executive
officers.   The table also shows the total number of shares of
Common Stock ownership by the directors and executive officers of UBS as a
group.





Name
            Common
              Stock1,2,3
            Percent of
              Outstanding StockCurrent
      DirectorsL.
      Armstead Edwards
            10,833
            1.23%Marionette
      Y. Wilson (Frazier)
            17,900
            2.04%Ernest
      L. Wright
            7,084
            *Bernard
      E. Anderson
            850
            *David
      R. Bright
            850
            *Joseph
      T. Drennan
            783
            *Maurice
      R. Mitts
            833
            *William
      B. Moore
            1,834
            *Evelyn
      F. Smalls
            500
            *





Certain
      Executive OfficersEvelyn
      F. Smalls
            500**
            *Brenda
      M. Hudson-Nelson
            50
            *All
      Current Directors and Executive Officers as a Group
            41,467
            4.72%


__________________


Footnotes
Concerning Beneficial Ownership of Stock


*
            Less
      than one percent.**
            Ms.
      Smalls is also a Director; see listing above.(1)
            Stock
      ownership information is given as of March 3, 2010, and includes shares
      that the individual has the right to acquire (other than by exercise of
      stock options) within sixty (60) days of March 3, 2010. Unless otherwise
      indicated, each director and each such named executive officer holds sole
      voting and investment power over the shares listed.(2)
            The
      number of shares “beneficially owned” in each case includes, when
      applicable, shares owned beneficially, directly or indirectly, by the
      spouse or minor children of the director, and shares owned by any other
      relatives of the director residing with the director. None of the
      directors holds title to any shares of UBS of record that such director
      does not own beneficially.(3)
            None
      of the common stock of directors and executive officers is pledged to
      secure a debt.





ITEM13 — CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS







Some of
our directors, executive officers, and members of their immediate families and
the companies with which they are associated were our customers of and had
banking transactions with us in the ordinary course of our business during the
year 2008 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 our opinion, the
transactions and loan commitments did not involve more than normal risk of
collectively or present other unfavorable features.




Our
written Audit Committee Charter requires our Audit Committee to approve related
party transactions. Our written Policy on Related Party Transactions establishes
procedures for the Audit Committee’s review and approve of related party
transactions other than excepted transactions and preapproved transactions.
Transactions available to all employees generally, and transactions involving
less than $120,000 when aggregated with all similar transactions in any calendar
year, are excepted transactions. The following types of transactions are
preapproved transactions:






43






-   Compensation
payable to directors or officers if reportable under Item 402 of the
Commission’s Regulation S-K;




-   Compensation
payable to an immediate family member of another director or executive officer,
if approved by the Executive Committee acting as the Compensation
Committee;




-   Transactions
with another company (including charitable contributions, grants or endowments
to a charitable organization) at which a related person’s only relationship is
as an employee (other than executive officer), director or less than 10% owner,
if the aggregate amount involved does not exceed $200,000 or 5% of that
company’s total revenues; and




-   Routine
banking relationships that otherwise comply with banking laws and
regulations.




The Audit
Committee is to apply the following standards when it reviews related party
transactions for approval:




-   Whether
the transaction is on terms no less favorable to the Corporation than terms
generally available with an unaffiliated third party under similar
circumstances;




-   The
extent of the related person’s interest in the transaction; and




-   Other
factors the committee deems appropriate.





For loan
transactions, our written Regulation O Policy requires the Executive Committee
to review and approve loan transactions with directors, executive officers and
their related interests in accordance with the standards established by Federal
Reserve Board Regulation O.





All of
the members of the Board of Directors of UBS and the Bank, except Ms. Smalls,
are independent and meet the requirements for independence of the NASDAQ Stock
market.








ITEM14—PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table presents the fees for each of the last two fiscal years for the
UBS’ principal accountants by category:




2009
            
            
            2008Audit
      Fees
            
            $
            111,530
            
            
            $
            110,374Audit-related
      fees
            
            
            -
            
            
            
            -Tax
      fees
            
            
            11,000
            
            
            
            10,882All
      other fees
            
            
            -
            
            
            
            -Total
      fees
            
            $
            122,530
            
            
            $
            121,256




Services
Provided by McGladrey and Pullen, LLP





1)
            Audit
      Fees—These are fees for professional services performed by McGladrey and
      Pullen, LLP in 2009 and 2008 for the audit, including an audit of
      consolidated  financial statements reporting, and review of
      financial statements included in our Form 10-Q and Form 10-K
      filings.2)
            Tax
      Fees—These are fees for professional services performed by RSM McGladrey,
      Inc. (an independent company associated with McGladrey and Pullen, LLP
      through an alternative practice structure) with respect to tax compliance
      and tax advice. This includes preparation of our tax returns, tax research
      and tax advice.





Our Audit
Committee has considered whether the provision of the non-audit services is
compatible with maintaining the independence of McGladrey and Pullen, LLP and
determined that to be the case.









44





Pre-approval
of Services





The Audit
Committee pre-approves all auditing services and permitted non-audit services
(including the fees and terms thereof) to be performed for UBS by its
independent auditor, subject to the minimus exceptions for non-audit services
described in Section 10A (i) (1) (B) of the Exchange Act which are approved by
the Committee prior to the completion of the audit.  The Audit
Committee may form and delegate authority to subcommittees consisting of one or
more members when appropriate, including the authority to grant pre-approvals of
audit and permitted non-audit services, provided that decisions of such
subcommittee to grant pre-approvals shall be presented to the full Audit
Committee at its next scheduled meeting. All services performed by the
independent public accounting firm are approved by the Audit
Committee.





PART IV





ITEM15 — EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES





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


Page(a)
            1.
            Financial Reports of United Bancshares,
      Inc.Report
      of Independent Registered Public Accounting Firm.
            48Consolidated
      Balance Sheets at December 31, 2009 and 2008.
            49Consolidated
      Statements of Operations for the three years endedDecember
      31, 2009.
            50Consolidated
      Statements of Changes in Shareholders’ Equity for the three years ended
      December 31, 2009.
            51Consolidated
      Statements of Cash Flows for the three years endedDecember
      31, 2009.
            52Notes
      to Consolidated Financial Statements
            532.
            Financial
      Statement SchedulesFinancial
      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.3.
            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






45







a)
            Lease
      for corporate headquarters office located at The Graham Building, 30 S.
      15th
      Street, Suite 1200, Philadelphia, PA (Incorporated by reference to
      Registrant’s 2004 Form 10-K)b)
            Lease
      for branch office located at 1620 Wadsworth Avenue(Incorporated by
      reference to Registrant’s 2002 Form 10-K)c)
            Lease
      for branch office located at 1015 North Broad Street(Incorporated by
      reference to Registrant’s 2002 Form 10-K)d)
            Evelyn
      F. Smalls’ Employment Agreement, dated November 1, 2004, (Incorporated by
      reference to Registrant’s 2005 Form 10-K)e)
            Brenda
      Hudson-Nelson’s Employment Agreement, dated November 1, 2004, ,
      (Incorporated by reference to Registrant’s 2005 Form
  10-K)f)
            Long
      Term Incentive Compensation Plan (Incorporated by reference to
      Registrant’s 1992 Form 10)


g)
            Lease
      for Retail office located at The Graham Building, 30 S. 15th
      Street, Philadelphia, PA, , (Incorporated by reference to Registrant’s
      2005 Form 10-K)h)
            Sublease
      for Retail office located at The Graham Building, 30 S. 15th
      Street, Philadelphia, PA(Incorporated by reference to Registrant’s 2005
      Form 10-K)i)
            Lease
      for branch office located at 1520 North Broad Street (Incorporated by
      reference to Registrant’s 2005 Form 10-K)j)
            First Amendment to lease for corporate headquarters
      office located at The Graham Building, 30 S. 15th
      Street, Suite 1200, Philadelphia,
PA





(11)
            Statement
      of Computation of Earnings Per Share.  Included at Note 16 of
      the Financial Statements hereof.(12)
            Statement
      of Computation of Ratios.  Included at Note 17 of the Financial
      Statements  hereof.(14)
            Code
      of Conduct and Ethics (Incorporated by reference to Registrant’s 2004
      10-K)(21)
            Subsidiaries of
      RegistrantName
            State of IncorporationUnited
      Bank of Philadelphia
            Pennsylvania(31)
            Certification
      of the Annual Report(31.1) Certification of the Chief Executive Officer
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002.(31.2) Certification of the Chief Financial Officer
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002.(32)
            Certification
      Pursuant to issue of Section 1350(A)
            Exhibit 32.1Certification 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.(B)
            Exhibit 32.2Certification 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.(99)
            Supplemental
      Information(A)
            The
      Annual Report to Shareholders and Proxy material will be furnished after
      the filing of Form 10-K.  Copies of these materials will be
      submitted to the Commission when they are sent to the
      shareholders.







