SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                    FORM 10-K

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

                  For the Fiscal Year Ended December 31, 1995.

                             UNITED BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)
                                     0-25976
                           (Registrant's file number)

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

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

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

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

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

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

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                NO_____   YES__X__

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


   
1

<PAGE>



     There  is no  market  for  the  Common  Stock.  None of the  shares  of the
Registrant's  stock were sold within 60 days of the filing of this Form 10-K. As
of March 15, 1997 the aggregate number of the shares of the Registrant's  Common
Stock outstanding was 816,355.

     Registrant also has a class of series preferred stock authorized. The Board
of the Registrant has  designated  one series of non-voting  preferred  stock as
Series A Preferred  Stock. As of March 15, 1997, the aggregate  number of shares
of the Registrant's Series A Preferred Stock outstanding was 93,150.



                       DOCUMENTS INCORPORATED BY REFERENCE

     No documents are incorporated by reference.

                                     PART I

ITEM 1   BUSINESS

     United Bancshares, Inc.

     United Bancshares,  Inc.  ("Registrant" or "UBS") is a bank holding company
formed  under  the  Bank  Holding  Company  Act  of  1956,  as  amended.  It was
incorporated  under the laws of the  Commonwealth  of  Pennsylvania  on April 8,
1993.  UBS  became  a  bank  holding  company  on  October  14,  1994  when  its
wholly-owned subsidiary, New Bank, a Pennsylvania  state-chartered interim bank,
formed for the purposes of  establishing  a holding  company  relationship  with
United Bank of Philadelphia, was merged (the "Merger") with and into United Bank
of Philadelphia  (also referred to as the "Bank").  The Merger was  accomplished
because,  in April  1993,  the  shareholders  of the Bank  voted in favor of the
formation  of a bank holding  company,  United  Bancshares,  Inc. UBS issued its
common  shares in exchange for all of the issued and  outstanding  shares of the
Bank such that all of the  holders of common  shares of the Bank became the only
holders of common  shares of UBS.  The Bank  commenced  operations  on March 23,
1992. UBS provides banking  services  through the Bank. The principal  executive
offices  of UBS and the Bank are  located at 714  Market  Street,  Philadelphia,
Pennsylvania 19106. The Registrant's telephone number is (215) 829-2265.

     As of March 15, 1997, UBS and the Bank had a total of 65 employees.



2

<PAGE>


     United Bank of Philadelphia

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

     The Bank  conducts  all its  banking  activities  through  its six  offices
located as follows:  (i) Main Branch 714 Market Street,  Philadelphia,  PA; (ii)
Center City Branch Two Penn Center,  Philadelphia,  PA; (iii) West  Philadelphia
Branch 37th & Lancaster Avenues,  Philadelphia,  PA; (iv) Mount Airy Branch 1562
East Wadsworth  Avenue,  Philadelphia,  PA; (v) Frankford  Branch 4806 Frankford
Avenue,  Philadelphia,  PA; and (vi) West Girard Branch 2820 West Girard Avenue,
Philadelphia,  PA.  Through  these  locations,  the Bank offers a broad range of
commercial  and consumer  banking  services.  At December 31, 1996, the Bank had
total deposits  aggregating  approximately $88.8 million and had total net loans
outstanding of approximately $69.1 million.  Although the Bank's primary service
area for Community  Reinvestment  Act purposes is Philadelphia  County,  it also
services,  generally,  the  Delaware  Valley,  which  consists  of  portions  of
Montgomery,  Bucks,  Chester, and Delaware Counties in Pennsylvania;  New Castle
County in  Delaware;  and Camden,  Burlington,  and  Gloucester  Counties in New
Jersey. The city of Philadelphia is comprised of 353 census tracts and, based on
1990 census data, 204 or 58% of these are  designated as low to  moderate-income
tracts while 105 or 30% are  characterized  both as low to  moderate-income  and
minority  tracts.  The Bank's  primary  service area consists of a population of
1,577,815, which includes a minority population of 752,309.