46





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/_________________________________________
            March  31,
      2010Evelyn
      F. Smalls, President & CEO, Director/s/_________________________________________
            March  31,
      2010Brenda
      M. Hudson-Nelson, EVP, CFO/s/___________________________________
            March  31,
      2010L.
      Armstead Edwards, Chairman, Director/s/_________________________________________
            March  31,
      2010Marionette
      Y. Wilson(Frazier),  Secretary, Director/s/_________________________________________
            March  31,
      2010William
      B. Moore, Secretary,  Vice Chairman, Director/s/________________________________________
            March  31,
      2010Bernard
      E. Anderson, Director/s/________________________________________
            March  31,
      2010David
      R. Bright, Director/s/________________________________________
            March  31,
      2010Maurice
      R. Mitts, Director/s/________________________________________
            March  31,
      2010Joseph
      T. Drennan, Treasurer, Director/s/_________________________________________
            March  31,
      2010Ernest
      L. Wright, Director











47











Report of Independent
Registered Public Accounting Firm
 
 
 To the
Board of Directors
 United
Bancshares, Inc.
 
 We have
audited the consolidated balance sheets of United Bancshares, Inc. and
Subsidiary (the “Company”) as of December 31, 2009 and 2008, 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, 2009. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of United Bancshares, Inc. and
Subsidiary as of December 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2009, in conformity with US generally accepted accounting
principles.
 
 We were
not engaged to examine management’s assertion about the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2009
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting and, accordingly, we do not express an opinion
thereon.
 
 
 
 Blue
Bell, Pennsylvania
 March 31,
2010


48





UNITED
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATEDBALANCE SHEETS


December
31,





Assets:
            
            2009
            
            
            2008Cash
      and due from banks
            
            $
            2,495,359
            
            
            $
            2,449,181Interest-bearing
      deposits with banks
            
            
            303,485
            
            
            
            296,290Federal
      funds sold
            
            
            3,491,000
            
            
            
            2,726,000Cash
      and cash equivalents
            
            
            6,289,844
            
            
            
            5,471,471Investment
      securities:Available-for-sale,
      at fair value
            
            
            1,862,993
            
            
            
            2,665,151Held-to-maturity,
      at amortized cost (fair value of $10,019,986and
      $10,016,314 in 2009 and 2008, respectively)
            
            
            9,970,807
            
            
            
            9,896,965Loans,
      net of unearned discount of $88,024 and $54,461 in 2009and
      2008, respectively
            
            
            47,587,112
            
            
            
            48,663,437Less
      allowance for loan losses
            
            
            (727,397
            )
            
            
            (586,673
            )Net
      loans
            
            
            46,859,715
            
            
            
            48,076,764Bank
      premises and equipment, net
            
            
            1,358,296
            
            
            
            1,622,314Accrued
      interest receivable
            
            
            421,292
            
            
            
            421,132Intangible
      assets
            
            
            669,967
            
            
            
            848,046Prepaid
      expenses and other assets
            
            
            884,879
            
            
            
            433,369Total
      assets
            
            $
            68,317,793
            
            
            $
            69,435,212Liabilities
      and Shareholders’ EquityLiabilities:Demand
      deposits, noninterest-bearing
            
            $
            14,030,712
            
            
            $
            11,844,242Demand
      deposits, interest-bearing
            
            
            10,188,990
            
            
            
            11,290,173Savings
      deposits
            
            
            15,302,458
            
            
            
            16,667,815Time
      deposits, under $100,000
            
            
            8,417,102
            
            
            
            8,745,854Time
      deposits, $100,000 and over
            
            
            12,367,359
            
            
            
            12,356,186Total
      deposits
            
            
            60,306,621
            
            
            
            60,904,270Accrued
      interest payable
            
            
            63,954
            
            
            
            126,793Accrued
      expenses and other liabilities
            
            
            415,942
            
            
            
            354,401Total
      liabilities
            
            
            60,786,517
            
            
            
            61,385,464Commitments
      and Contingencies (Notes 5, 9, and 14)Shareholders’
      equity:Series
      A preferred stock, noncumulative, 6%, $0.01 par value,500,000
      shares authorized; 136,842 issued; 6,308 shares held in
      treasury
            
            
            1,368
            
            
            
            1,368Common
      stock, $0.01 par value; 1,750,000 shares authorized;876,921
      issued
            
            
            8,769
            
            
            
            8,769Class
      B Non-voting common stock; 250,000 shares authorized; $0.01 par
      value;191,667
      issued and outstanding
            
            
            1,917
            
            
            
            1,917Treasury
      stock, 33,500 shares of common stock, at cost
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            14,749,852
            
            
            
            14,749,852Accumulated
      deficit
            
            
            (7,280,793
            )
            
            
            (6,735,664
            )Accumulated
      other comprehensive income
            
            
            50,163
            
            
            
            23,506Total
      shareholders’ equity
            
            
            7,531,276
            
            
            
            8,049,748Total
      liabilities and shareholders’ equity
            
            $
            68,317,793
            
            
            $
            69,435,212





The
accompanying notes are an integral part of these statements.






49




UNITED
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATEDSTATEMENTS OF OPERATIONS





Years
ended December 31,





2009
            
            
            2008
            
            
            2007Interest
      income:Interest
      and fees on loans
            
            $
            3,039,349
            
            
            $
            3,335,151
            
            
            $
            3,515,693Interest
      on investment securities
            
            
            545,119
            
            
            
            607,996
            
            
            
            756,020Interest
      on federal funds sold
            
            
            8,927
            
            
            
            129,966
            
            
            
            524,720Interest
      on time deposits with other banks
            
            
            7,215
            
            
            
            7,444
            
            
            
            16,024Total
      interest income
            
            
            3,600,610
            
            
            
            4,080,557
            
            
            
            4,812,457Interest
      expense:Interest
      on time deposits
            
            
            352,919
            
            
            
            565,396
            
            
            
            754,189Interest
      on demand deposits
            
            
            89,367
            
            
            
            121,617
            
            
            
            170,566Interest
      on savings deposits
            
            
            33,888
            
            
            
            102,768
            
            
            
            287,546Total
      interest expense
            
            
            476,174
            
            
            
            789,781
            
            
            
            1,212,301Net
      interest income
            
            
            3,124,436
            
            
            
            3,290,776
            
            
            
            3,600,156Provision
      for loan losses
            
            
            235,000
            
            
            
            368,000
            
            
            
            120,000Net
      interest income after provision for loan losses
            
            
            2,889,436
            
            
            
            2,922,776
            
            
            
            3,480,156Noninterest
      income:Customer
      service fees
            
            
            489,719
            
            
            
            554,731
            
            
            
            590,841ATM
      fee income
            
            
            437,997
            
            
            
            454,628
            
            
            
            454,338Loan
      syndication fee income
            
            
            140,000
            
            
            
            130,000
            
            
            
            120,000Gain
      on sale of foreclosed assets
            
            
            -
            
            
            
            -
            
            
            
            24,000Grant
      income
            
            
            165,500
            
            
            
            -
            
            
            
            50,000Other
      income
            
            
            79,457
            
            
            
            69,567
            
            
            
            81,203Total
      noninterest income
            
            
            1,312,673
            
            
            
            1,208,926
            
            
            
            1,320,382Noninterest
      expense:Salaries,
      wages and employee benefits
            
            
            1,606,978
            
            
            
            1,557,247
            
            
            
            1,626,580Occupancy
      and equipment
            
            
            1,096,789
            
            
            
            1,120,800
            
            
            
            1,018,213Office
      operations and supplies
            
            
            303,717
            
            
            
            318,345
            
            
            
            319,394Marketing
      and public relations
            
            
            56,516
            
            
            
            104,045
            
            
            
            120,837Professional
      services
            
            
            253,216
            
            
            
            243,708
            
            
            
            256,186Data
      processing
            
            
            528,298
            
            
            
            513,424
            
            
            
            456,463Deposit
      insurance assessments
            
            
            97,240
            
            
            
            153,193
            
            
            
            154,597Other
      operating
            
            
            804,484
            
            
            
            774,439
            
            
            
            800,981Total
      noninterest expense
            
            
            4,747,238
            
            
            
            4,785,201
            
            
            
            4,753,251Net
      (loss) income before income taxes
            
            $
            (545,129
            )
            
            $
            (
      653,499
            )
            
            $
            47,287Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -Net
      (loss) income
            
            $
            (545,129
            )
            
            $
            (653,499
            )
            
            $
            47,287Net
      (loss) income per common share—basic  and
diluted
            
            $
            (0.51
            )
            
            $
            (0.61
            )
            
            $
            0.04Weighted
      average number of common shares
            
            
            1,068,588
            
            
            
            1,068,588
            
            
            
            1,068,588Total
      comprehensive (loss) income
            
            $
            (518,472
            )
            
            $
            (635,662
            )
            
            $
            71,566




The
accompanying notes are an integral part of these statements.