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

     The  focus  of the  Bank's  lending  activities  is on the  origination  of
commercial, consumer and residential loans. A broad range of credit products are
offered to the businesses  and consumers in the Bank's  service area,  including
commercial loans,  mortgage loans,  student loans, home improvement  loans, auto
loans,  personal  loans,  home equity loans and home equity lines of credit.  At
March  31,  1997 the  Bank's  maximum  legal  lending  limit  was  approximately
$1,013,800  per borrower.  However,  the Bank's  internal Loan Policy limits the
Bank's  lending  to  $500,000  per  borrower  in  order  to  diversify  the loan
portfolio.  The Bank has established  relationships with correspondent  banks to
participate in loans that exceed the Bank's  internal  policies or legal lending
limits. The Board of Directors of the Bank have, on several occasions, chosen to
waive  its  internal  lending  limit for  particular  loans.  However,  the Bank
maintains no credit that exceeds its legal lending limit.

3

<PAGE>


     The Bank offers a broad range of lending services including  commercial and
retail products.  In the area of commercial  loans, the Bank extends  short-term
loans for seasonal or working capital  purposes,  term loans for fixed asset and
expansion purposes, revolving credit plans and other commercial loans to fit the
needs of its customers. The Bank participates in the government-sponsored  Small
Business Administration ("SBA") lending program and when appropriate obtains SBA
guarantees  for up to 90%  of the  loan  amount -- thus  minimizing  the  Bank's
exposure to loss.  Commercial loans are typically made of the basis of cash flow
to  support   repayment  with  secondary   reliance  placed  on  the  underlying
collateral.

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

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

     The Bank's  strategy in providing  its services is to attempt to respond to
each customer's  needs. To this end,  customer service is stressed as an element
of key importance.  Registrant  believes that, through the provision of quality,
personalized service,  with flexibility,  speed and attention to customer needs,
the Bank can avail  itself  of the  target  market  for  individualized  banking
services,  while meeting the credit needs of  individuals,  as well as small and
mid-sized  businesses.  The previous banking  experience of the Bank's officers,
coupled with the broad business and banking  experience of its directors,  makes
the Bank  particularly  well-suited  to cater to the needs of this market.  Each
director of the Registrant serves as a conduit,  referring qualified business to
the Bank.

     Additionally, the management and Board of the Bank are very active in their
respective  communities.  This activism  allows the Bank to closely  monitor the
needs of members of the communities in which it operates and to develop programs
to serve those  needs.  One such  program is the Bank's  secured  VISA  program,
designed to help  individuals with an adverse credit history to have access to a
credit card while rebuilding their credit rating.  The Bank has also implemented
programs   aimed  at  counseling   individuals   and   businesses  on  financial
responsibility.  Through those programs,  Registrant not only strives to provide
helpful  services to the  communities  in which it  operates,  but  endeavors to
create a solid, loyal customer base into the future.



4

<PAGE>


     RTC Acquisitions

     In  1994,  the Bank  acquired  two  branch  locations.  The  first of these
acquisitions  included one branch and deposits of Ukrainian  Federal Savings and
Loan  ("Ukrainian") from the Resolution Trust Corporation  ("RTC").  Pursuant to
the  Ukrainian  acquisition,  the Bank acquired  approximately  $15.9 million in
deposits  from the RTC and  established  a branch  location at 1321 West Lindley
Avenue,  in North  Philadelphia.  Additionally,  pursuant to the  acquisition of
Ukrainian, the Bank received the right to purchase residential real estate loans
from the RTC totalling approximately  $18,500,000.  Due to unacceptable pricing,
the Bank never  exercised  its right to purchase  these loans.  Instead,  it was
offered  a  compromise  whereunder  the RTC  would  pay the Bank the  amount  of
interest that would have accrued on the loan portfolio offered, through December
21,  1995,  to  compensate  the Bank for the delay  caused  by the  disagreement
between the Bank and the RTC  concerning the pricing of the loan  portfolio.  In
February,  1995,  the RTC made a partial  payment of the amount due. In order to
recover the remaining  amount due, the Bank  instituted  suit against the RTC in
the Federal District Court for the Eastern District of Pennsylvania on March 31,
1995, seeking damages of $312,147.03, the amount of the deficiency in payment by
the  RTC.  The Bank  settled  this  proceeding  upon  payment  by the RTC of $90
thousand. See "Legal Proceedings".


     Competition

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

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

5

<PAGE>



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

     In the past,  the  principal  competition  for deposits and loans have been
among banks (particularly major banks), savings and loan associations and credit
unions.  To a lesser  extent  thrift  and  loan  companies,  mortgage  brokerage
companies  and  insurance  companies  also have  provided  competition.  Federal
legislation in the 1980s has increased competition by expanding the authority of
savings and loan associations to make consumer and commercial loans. Legislation
has  eliminated  all interest rate  differentials  between banks and savings and
loans,  further  increasing  the  ability of savings  and loans to compete  with
commercial banks and thrift and loan companies. In the past several years, other
financial  intermediaries  have begun to offer financial services  traditionally
offered  by  banks.  Institutions,  such as  brokerage  houses  and even  retail
establishments also offer new investment vehicles.  Other entities,  both public
and private,  seeking to raise capital  through the issuance and sale of debt or
equity  securities  are  also  competitors  with  banks  and  savings  and  loan
associations in the acquisition of deposits.


ITEM 2 -  Properties

Main Branch

     The Bank's principal office is located on the first floor of a multi-tenant
retail and commercial office building in Center City, Philadelphia, Pennsylvania
located  at 714  Market  Street,  Philadelphia,  PA  19106.  The  Bank  occupies
approximately  5,700 square feet of space  pursuant to a lease which  expires on
February 28, 2002. The lease has renewal  options for two five-year  periods and
is subject to  escalation  clauses.  The space is  occupied  by both UBS and the
Bank.  The first floor  contains a banking lobby,  the vault,  customer  service
area, executive and administrative offices, as well as the Bank's compliance and
marketing  groups.  The Bank's  finance,  branch  administrative  and operations
functions are located on the second floor of the same  building,  where the Bank
leases an additional space on a month-to-month basis. The aggregate monthly rent
for this location is $9,935.


6

<PAGE>


Mt. Airy Branch

North Philadelphia Branch

     Pursuant  to  a  1993   acquisition  of  Chase  Federal  Savings  and  Loan
Association  ("Chase")  the Bank  acquired  two  branches:  1562 East  Wadsworth
Avenue,  in the Mt.  Airy  section of  Philadelphia  and at 1015 North  Marshall
Street in North  Philadelphia.  The Bank closed the Marshall  Street facility on
November 8, 1996, and surrendered the facility to the FDIC pursuant to the terms
of its lease.  The Bank is provided  the branch  office  location  on  Wadsworth
Avenue  on a  rent-free  basis  for a  period  of five  years  from the date the
location was  acquired.  After the  rent-free  period the Bank has the option to
purchase the facility at 93% of the then current fair value.

Center City Branch

     In August 1993,  the Bank  acquired the deposits of three  branches of Home
Unity  Federal  Savings  and Loan  ("Home  Unity").  Pursuant  to the Home Unity
acquisition, the Bank established locations at Two Penn Center, Philadelphia, PA
and 4806 Frankford Avenue, Philadelphia, PA. The Bank leases approximately 4,769
square feet at its Two Penn Center  location.  The space includes lobby,  teller
area, customer service area, primary lending area and administrative offices, as
well as a vault. The aggregate monthly rent for this location is $8,743.

Frankford Branch

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


Lindley Avenue Branch

     In 1994,  the Bank  established  a branch  location  at 1321  West  Lindley
Avenue, in North Philadelphia.  The Bank closed this branch facility on November
15, 1996, and  surrendered the facility to the FDIC pursuant to the terms of its
lease.