50






UNITED
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY





Years
ended December 31, 2009, 2008, 2007




Series A preferred stock
            
            
            Common stock
            
            
            Additionalpaid-in
            
            
            Accumulated
            
            
            Accumulatedothercomprehensive
            
            
            Totalshareholders’
            
            
            ComprehensiveShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            capital
            
            
            deficit
            
            
            income (loss)
            
            
            equity
            
            
            income (loss)Balance
      at December 31, 2006
            
            
            136,842
            
            
            $
            1,368
            
            
            
            1,068,588
            
            
            $
            10,686
            
            
            $
            14,749,852
            
            
            $
            (6,129,452
            )
            
            $
            ( 18,610
            )
            
            $
            8,613,844Unrealized
      gains on investment securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            24,279
            
            
            
            24,279
            
            
            $
            24,279Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,287
            
            
            
            
            
            
            
            47,287
            
            
            
            47,287Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            71,566Balance
      at December 31, 2007
            
            
            136,842
            
            
            $
            1,368
            
            
            
            1,068,588
            
            
            $
            10,686
            
            
            $
            14,749,852
            
            
            
            (6,082,165
            )
            
            $
            5,669
            
            
            $
            8,685,410Unrealized
      gains on investment securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,837
            
            
            
            17,837
            
            
            $
            17,837Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (653,499
            )
            
            
            
            
            
            
            (653,499
            )
            
            
            (653,499
            )Total
      comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (635,662
            )Balance
      at December 31, 2008
            
            
            136,842
            
            
            $
            1,368
            
            
            
            1,068,588
            
            
            $
            10,686
            
            
            $
            14,749,852
            
            
            
            ( 6,735,664
            )
            
            
            23,506
            
            
            $
            8,049,748Unrealized
      gains on investment securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            26,657
            
            
            
            26,657
            
            
            $
            26,657Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (545,129
            )
            
            
            
            
            
            
            (545,129
            )
            
            
            (545,129
            )Total
      comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (518,472
            )Balance
      at December 31, 2009
            
            
            136,842
            
            
            $
            1,368
            
            
            
            1,068,588
            
            
            $
            10,686
            
            
            $
            14,749,852
            
            
            $
            (7,280,793
            )
            
            $
            50,163
            
            
            $
            7,531,276








The
accompanying notes are an integral part of these statements.






51






UNITED
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATEDSTATEMENTS OF CASH FLOWS





Years
ended December 31,








2009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      income (loss)
            
            $
            (545,129
            )
            
            $
            (653,499
            )
            
            $
            47,287Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in)operating activities:Provision
      for loan losses
            
            
            235,000
            
            
            
            368,000
            
            
            
            120,000Gain
      on sale of foreclosed assets
            
            
            -
            
            
            
            -
            
            
            
            (24,000
            )Depreciation
      and amortization
            
            
            377,201
            
            
            
            309,080
            
            
            
            284,554Amortization
      of core deposit intangible
            
            
            178,078
            
            
            
            178,078
            
            
            
            178,078(Increase)decrease
      in accrued interest receivable andother
      assets
            
            
            (451,670
            )
            
            
            (61,403
            )
            
            
            103,437(Decrease)increase
      in accrued interest payable andother
      liabilities
            
            
            (1,298
            )
            
            
            14,639
            
            
            
            73,922Net
      cash (used in) provided by operating activities
            
            
            (207,818
            )
            
            
            154,896
            
            
            
            783,278Cash
      flows from investing activities:Purchase
      of available-for-sale investment securities
            
            
            -
            
            
            
            (250,000
            )
            
            
            (1,010,098
            )Purchase
      of held-to-maturity investment securities
            
            
            (9,156,047
            )
            
            
            (7,198,840
            )
            
            
            (3,775,751
            )Proceeds
      from maturity and principal reductions ofavailable-for-sale
      investment securities
            
            
            824,312
            
            
            
            1,067,521
            
            
            
            904,992Proceeds
      from maturity and principal reductions ofheld-to-maturity
      investment securities
            
            
            9,057,989
            
            
            
            7,769,031
            
            
            
            6,114,630Net
      proceeds from sale of foreclosed assets
            
            
            -
            
            
            
            -
            
            
            
            204,000Net
      decrease (increase) in loans
            
            
            982,049
            
            
            
            (3,850,451
            )
            
            
            (1,039,510
            )Purchase
      of loans
            
            
            -
            
            
            
            -
            
            
            
            (1,718,060
            )Purchase
      of bank premises and equipment
            
            
            (84,463
            )
            
            
            (960,477
            )
            
            
            (323,478
            )Net
      cash provided by(used in) investing activities
            
            
            1,623,840
            
            
            
            (3,423,216
            )
            
            
            (643,276
            )Cash
      flows from financing activities:Net(decrease)
      increase in deposits
            
            
            (597,649
            )
            
            
            ( 5,180,214
            )
            
            
            1,160,846Net
      cash (used in)provided by financing activities
            
            
            (597,649
            )
            
            
            (5,180,214
            )
            
            
            1,160,846Net
      increase(decrease)in cash and cash equivalents
            
            
            818,373
            
            
            
            (8,448,535
            )
            
            
            1,300,847Cash
      and cash equivalents at beginning of year
            
            
            5,471,471
            
            
            
            13,920,006
            
            
            
            12,619,159Cash
      and cash equivalents at end of year
            
            $
            6,289,844
            
            
            $
            5,471,471
            
            
            $
            13,920,006Supplemental
      disclosure of cash flow information:Cash
      paid during the year for interest
            
            $
            539,013
            
            
            $
            797,832
            
            
            $
            1,214,361








The
accompanying notes are an integral part of these statements.






52









UNITED
      BANCSHARES, INC. AND SUBSIDIARY





NOTESTO CONSOLIDATED FINANCIAL
  STATEMENTS





December
      31, 2009, 2008, and 2007





1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





United
      Bancshares, Inc. (the Company) is a holding company for United Bank of
      Philadelphia (the “Bank”).  The Company was incorporated under
      the laws of the Commonwealth of Pennsylvania on April 8, 1993 and provides
      financial services through the
Bank.





Principles
      of Consolidation





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




Accounting Standards
      Codification
                  
                  The
      Financial Accounting Standards Board’s (FASB) Accounting Standards
      Codification (ASC) became effective on July 1, 2009. At that date,
      the ASC became FASB’s officially recognized source of authoritative U.S.
      generally accepted accounting principles (GAAP) applicable to all public
      and non-public non-governmental entities, superseding existing FASB,
      American Institute of Certified Public Accountants (AICPA), Emerging
      Issues Task Force (EITF) and related literature. Rules and interpretive
      releases of the SEC under the authority of federal securities laws are
      also sources of authoritative GAAP for SEC registrants. All other
      accounting literature is considered non-authoritative. The switch to the
      ASC affects the away companies refer to U.S. GAAP in financial statements
      and accounting policies. The codification became effective for interim and
      annual periods ending on or after September 15, 2009. Accordingly, the
      Company’s accounting policies, which are consistent with prior periods and
      detailed below are now in accordance with ASC and no longer contain
      references to Statements on Financial Accounting Standards (SFAS), or
      related literature.


Statement
      of Cash Flows





For
      purposes of reporting cash flows, cash and cash equivalents include cash
      on hand, amounts due from banks, interest bearing deposits with banks that
      mature within 90 days and federal funds sold on an overnight
      basis.  Changes in loans made to and deposits received from
      customers are reported on a net
basis.





Securities
      Held-to-Maturity





Bonds,
      notes, and debentures for which the Company 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




Investment
      securities that would be held for indefinite periods of time but not
      necessarily to maturity, including securities that would be used as part
      of the Bank’s asset/liability management strategy and possibly sold in
      response to changes in interest rates, prepayments and similar factors are
      classified as “Available for Sale.”  These securities are
      carried at fair value, with any temporary unrealized gains or losses
      reported as a separate component of other comprehensive income (loss), net
      of the related income tax effect.  Gains and losses on the sale
      of such securities are accounted for on the specific identification basis
      in the statements of operations on the date of sale.
              
              Management
      evaluates securities for other-than-temporary impairment at least on a
      quarterly basis, and more frequently when economic or market concern
      warrants such evaluation.  Declines in the fair value of
      individual debt securities below their cost that are deemed to be other
      than temporary result in write-downs of the individual securities to their
      fair value.  Debt securities that are deemed to be
      other-than-temporarily impaired are reflected in earnings as realized
      losses to the extent impairment is related to credit losses. The amount of
      the impairment for debt securities related to other factors
    is






53







UNITED
      BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007








1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - Continued





recognized
      in other comprehensive income (loss). In evaluating whether an impairment
      is temporary or other-than-temporary, management first considers whether
      the Bank intends to sell the security or it is more-likely-than-not that
      the Bank will be required to sell the security prior to
      recovery.  In these circumstances, the loss is determined to be
      other-than-temporary and the difference between the security’s fair value
      and its amortized cost is reflected as a loss in the statement of
      operations.
              