West Girard Branch

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



7

<PAGE>


West Philadelphia Branch

     On July 22, 1996,  the Bank  acquired a branch  location at 3750  Lancaster
Avenue from PNC Bank.  The facility is comprised of  approximately  3,000 square
feet. The main floor houses teller and customer service areas, a drive-up teller
facility and automated  teller machine.  The basement  provides  storage for the
facility.  The aggregate monthly rental is approximately  $1891.50  exclusive of
taxes, insurance, utilities and janitorial service.


ITEM 3 - Legal Proceedings

     United  Bank of  Philadelphia  (Plaintiff)  settled  its suit  against  the
Resolution Trust Corporation  (Defendant) filed on March 31, 1996 in the Federal
District Court for the Eastern District of Pennsylvania.  The Plaintiff  alleged
that a contract entered into with the Defendant  requires that the Defendant pay
the Plaintiff  accrued  interest on a designated loan portfolio from the date 45
days after the  resolution  of the former  Ukrainian  Federal  Savings  and Loan
Association,  a branch of which was purchased by the Plaintiff on June 21, 1994,
through  December 21, 1994.  Defendant  argued that the interest due pursuant to
the  contract  should be reduced by the fed funds rate  applicable  to that time
period.

     The case was heard by the Eastern  District Court for the Eastern  District
of Pennsylvania  in April,  1996. The case resulted in a hung jury. As a result,
no verdict was rendered. The Bank and the RTC settled the case upon a payment by
the RTC's successor in interest,  the Federal Deposit  Insurance  Corporation to
the Bank of $90 thousand.  As a result of the settlement,  the Bank withdrew its
case.

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


ITEM 4 - Submission of Matters to Vote of Security Holders

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


                                     PART II

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

     As of March 15,  1997  there  were  3,178  shareholders  of record of UBS's
Common Stock.



8

<PAGE>



     The Common Stock is not traded on any national exchange or otherwise traded
in any  recognizable  market.  Prior to December 31, 1993,  the Bank conducted a
limited offering (the "Offering") pursuant to a registration  exemption provided
in  Section  3(a)(2) of the  Securities  Exchange  Act of 1933 (the  "Securities
Act").  The  price-per-share  during  the  Offering  was  $12.00.  Prior  to the
Offering,  the Bank  conducted  an initial  offering  of the  Common  Stock (the
"Initial  Offering")  at $10.00  per  share  pursuant  to the same  registration
exemption.  Registrant has engaged in the sale of Series A Preferred Stock which
has the characteristics identified in the UBS Articles of Incorporation attached
as an Exhibit  hereto  pursuant to an exemption from  registration  contained in
Section 4(2) of the Securities Act.

     Beginning April 24, 1995, Registrant commenced a private offering solely to
existing stockholders of 250,000 shares of its common stock and 750,000 warrants
to purchase a share of the common stock.  18,465 shares and 55,395 warrants have
been sold  pursuant  to this  offering.  Each unit,  consisting  of one share of
common stock and three warrants to purchase one share of common stock in each of
three  subsequent  years (total 3 shares),  were issued at $12.00 per unit.  The
warrant  exercise  price was $8.00 per share for the 1996  Warrant  (exercisable
April  23,  1996 to April  30,  1996),  $9.00  per  share  for the 1997  Warrant
(exercisable  April 23,  1997 to April 30,  1997),  and $10.00 per share for the
1998 Warrant  (exercisable April 23, 1998 to April 30, 1998). The exercise price
of the warrants may be adjusted to avoid dilution of warrant holders.  The units
were offered  pursuant to an exemption  from  registration  contained in section
4(2) and 3(a)(5) of the Act. No underwriters  were used and no commissions  were
paid as a result of this offering.  The offering closed on December 31, 1995. In
December 1995, the Registrant sold 41,666 shares of Registrant's common stock in
an offering  exempt from  registration  pursuant to section 4(2) of the Act at a
purchase  price of $12.00 per share.  This sale was  accomplished  pursuant to a
commitment to purchase these securities issued in December 1994.