              If
      management does not intend to sell the security and likely will not be
      required to sell the security prior to forecasted recovery, management
      evaluates whether it expects to recover the entire amortized cost of the
      debt security or if there is a credit loss.  In evaluating
      whether there is a credit loss, management considers various qualitative
      factors which include (1) the length of time and the extent to which the
      fair value has been less than cost, (2) the reasons for the decline in the
      fair value, and (3) the financial position and access to capital of the
      issuer, including the current and future impact of any specific
      events.  If, based on an analysis of these factors, management
      concludes that there is a credit loss, then management calculates the
      expected cash flows and records a loss in earnings equal to the difference
      between the amortized cost of the debt security and the expected cash
      flows.  The portion of the decline in fair value that is due to
      factors other than credit loss is recognized in other comprehensive
      income.No
      investment securities held by the Bank as of December 31, 2009 and 2008
      were subjected to a write-down due to credit related other-than-temporary
      impairment.  Interest income from securities adjusted for the
      amortization of premiums and accretion of discounts are recognized in
      interest income using the interest method over the contractual lives of
      the related securities.  Realized gains and losses, determined
      using the amortized cost value of the specific securities sold, are
      included in noninterest income in the statement of
    operations.




Loans





The
      Bank has both the positive intent and ability to hold the majority of 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 loan is well collateralized and in the process of
      collection.  Interest received on nonaccrual loans is either
      applied against principal or reported as interest income according to
      management’s judgment as to collectability of principal.  When
      interest accruals are discontinued, interest credited to income is
      reversed and the loan is classified as
impaired.





Unearned
      discount is amortized over the weighted average maturity of the related
      mortgage loan portfolio.  Loan origination and commitment fees
      and certain direct loan origination costs are deferred, and the net amount
      is amortized as an adjustment of the related loan’s yield.  The
      Bank is amortizing these amounts over the contractual life of the
      loan.





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.
              
              Loans
      Held-for-sale
                
                Loans
      held-for-sale are carried at the lower of aggregate cost or market value.
      The Bank had no loans held for sale at December 31, 2009 and
      2008








54








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES - Continued
              
              Transfer
      of Financial Assets
                
                Transfers
      of financial assets, for which the Bank has surrendered control, are
      accounted for as sales to the extent that consideration other than
      beneficial interests in the transferred assets is received in
      exchange.  Retained interests in a sale of financial assets are
      measured at the date of transfer by allocating the previous carrying
      amount between the assets transferred and assets retained based on their
      relative estimated fair values.  The fair values of retained
      servicing rights and any other retained interests are determined based on
      the present value of expected future cash flows associated with those
      interests and by reference to market prices for similar
      assets.




Allowance
      for Loan Losses
              
              The
      allowance for loan losses is established as losses are estimated to have
      occurred through a provision for loan losses.  Loans that are
      determined to be uncollectible are charged against the allowance account,
      and subsequent recoveries, if any, are credited to the
      allowance.  When evaluating the adequacy of the allowance, an
      assessment of the loan portfolio will typically include changes in the
      composition and volume of the loan portfolio, overall portfolio quality
      and past loss experience, review of specific problem loans, current
      economic conditions which may affect borrowers’ ability to repay, and
      other factors whichmay
      warrant current recognition.  Such periodic assessments may, in
      management’s judgment, require the Bank to recognize additions or
      reductions to the allowance.
                
                Various
      regulatory agencies periodically review the adequacy of the Bank’s
      allowance for loan losses as an integral part of their examination
      process.  Such agencies may require the Bank to recognize
      additions or reductions to the allowance based on their evaluation of
      information available to them at the time of their
      examination.  It is reasonably possible that the above factors
      may change significantly and, therefore, affects management’s
      determination of the allowance for loan losses in the near
      term.
                
                The
      allowance consists of specific and general components. The specific
      component relates to loans that are classified as impaired.  For
      those loans that are classified as impaired, an allowance is established
      when the discounted cash flows (or collateral value or observable market
      price) of the impaired loan is lower than the carrying value of that
      loan.  The general component covers non-impaired loans and is
      based on historical charge-off experience and expected loss given default
      derived from the Bank’s internal risk rating process.  Other
      qualitative adjustments may be made to the allowance for pools of loans
      after an assessment of internal or external influences on credit quality
      that are not fully reflected in the historical loss or risk rating
      data.
                
                A
      loan is considered impaired when, based on current information and events,
      it is probable that the Bank will be unable to collect the scheduled
      payments of principal or interest when due according to the contractual
      terms of the loan agreement.  Factors considered by management
      in determining impairment include payment status, collateral value, and
      the probability of collecting scheduled principal and interest payments
      when due.  Loans that experience insignificant payment delays
      and payment shortfalls generally are not classified as
      impaired.  Management determines the significance of payment
      delays and payment shortfalls on a case-by-case basis, taking into
      consideration all of the circumstances surrounding the loan and the
      borrower, including the length of the delay, the reasons for the delay,
      the borrower’s prior payment record, and the amount of the shortfall in
      relation to the principal and interest owed.  Impairment is
      measured on a loan by loan basis for commercial loans by either the
      present value of expected future cash flows discounted at the loan’s
      effective interest rate, the loan’s obtainable market price, or the fair
      value of the collateral if the loan is collateral dependent.
                
                Large
      groups of smaller, homogeneous loans, such as credit cards, residential
      mortgages, and other student loans, are evaluated collectively for
      impairment.Accordingly,
      the Bank does not separately identify individual consumer and residential
      loans for impairment
disclosures.








55





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES -
Continued




Bank Premises and
Equipment





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




Income
      Taxes





The
      liability method is used in accounting for income
      taxes.  Deferred tax assets and liabilities are determined based
      on differences between financial reporting and tax bases of assets and
      liabilities and are measured using the enacted tax rates and laws that
      will be in effect when the differences are expected to
      reverse.  Deferred tax assets are reduced by a valuation
      allowance when, in the opinion of management, it is more likely than not
      that some portion or all of the deferred tax assets will not be
      realized.  Deferred tax assets and liabilities are adjusted for
      the effects of changes in tax laws and rates on the date of
      enactment.  Realization of deferred tax assets is dependent on
      generating sufficient taxable income in the future.
              
              When
      tax returns are filed, it is highly certain that some positions taken
      would be sustained upon examination by the taxing authorities, while
      others are subject to uncertainty about the merits of the position taken
      or the amount of the position that ultimately would be sustained. The
      benefit of a tax position is recognized in the financial statements in the
      period during which, based on all available evidence, management believes
      it is more-likely-than not that the position will be sustained upon
      examination, including the resolution of appeals or litigation processes,
      if any. The evaluation of a tax position taken is considered by itself and
      not offset or aggregated with other positions. Tax positions that meet the
      more-likely-than not recognition threshold are measured as the largest
      amount of tax benefit that is more than 50  percent likely of
      being realized upon settlement with the applicable taxing authority. The
      portion of benefits associated with tax positions taken that exceeds the
      amount measured as described above is reflected as a liability for
      unrecognized tax benefits in the accompanying balance sheet along with any
      associated interest and penalties that would be payable to the taxing
      authorities upon examination.
              
              It
      is the Bank’s policy to recognize interest and penalties related to
      unrecognized tax liabilities within income tax expense in the statement of
      operations.
              
              The
      Bank does not have an accrual for uncertain tax positions as of December
      31, 2009 or 2008, as deductions taken and benefits accrued are based on
      widely understood administrative practices and procedures and are based on
      clear and unambiguous tax law.




Earnings
      (Loss) Per Share (“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.









(Continued)






56








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, 2007





1.
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
  Continued





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.





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.


2009
            
            
            2008Core
      Deposit Premium (cost)
            
            $
            2,449,488
            
            
            $
            2,449,488Less
      accumulated amortization
            
            
            (1,779,521
            )
            
            
            (1,601,442
            )$
            669,967
            
            
            $
            848,046




Amortization
      of the intangible totaled approximately $178,100 for each of the years
      ended December 31, 2009, 2008, and 2007.  The amortization of
      the intangible is projected to be approximately $178,100 for each of the
      next three years and approximately $136,000 in the fourth
      year.  Intangible assets are reviewed for possible impairment
      when events or changed circumstances may affect the underlying basis of
      the net asset.  Such reviews include an analysis of current
      results and take into consideration the discounted value of projected
      operating cash flows. No impairment has been
recognized.
              
              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, net of estimated cost to
      sell, 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 Bank had no foreclosed real estate as of
      December 31, 2009 and 2008.





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.  Material estimates which are particularly
      susceptible to significant change in the near term relate to the market
      value of investment securities, the determination of the allowance for
      loan losses, valuation allowance for deferred tax assets and consideration
      of impairment of other intangible
assets.




Segments
              
              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 it 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.






57







UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES –
Continued





Reclassifications





Certain reclassifications have been
made to the prior year’s financial statements to conform to the 2008
presentation.





Comprehensive
      Income





Comprehensive
      income includes net income as well as certain other items that result in a
      change to equity during the period. The components of other comprehensive
      income are as follows:





December 31, 2009Before
      tax
            
            
            Tax
            
            
            Net
      of taxamount
            
            
            (expense)
            
            
            amountUnrealized
      gains on securitiesUnrealized
      holding gains arising during period
            
            $
            39,787
            
            
            $
            (13,130
            )
            
            $
            26,657Less:
      reclassification adjustment for gainsrealized
      in net income
            
            
            -
            
            
            
            -
            
            
            
            -Other
      comprehensive income, net
            
            $
            39,787
            
            
            $
            (13,130
            )
            
            $
            26,657December 31, 2008Before
      tax
            
            
            Tax
            
            
            Net
      of taxamount
            
            
            benefit(expense)
            
            
            amountUnrealized
      gains on securitiesUnrealized
      holding gains arising during period
            
            $
            29,765
            
            
            $
            (11,928
            )
            
            $
            17,837Less:
      reclassification adjustment for gainsrealized
      in net income
            
            
            -
            
            
            
            -
            
            
            
            -Other
      comprehensive income, net
            
            $
            29,765
            
            
            $
            (11,928
            )
            
            $
            17,837December 31, 2007Before
      tax
            
            
            Tax
            
            
            Net
      of taxamount
            
            
            benefit(expense)
            
            
            amountUnrealized  gains
      on securitiesUnrealized
      holding gains arising during period
            
            $
            36,237
            
            
            $
            (11,958
            )
            
            $
            24,279Less:
      reclassification adjustment for gainsrealized
      in net income
            
            
            -
            
            
            
            -
            
            
            
            -Other
      comprehensive income, net
            
            $
            36,237
            
            
            $
            (11,958
            )
            
            $
            24,279





Recent
      Accounting Pronouncements







FASB ASC Topic 320,
      “Investments - Debt and Equity Securities.” New authoritative
      accounting guidance under ASC Topic 320, “Investments - Debt and Equity
      Securities,” (i) changes existing guidance for determining whether an
      impairment is other than temporary to debt securities and
      (ii) replaces the existing requirement that the entity’s management
      assert it has both the intent and ability to hold an impaired security
      until recovery with a requirement that management assert: (a) it does
      not have the intent to sell the security; and (b) it is more likely
      than not it will not have to sell the security before recovery of its cost
      basis. Under ASC Topic 320, declines in the fair value of held-to-maturity
      and available-for-sale securities below their cost that are
      deemed








(Continued)






58







UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





1.     SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES – Continued


to be
other than temporary are reflected in earnings as realized losses to the extent
the impairment is related to credit losses. The amount of the impairment related
to other factors is recognized in other comprehensive income.




FASB ASC Topic 820, “Fair Value
Measurements and Disclosures.” New authoritative accounting guidance
under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the
objective of fair value when the market for an asset is not active is the price
that would be received to sell the asset in an orderly transaction, and
clarifies and includes additional factors for determining whether there has been
a significant decrease in market activity for an asset when the market for that
asset is not active. ASC Topic 820 requires an entity to base its conclusion
about whether a transaction was not orderly on the weight of the evidence. The
new accounting guidance amended prior guidance to expand certain disclosure
requirements. The Company adopted the new authoritative accounting guidance
under ASC Topic 820 during the second quarter of 2009. Adoption of the new
guidance did not significantly impact the Company’s financial
statements.




Further
new authoritative accounting guidance (Accounting Standards Update
No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair
value of a liability in circumstances in which a quoted price in an active
market for the identical liability is not available. In such instances, a
reporting entity is required to measure fair value utilizing a valuation
technique that uses (i) the quoted price of the identical liability when
traded as an asset, (ii) quoted prices for similar liabilities or similar
liabilities when traded as assets, or (iii) another valuation technique
that is consistent with the existing principles of ASC Topic 820, such as an
income approach or market approach. The new authoritative accounting guidance
also clarifies that when estimating the fair value of a liability, a reporting
entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. The forgoing new authoritative accounting guidance under ASC Topic
820 became effective for the Company’s financial statements beginning
October 1, 2009 and did not have a significant impact on the Company’s
financial statements.





FASB ASC Topic 855, “Subsequent
Events.” New authoritative accounting guidance under ASC Topic 855,
“Subsequent Events,” establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC Topic 855 defines
(i) the period after the balance sheet date during which a reporting
entity’s management should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
(iii) the disclosures an entity should make about events or transactions
that occurred after the balance sheet date. The new authoritative accounting
guidance under ASC Topic 855 became effective for the Company’s financial
statements for periods ending after June 15, 2009 and did not have a
significant impact on the Company’s financial statements. Accordingly,
management has evaluated subsequent events through the date the financial
statements were issued and has determined that no recognized or non-recognized
subsequent events warranted inclusion or disclosure in the financial statements
as of December 31, 2009.





FASB ASC Topic 860, “Accounting for
Transfers of Financial Assets” On December 23, 2009, the FASB issued ASU
2009-16 to amend the ASC to incorporate the guidance from SFAS 166, Accounting for Transfers of
Financial Assets– an Amendment of FASB Statement No. 140.  ASU
2009-16 enhances information reported to users of financial statements by
providing greater transparency about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets.Effective
as of the beginning of each reporting entity’s first annual reporting period
that begins after November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting periods thereafter.
Earlier application is prohibited.










59








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





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, 2009.  Reserve balances were $125,000
      and $627,000, respectively, as of December 31, 2009 and
    2008.





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, 2009 and 2008 are as
      follows:





2009Gross
              
              
              GrossAmortized
              
              
              unrealized
              
              
              unrealized
              
              
              FairCost
              
              
              gains
              
              
              losses
              
              
              valueAvailable-for-sale:Government
      Sponsored Enterprises residential mortgage-backed
    securities
              
              $
              1,659,353
              
              
              $
              74,870
              
              
              
              -
              
              
              $
              1,734,223Investments
      in mutual funds
              
              
              128,770
              
              
              
              -
              
              
              
              -
              
              
              
              128,770$
              1,788,123
              
              
              $
              74,870
              
              
              $
              -
              
              
              $
              1,862,993Held-to-maturity:U.S.Government
      agency securities
              
              $
              6,574,668
              
              
              $
              8,898
              
              
              $
              (101,293
              )
              
              $
              6,482,273Government
      Sponsored Enterprises residential mortgage-backed
    securities
              
              
              3,396,139
              
              
              
              153,433
              
              
              
              (11,859
              )
              
              
              3,537,713$
              9,970,807
              
              
              $
              162,331
              
              
              $
              (113,152
              )
              
              $
              10,019,986
  2008Gross
              
              
              GrossAmortized
              
              
              unrealized
              
              
              unrealized
              
              
              FairCost
              
              
              gains
              
              
              losses
              
              
              valueAvailable-for-sale:U.S.Government
      agency securities
              
              $
              250,000
              
              
              $
              3,515
              
              
              $
              -
              
              
              $
              253,515Government
      Sponsored Enterprises residential mortgage-backed
    securities
              
              
              2,252,145
              
              
              
              34,072
              
              
              
              (2,504
              )
              
              
              2,283,713Total
      debt securities
              
              
              2,502,145
              
              
              
              37,587
              
              
              
              (2,504
              )
              
              
              2,537,228Investments
      in mutual funds
              
              
              127,923
              
              
              
              -
              
              
              
              -
              
              
              
              127,923$
              2,630,068
              
              
              $
              37,587
              
              
              $
              (2,504
              )
              
              $
              2,665,151Held-to-maturity:U.S.Government
      agency securities
              
              $
              6,199,087
              
              
              $
              37,961
              
              
              $
              (7,033
              )
              
              $
              6,230,015Government
      Sponsored Enterprises residential mortgage-backed
    securities
              
              
              3,697,879
              
              
              
              94,015
              
              
              
              (5,595
              )
              
              
              3,786,299$
              9,896,965
              
              
              $
              131,976
              
              
              $
              (12,628
              )
              
              $
              10,016,314





In 2009,
$8,475,000 in U.S. Government agencies securities were called.  In
2008, $7,500,000 in securities were called. There were no gross gains or losses
realized from these transactions during 2009 or 2008. No securities were sold
during 2009, 2008, or 2007.