     Beginning May 10, 1996,  Registrant  commenced a private offering solely to
existing  stockholders of 250,000 shares of its common stock.  6,934 shares were
sold pursuant to this offering.  The stock was offered  pursuant to an exemption
from  registration  contained in 4(2) and 3(a)(5) of the Act.  During 1996,  the
Registrant  received  $55,536  and  issued  6,942  shares as a result of warrant
exercises  by  shareholders  to  purchase  common  stock at a price of $8.00 per
share. As of December 31, 1996, 36,930 warrants remain outstanding.

     Registrant has not, during the three most recent fiscal periods declared or
paid any cash or stock  dividends.  The  Pennsylvania  Banking Code of 1965,  as
amended,  provides  that  cash  dividends  may be  declared  and paid  only from
accumulated net earnings and that, prior to the declaration of any dividend,  if
the  surplus of a bank is less than the amount of its  capital,  the bank shall,
until surplus is equal to such amount, transfer to surplus an amount which is at
least ten percent of the net  earnings of the bank for the period  since the end
of the last  fiscal  year or any  shorter  period  since  the  declaration  of a
dividend.  If the  surplus  of a bank  is less  than  50% of the  amount  of its
capital,  no  dividend  may be  declared  or paid by the Bank  without the prior
approval of the Pennsylvania Department of Banking.



9

<PAGE>


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

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


ITEM 6 - SELECTED FINANCIAL DATA

Selected Financial Data:

     The  financial  data  presented  in the  following  table should be read in
conjunction with the financial statements and Management Discussion and Analysis
of Financial  Condition  and Results of Operations  presented  elsewhere in this
report.


<TABLE>
<CAPTION>
                                                                                                                     Period from
(Thousands of dollars, except per share data)                                                                       March 23, 1992
                                                                                                                          to
                                                                                                                    December 31,
Years ended December 31:                           1996             1995              1994             1993              1992
                                                   ----             ----              ----             ----              ----

<S>                                              <C>              <C>               <C>              <C>             <C>     
Net interest income                              $ 4,259          $ 4,012           $ 3,766          $   988         $    265
Provision for loan losses                             85               78               385              110              191
Noninterest income                                 1,118              741               940            3,105              165
Noninterest expense                                6,124            5,454             5,068            3,121            1,481
Net  (loss) income                                  (832)            (779)             (747)             862           (1,242)
(Loss) earnings per share                          (1.03)           (1.04)            (1.01)            1.26            (2.02)

Balance sheet totals:
Total assets                                     $96,769           $92,635          $95,255          $77,081         $ 22,851
Loans, net                                        69,097            61,696           63,043           48,919            6,290
Investment securities                             14,460            16,739           18,944           20,296           10,251
Deposits                                          88,761            84,228           87,451           68,981           16,559
Shareholders' equity                               6,759             7,470            6,799            6,343            4,328
Ratios
Equity to assets                                    7.45%             7.36%            6.54%            9.02%           24.51%
Return on assets                                   (.89)%            (.87)%           (.83)%            1.76%           (8.30)%
Return on equity                                 (12.02)%          (11.83)%         (12.69)            19.53           (30.48)

</TABLE>

10

<PAGE>





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




Management's Discussion and Analysis of Financial Condition and 
Results of Operations