60





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





3.  INVESTMENTS-Continued





The table
below indicates the length of time individual securities, both held-to-maturity
and available-for-sale, have been in a continuous unrealized loss position at
December 31, 2009 (in thousands):





Number
            
            
            Less than 12 months
            
            
            12 months or longer
            
            
            TotalDescription
      of
            
            of
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedSecurities
            
            securities
            
            
            value
            
            
            Losses
            
            
            value
            
            
            losses
            
            
            value
            
            
            lossesU.S.
      Governmentagency
      securities
            
            
            18
            
            
            $
            5,718
            
            
            $
            (101
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            5,718
            
            
            $
            (101
            )Mortgage
      backedsecurities
            
            
            2
            
            
            
            510
            
            
            
            (12
            )
            
            
            -
            
            
            
            -
            
            
            
            510
            
            
            
            (12
            )Total
      temporarilyimpaired
      investmentsecurities
            
            
            20
            
            
            $
            6,228
            
            
            $
            (113
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            6,228
            
            
            $
            (113
            )





The table
below indicates the length of time individual securities, both held-to-maturity
and available-for-sale, have been in a continuous unrealized loss position at
December 31, 2008 (in thousands):





Number
            
            
            Less than 12 months
            
            
            12 months or longer
            
            
            TotalDescription
      of
            
            of
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedSecurities
            
            securities
            
            
            value
            
            
            Losses
            
            
            value
            
            
            losses
            
            
            value
            
            
            lossesU.S.
      Governmentagency
      securities
            
            
            1
            
            
            $
            493
            
            
            $
            (7
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            493
            
            
            $
            (
      7
            )Mortgage
      backedsecurities
            
            
            13
            
            
            
            802
            
            
            
            (8
            )
            
            
            -
            
            
            
            -
            
            
            
            802
            
            
            
            (8
            )Total
      temporarilyimpaired
      investmentsecurities
            
            
            14
            
            
            $
            1,295
            
            
            $
            (15
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            1,295
            
            
            $
            (15
            )




Management
evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such
evaluation. Consideration is given to (1) the length of time and extent to which
fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, (3) whether the Bank intends to sell its investment in
the issuer and (4) whether the Bank will more likely than not be required to
sell the investment before recovery of the cost basis, which may be maturity.
Management has evaluated the securities in an unrealized loss position as of
December 31, 2009 based upon the considerations noted above and believes that
the unrealized losses in the securities portfolio are attributable to changes in
market interest rates and are not credit related.  Therefore,
unrealized losses in the available for sale portfolio are considered
temporary.








(Continued)






61





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





3. INVESTMENTS-Continued





Maturities
of investment securities classified as available-for-sale and held-to-maturity
at December 31, 2009 were as follows.  Expected maturities may differ
from contractual maturities because the U.S. agencies may be called or
underlying mortgages supporting mortgage backed securities may be prepaid
without any penalties. Consequently,
mortgage-backed securities are not presented by maturity
category.





Amortized
            
            
            Faircost
            
            
            valueAvailable-for-sale:Due
      in one year
            
            $
            -
            
            
            $
            -Due
      after one year through five years
            
            
            -
            
            
            
            -Due
      after five years through ten years
            
            
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            1,659,353
            
            
            
            1,734,223Total
      debt securities
            
            
            1,659,353
            
            
            
            1,734,223Investments
      in mutual funds
            
            
            128,770
            
            
            
            128,770$
            1,788,123
            
            
            $
            1,862,993Held-to-maturity:Due
      in one year
            
            $
            -
            
            
            $
            -Due
      after one year through five years
            
            
            250,000
            
            
            
            253,203Due
      after five years through ten years
            
            
            5,530,278
            
            
            
            5,444,133Due
      after ten years
            
            
            794,390
            
            
            
            784,938Mortgage-backed
      securities
            
            
            3,396,139
            
            
            
            3,537,713$
            9,970,807
            
            
            $
            10,019,986





As of
December 31, 2009 and 2008, investment securities with a book value of
$11,705,030 and $12,033,000 respectively, were pledged as collateral to secure
public deposits and contingent borrowing at the Discount Window.







62





UNITED
      BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
31, 2009, 2008, and 2007





4.  LOANS AND ALLOWANCE FOR
LOAN LOSSES





The
composition of the net loans is as follows:





2009
            
            
            2008Commercial
      real estate
            
            $
            32,581,925
            
            
            $
            32,198,348Commercial
      and industrial
            
            
            4,066,016
            
            
            
            4,286,030Residential
      mortgages
            
            
            5,313,372
            
            
            
            6,110,821Consumer
      loans
            
            
            5,625,799
            
            
            
            6,068,238Total
      loans
            
            
            47,587,112
            
            
            
            48,663,437Less
      allowance for loan losses
            
            
            (727,397
            )
            
            
            (586,673
            )Net
      loans
            
            $
            46,859,715
            
            
            $
            48,076,764




At
December 31, 2009 and 2008, unamortized net deferred fees totaled $114,662 and
$114,910, respectively, and are included in the related loan
accounts.





As of
December 31, 2009 and 2008, the Bank had loans to certain officers and directors
and their affiliated interests in aggregate dollar amounts of $1,535,973 and
$826,868, respectively. During 2009, there were $838,656 in new loans to related
parties and repayments amounted to $129,557. During 2008, there were $39,000 in
new loans to related parties and repayments amounted to $90,078. During 2007,
there were no new loans to related parties and repayments amounted to
$145,129.





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





Details
on the Bank’s non-performing loans are as follows (in
thousands):


2009
            
            
            2008
            
            
            2007Total
      non-accrual loans
            
            $
            3,783
            
            
            $
            1,701
            
            
            $
            745Average
      impaired loans
            
            
            2,772
            
            
            
            2,192
            
            
            
            929Total
      impaired loans without specific reserve
            
            
            2,884
            
            
            
            2,151
            
            
            
            64Total
      impaired loans with specific reserve
            
            
            697
            
            
            
            380
            
            
            
            1,681Specific
      allowance allocated to impaired loans
            
            
            187
            
            
            
            96
            
            
            
            254Non-accrual/impaired
      loans with SBA Guarantees
            
            
            412
            
            
            
            611
            
            
            
            374Interest
      recognized on impaired loans
            
            
            37
            
            
            
            64
            
            
            
            112Loans
      past due 90 days and still accruing
            
            
            370
            
            
            
            578
            
            
            
            1,067






63







UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007











Changes
in the allowance for loan losses are as follows:





2009
            
            
            2008
            
            
            2007Balance,
      beginning of year
            
            $
            586,673
            
            
            $
            589,526
            
            
            $
            561,409Provision
            
            
            235,000
            
            
            
            368,000
            
            
            
            120,000Charge-offs
            
            
            (140,496
            )
            
            
            (519,363
            )
            
            
            (229,557
            )Recoveries
            
            
            46,220
            
            
            
            148,510
            
            
            
            137,674Balance,
      end of year
            
            $
            727,397
            
            
            $
            586,673
            
            
            $
            589,526





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, 2009, approximately 39.9% 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:




Estimateduseful
      life
            
            2009
            
            
            2008Buildings
      and leasehold improvements
            10-15
      years
            
            $
            1,679,142
            
            
            $
            1,655,273Furniture
      and equipment
            3-
      7 years
            
            
            1,257,699
            
            
            
            1,197,1052,936,841
            
            
            
            2,852,378Less
      accumulated depreciation
            
            
            
            (1,578,545
            )
            
            
            (1,230,064
            )$
            1,358,296
            
            
            $
            1,622,314





Depreciation
expense on fixed assets totaled $348,481, $304,657, and $276,508 for the years
ended December 31, 2009, 2008, 2007, respectively.











64








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





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, 2009, 2008, and 2007 was $416,201, $394,396, and $384,179,
respectively. Future minimum lease payments under operating leases are as
follows:





Year ending December 31,
            
            Operating
      leases2010
            
            $
            438,6642011
            
            
            443,7442012
            
            
            462,3222013
            
            
            472,2112014
            
            
            482,162Thereafter
            
            
            884,371Total
      minimum lease payments
            
            $
            3,183,474








6.  DEPOSITS





At
      December 31, 2009, the scheduled maturities of time deposits (certificates
      of deposit) are as follows (in
thousands):





2010
            
            $
            19,8042011
            
            
            4882012
            
            
            1612013
            
            
            1982014
            
            
            75Thereafter
            
            
            59$
            20,785





7.   BORROWINGS





At
      December 31, 2009,  the Bank has the ability to borrow on a
      fully secured basis at the Discount Window of the Federal Reserve Bank for
      which it currently has $1.75 million in securities pledged that result in
      borrowing capacity of $1.5 million.  As of December 31, 2009 and
      2008, the Bank had no borrowings
outstanding.





8.
            INCOME
      TAXES





At
      December 31, 2009, the Bank has net operating loss carry forwards of
      approximately $5,120,000 for income tax purposes that expire in 2012
      through 2026.











65













UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





8.
            INCOME
      TAXES-continued





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 $2,468,356 and $2,300,917 as of December 31,
2009 and 2008, respectively, has been recognized to offset the deferred tax
assets related to the cumulative temporary differences and the tax loss carry
forwards.  Significant components of the Bank’s deferred tax assets
are as follows:


December
      31,2009
            
            
            2008Deferred
      tax assets(liabilities):Provision
      for loan losses
            
            $
            147,544
            
            
            $
            92,057Unrealized
      gain on investment securities
            
            
            (24,707
            )
            
            
            (11,577
            )Depreciation
            
            
            391,666
            
            
            
            402,618Net
      operating loss carryforwards
            
            
            1,763,240
            
            
            
            1,672,613Other,
      net
            
            
            122,825
            
            
            
            121,700Valuation
      allowance for deferred tax assets
            
            
            (2,400,568
            )
            
            
            (2,277,411
            )Net
      deferred tax assets
            
            $
            -
            
            
            $
            -







2009
            
            
            2008Effective
      rate reconciliation:Tax
      at statutory rate (34%)
            
            $
            (185,344
            )
            
            $
            (222,190
            )Nondeductible
      expenses
            
            
            5,191
            
            
            
            5,608Increase
      in valuation allowance
            
            
            123,157
            
            
            
            115,202Other
            
            
            26,260
            
            
            
            101,380Total
      tax expense
            
            $
            -
            
            
            $
            -





Management
has evaluated the Bank’s tax positions and concluded that the Bank has taken no
uncertain tax positions that require adjustment to the financial statements.
With few exceptions, the Bank is no longer subject to income tax examinations by
the U.S. federal, state or local tax authorities for the years before
2006.





9.  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.





(Continued)











66











UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, 2007





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





2009
            
            
            2008Commitments
      to extend credit
            
            $
            8,558,100
            
            
            $
            10,968,300Outstanding
      letters of credit
            
            
            -
            
            
            
            -





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.





10.  FAIR
      VALUE




Fair
Value Measurements





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





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













(Continued)








67





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, 2007







Level
1


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





Level
2 Inputs


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


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


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





Level
3 Inputs


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


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





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





Fair
Value on a Recurring Basis





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





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








(in
      000’s)
            
            Fair
      Value Measurements at Reporting Date Using:Assets/Liabilities
      Measured at Fair Value at
            Quoted
      Prices in Active markets for Identical Assets (Level 1)
            Significant
      other Observable Inputs (Level 2)
            Significant
      Unobservable Inputs (Level 3)December
      31, 2009
              Investment
      securities available-for-sale
            $1,863
            $1.29
            $1,734
            -December
      31, 2008
              Investment
      securities available-for-sale
            $2,665
            $1.28
            $2,537
            -






68








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





Fair
Value on a Nonrecurring Basis





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





Impaired Loans (net of
specific reserves):  The carrying value of impaired loans is derived
in accordance with FASB ASC Topic 310, “Receivables”.  Fair value is
determined based on the loan’s observable market price or the fair value of the
collateral if the loan is collateral dependent.  Appraised and
reported values may be discounted based on management’s historical knowledge,
changes in market conditions from the time of valuation. The valuation allowance
for impaired loans is included in the allowance for loan losses in the balance
sheets.  The valuation allowance for impaired loans at December 31,
2009 and December 31, 2008 was $187,000 and $96,000
respectively.   The increase in fair value of impaired loans
during 2009 and 2008 was $959,000 and $943,000 respectively.








The
following table presents the assets and liabilities carried on the consolidated
balance sheets by level within the fair value hierarchy as of December 31, 2009,
for which a nonrecurring change in fair value has been recorded during the year
ended December 31, 2009.








(in
      000’s)
            Total
            Quoted
      Prices in Active markets for Identical Assets
              (Level
      1)
            Significant
      other Observable Inputs
              (Level
      2)
            Significant
      Unobservable Inputs
              (Level
      3)December
      31, 2009
              
              Assets:
              Impaired
      Loans
            $3,394
            -
            -
            $3,394December
      31, 2008
              
              Assets:
              Impaired
      Loans
            $2,435
            -
            -
            $2,435








Fair
Value of Financial Instruments





FASB ASC
Topic 825 “Disclosure About Fair Value of Financial Instruments”, requires the
disclosure of the estimated fair value of financial instruments.  The
methodology for estimating the fair value of financial assets and liabilities
that are measured on a recurring or non recurring basis are discussed
above.





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.






69







UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





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





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





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. The carrying amount of accrued
interest payable approximates fair market value.





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





The fair
value of financial instruments at year-end are presented below:





2009
            
            
            
            
            
            2008Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            Value(Dollars
      in thousands)Assets:Cash
      and cash equivalents
            
            $
            6,290
            
            
            $
            6,290
            
            
            $
            5,471
            
            
            $
            5,471Investment
      securities
            
            
            11,834
            
            
            
            11,883
            
            
            
            12,555
            
            
            
            12,681Loans,
      net of allowance for loan losses
            
            
            46,860
            
            
            
            46,707
            
            
            
            48,077
            
            
            
            48,416Interest
      receivable
            
            
            421
            
            
            
            421
            
            
            
            433
            
            
            
            433Liabilities:Demand
      deposits
            
            
            24,219
            
            
            
            24,219
            
            
            
            23,134
            
            
            
            23,134Savings
      deposits
            
            
            15,302
            
            
            
            15,302
            
            
            
            16,668
            
            
            
            16,668Time
      deposits
            
            
            20,785
            
            
            
            20,785
            
            
            
            21,102
            
            
            
            21,102Interest
      Payable
            
            
            64
            
            
            
            64
            
            
            
            127
            
            
            
            127









70





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED





December
31, 2009, 2008, and 2007





11.  EMPLOYEE
COMPENSATION




In
November 2004, the Bank renewed the employment agreements of its chief executive
officer and its chief financial officer covering such items as salaries, bonuses
and benefits for three years.   These agreements provide for
guaranteed minimum annual compensation over the term of the
contracts.  In 1998, the Company adopted a Stock Option Plan with the
approval of its shareholders. 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.  All options previously granted in 1998 expired during
2008.  There were no new grants subsequently made.  As a
result, there was no compensation cost charged against income for the Plan for
the years ended December 31, 2009, 2008 or 2007.  There were no
options are outstanding or available for grant at December 31, 2009 or
2008.




12.  CONSOLIDATED
FINANCIAL INFORMATION—PARENT COMPANY ONLY





Condensed
      Balance Sheets


December 31, 2009(Dollars
      in thousands)
            
            2009
            
            
            2008Assets:Cash
      and cash equivalents
            
            $
            117
            
            
            $
            189Investment
      in United Bank of Philadelphia
            
            
            7,415
            
            
            
            7,861Total
      assets
            
            $
            7,532
            
            
            $
            8,050Shareholders’
      equity:Series
      A preferred stock
            
            
            1
            
            
            
            1Common
      stock
            
            
            11
            
            
            
            11Additional
      paid-in capital
            
            
            14,750
            
            
            
            14,750Accumulated
      deficit
            
            
            (7,280
            )
            
            
            (6,736
            )Net
      unrealized holding gains on securities available-for-sale
            
            
            50
            
            
            
            24Total
      shareholders’ equity
            
            
            7,532
            
            
            
            8,050Total
      liabilities and shareholders’ equity
            
            $
            7,532
            
            
            $
            8,050






71





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





Condensed
      Statements of Operations


Years ended December 31,
    2009(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007Other
      Expenses
            
            $
            (72
            )
            
            $
            (61
            )
            
            $
            (26
            )Equity
      in net (loss) income of subsidiary
            
            $
            (473
            )
            
            $
            (592
            )
            
            $
            75Net
      (loss) income
            
            $
            (545
            )
            
            $
            (653
            )
            
            $
            47Condensed
      Statements of Cash FlowsYears ended December 31,(Dollars
      in thousands)
            
            
            2009
            
            
            
            2008
            
            
            
            2007Cash
      flows from operating activities:Net
      income (loss)
            
            $
            (545
            )
            
            $
            (653
            )
            
            $
            47Adjustments:Increase
      (decrease) in liabilities
            
            
            -
            
            
            
            (3
            )
            
            
            (8
            )Equity
      in net (loss) income of subsidiary
            
            
            473
            
            
            
            592
            
            
            
            (75
            )Net
      cash provided by operating activities
            
            
            (72
            )
            
            
            (64
            )
            
            
            (36
            )Cash
      and cash equivalents at beginning of year
            
            
            189
            
            
            
            253
            
            
            
            289Cash
      and cash equivalents at end of year
            
            $
            117
            
            
            $
            189
            
            
            $
            253





13.  REGULATORY
MATTERS





The
      Bank engages in the commercial banking business, with a particular focus
      on serving African Americans, 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 FDIC
      and the Pennsylvania Department of Banking and are required to maintain
      capital requirements established by those regulators. Effective January 1,
      2009, the FDIC became the Bank’s primary regulator after it voluntarily
      surrendered its Federal Reserve
Membership.





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).





The
      most recent notification from the Bank’s regulatory agencies categorized
      the Bank as “well capitalized” under the regulatory framework for prompt
      and corrective action.  Prompt corrective action provisions are
      not applicable to bank holding companies. 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 and other operating factors may
      have an adverse effect on its capital
ratios.








72








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





The
      Company and the Bank’s actual capital amounts and ratios are as
      follows:




Actual
            
            
            For
      capital adequacy
    purposes
            
            
            To
      be well capitalized under prompt corrective
              action provisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioAs
      of December 31, 2009:Total
      capital to risk-weighted
      assets:Consolidated
            
            $
            7,407
            
            
            
            15.57
            %
            
            $
            3,815
            
            
            
            8.00
            %
            
            
            N/ABank
            
            
            7,290
            
            
            
            15.33
            
            
            
            3,806
            
            
            
            8.00
            %
            
            $
            4,759
            
            
            
            10.00
            %Tier
      I capital to risk-weighted
      assets:Consolidated
            
            
            6,811
            
            
            
            14.32
            
            
            
            1,907
            
            
            
            4.00
            %
            
            
            N/ABank
            
            
            6,694
            
            
            
            14.07
            
            
            
            1,903
            
            
            
            4.00
            %
            
            $
            2,854
            
            
            
            6.00
            %Tier
      I capital to average assets:Consolidated
            
            
            6,811
            
            
            
            10.08
            
            
            
            2,708
            
            
            
            4.00
            %
            
            
            N/ABank
            
            
            6,694
            
            
            
            9.91
            
            
            
            2,703
            
            
            
            4.00
            %
            
            $
            3,379
            
            
            
            5.00
            %




Actual
            
            
            For
      capital adequacy
    purposes
            
            
            To
      be well capitalized under prompt corrective
              actionprovisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioAs
      of December 31, 2008:Total
      capital to risk-weighted
      assets:Consolidated
            
            $
            7,765
            
            
            
            16.57
            %
            
            $
            3,768
            
            
            
            8.00
            %
            
            
            N/ABank
            
            
            7,576
            
            
            
            16.17
            
            
            
            3,749
            
            
            
            8.00
            %
            
            $
            4,686
            
            
            
            10.00
            %Tier
      I capital to risk-weighted
      assets:Consolidated
            
            
            7,178
            
            
            
            15.32
            
            
            
            1,884
            
            
            
            4.00
            %
            
            
            N/ABank
            
            
            6,989
            
            
            
            14.91
            
            
            
            1,874
            
            
            
            4.00
            %
            
            $
            2,812
            
            
            
            6.00
            %Tier
      I capital to average assets:Consolidated
            
            
            7,178
            
            
            
            10.27
            
            
            
            2,804
            
            
            
            4.00
            %
            
            
            N/ABank
            
            
            6,989
            
            
            
            10.00
            
            
            
            2,795
            
            
            
            4.00
            %
            
            $
            3,493
            
            
            
            5.00
            %





Under the
framework, the Bank’s capital levels do not allow the Bank to accept brokered
deposits without prior approval from regulators.  Historically, the
Bank has not accepted brokered deposits and management believes this restriction
does not significantly limit the Bank’s ability to attract deposits and maintain
adequate liquidity.





14.  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.






73





UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED





December
31, 2009, 2008, and 2007








15.  EARNINGS
PER SHARE COMPUTATION





Net
      income (loss) per common share is calculated as
  follows:


Year ended December 31,
2009Income
            
            
            Shares
            
            
            Per
      share(numerator)
            
            
            (denominator)
            
            
            amountNet
      loss
            
            $
            (545,129
            )Basic  EPSLoss
      available to common stockholders
            
            $
            (545,129
            )
            
            
            1,068,588
            
            
            $
            (0.51
            )Fully
      Diluted EPSLoss
      available to common stockholders
            
            $
            (545,129
            )
            
            
            1,068,588
            
            
            $
            (0.51
            )Year ended December 31,
2008Income
            
            
            Shares
            
            
            Per
      share(numerator)
            
            
            (denominator)
            
            
            amountNet
      loss
            
            $
            (653,499
            )Basic  EPSLoss
      available to common stockholders
            
            $
            (653,499
            )
            
            
            1,068,588
            
            
            $
            (0.61
            )Fully
      Diluted EPSLoss
      available to common stockholders
            
            $
            (653,499
            )
            
            
            1,068,588
            
            
            $
            (0.61
            )





Year ended December 31,
2007Income
            
            
            Shares
            
            
            Per
      share(numerator)
            
            
            (denominator)
            
            
            amountNet
      income
            
            $
            47,287Basic
      EPSIncome
      available to common stockholders
            
            $
            47,287
            
            
            
            1,068,588
            
            
            $
            0.04Fully
      Diluted EPSIncome
      available to common stockholders
            
            $
            47,287
            
            
            
            1,068,588
            
            
            $
            0.04








Options
      to purchase 29,694 shares of common stock are not included in the
      computation of diluted EPS for the years ended December 31, 2007 noting
      that such inclusion would be
anti-dilutive.





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








74








UNITED
BANCSHARES, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED





December
      31, 2009, 2008, and 2007





16.  SUMMARY
OF QUARTERLY RESULTS (UNAUDITED)





The
      following summarizes the consolidated results of operations during 2009
      and 2008, on a quarterly basis, for United Bancshares, Inc. and
      Subsidiary:





(Dollars
in thousands)


2009Fourth
            
            
            Third
            
            
            Second
            
            
            Firstquarter
            
            
            quarter
            
            
            Quarter
            
            
            QuarterInterest
      income
            
            $
            845
            
            
            $
            907
            
            
            $
            927
            
            
            $
            921Interest
      expense
            
            
            91
            
            
            
            111
            
            
            
            125
            
            
            
            149Net
      interest income
            
            
            754
            
            
            
            796
            
            
            
            802
            
            
            
            772Provision
      for loan losses
            
            
            30
            
            
            
            145
            
            
            
            30
            
            
            
            30Net
      interest after provision for loan losses
            
            
            724
            
            
            
            651
            
            
            
            772
            
            
            
            742Noninterest
      income
            
            
            306
            
            
            
            417
            
            
            
            313
            
            
            
            276Noninterest
      expense
            
            
            1,227
            
            
            
            1,200
            
            
            
            1,166
            
            
            
            1,155Net
      loss
            
            
            (196
            )
            
            
            (132
            )
            
            
            (80
            )
            
            
            (137
            )Basic
      loss per common share
            
            $
            (0.18
            )
            
            $
            (0.12
            )
            
            $
            (0.08
            )
            
            $
            (0.13
            )Diluted
      earnings per common share
            
            $
            (0.18
            )
            
            $
            (0.12
            )
            
            $
            (0.08
            )
            
            $
            (0.13
            )








(Dollars
in thousands)


2008Fourth
            
            
            Third
            
            
            Second
            
            
            Firstquarter
            
            
            quarter
            
            
            quarter
            
            
            quarterInterest
      income
            
            $
            965
            
            
            $
            1,042
            
            
            $
            1,033
            
            
            $
            1,040Interest
      expense
            
            
            174
            
            
            
            180
            
            
            
            192
            
            
            
            244Net
      interest income
            
            
            791
            
            
            
            862
            
            
            
            841
            
            
            
            796Provision
      for loan losses
            
            
            75
            
            
            
            278
            
            
            
            15
            
            
            
            -Net
      interest after provision for loan losses
            
            
            716
            
            
            
            584
            
            
            
            826
            
            
            
            796Noninterest
      income
            
            
            313
            
            
            
            276
            
            
            
            312
            
            
            
            308Noninterest
      expense
            
            
            1,224
            
            
            
            1,208
            
            
            
            1,181
            
            
            
            1,172Net  income(loss)
            
            $
            (195
            )
            
            $
            (348
            )
            
            $
            (44
            )
            
            $
            ( 68
            )Basic
      earnings(loss) per common share
            
            $
            (0.18
            )
            
            $
            (0.32
            )
            
            $
            (0.04
            )
            
            $
            (0.06
            )Diluted
      earnings per common share
            
            $
            (0.18
            )
            
            $
            (0.32
            )
            
            $
            (0.04
            )
            
            $
            (0.06
            )











75








Commission
      File No. 0-25976











SECURITIES
      AND EXCHANGE COMMISSION


FORM
      10-K





ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF





THE
      SECURITIES EXCHANGE ACT OF 1934





For
      the Year Ended December 31, 2009





UNITED
      BANCSHARES, INC.








EXHIBITS