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

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



RESULTS OF OPERATIONS

Summary

     The Company incurred a net loss of $832 thousand for 1996,  compared with a
net loss of $779 thousand in 1995 and $747  thousand in 1994.  The loss for 1996
is primarily  attributable to a one-time Federal Deposit  Insurance  Corporation
(FDIC)  Savings   Association   Insurance  Fund  (SAIF)  Special  Assessment  of
approximately  $485 thousand  resulting from  legislation  passed by Congress on
September 30, 1996 to recapitalize  SAIF. As a result,  commercial  banks,  like
United  Bank,  which  were  members of the Bank  Insurance  Fund (BIF) and owned
SAIF-assessable  deposits  were  required to pay a one-time  assessment  of 65.7
basis points of total SAIF-assessable deposits on November 27, 1996. Because the
Bank  acquired  deposits  of  failed  savings  and  loan  institutions  from the
Resolution Trust Corporation  (RTC) in 1993 and 1994,  approximately $74 million
of its deposits are considered SAIF-assessable. The Bank filed an appeal of this
Special  Assessment due to the  burdensome  financial  impact of the charge.  In
addition,  management  believes  a  significant  portion  of  its  deposits  are
incorrectly  classified  under SAIF, as at the time of  acquisition  of branches
from the RTC it  already  had over  $30  million  in  deposits  accumulated  and
insurable under BIF. Further,  almost immediately following the acquisitions,  a
significant  amount of acquired RTC savings and loan deposits  ran-off leaving a
balance of less than $20 million.  Currently,  the legislation does not make any
provision for deposit  run-off or for appeals on this basis.  As of December 31,
1996, the Bank has been unsuccessful in its appeal efforts.

<PAGE>


     Excluding  the  SAIF  Special  Assessment,  the  Bank's  loss  for  1996 is
approximately  $347 thousand  representing a $432 thousand  improvement from the
1995 loss of $779 thousand.  The improvement  was a result of increased  earning
assets  funded by a higher  level of  noninterest-bearing  accounts.  Management
recognized  the need to grow the  Bank's  deposit  level to  generate  operating
economies  of scale and net  interest  income  to cover the cost of  operations.
Management's  strategy is to continue to increase  its core  deposit  base while
making a concerted effort to minimize and control  operating costs. In addition,
there was an increased  level of  noninterest  income--up  from $741 thousand in
1995 to $1.1 million in 1996.  Customer  service fees  accounted for most of the
increase as the number of transactional accounts increased  significantly during
1996 as a result of new  checking  account  products  and  compensating  balance
requirements.  During the month of September  1996, the Bank also  implemented a
surcharge for all non-customer  use of its Automated Teller Machines (ATMs).  In
addition,  during 1996, as a result of litigation,  the Bank received a one-time
$90,000  settlement from the RTC related to accrued  interest on loans it was to
acquire.

     On a per  common  share  basis,  the  Company's  loss was  $(1.03) in 1996,
$(1.04) in 1995, and $(1.01) in 1994.

     During 1996, average earning assets increased  approximately 3.3% while the
net yield on average  interest-earning assets increased from 4.82% to 4.95%. The
result was an increase  of $247  thousand  in net  interest  income from 1995 to
1996.

     Management  considers the Bank's loan  portfolio to be of high quality with
nonperforming  assets representing 1.1% of average loans and minimal charge-offs
during the year.  The  allowance  for loan losses as a percentage of total loans
remained  relatively constant at .76% in 1996 versus .77% in 1995. The allowance
is  deemed  adequate  in light of the mix of the  Bank's  loan  portfolio  which
primarily consists of residential mortgage loans, Small Business  Administration
(SBA) guaranteed loans, and guaranteed  student loans all for which the exposure
is minimized due to collateral or other related guarantee features.

     Excluding   the  one-time  SAIF  Special   Assessment  of  $485   thousand,
noninterest  expense  increased  $184  thousand or 3.4% in 1996 compared to 1995
primarily as a result of increased  data  processing  costs due to growth in the
Bank's student loan portfolio from approximately $12 million to $17 million. The
Bank pays an outside vendor to service these loans based on average  outstanding
balances.


<PAGE>




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

<TABLE>
<CAPTION>


December 31                                            1996                       1995                               1994
------------------------------------------------------------------------------------------------------------------------------------

(Dollars in thousands)
                                    Average             Yield/      Average              Yield/      Average                Yield/
                                    Balance   Interest   Rate       Balance   Interest    Rate       Balance    Interest     Rate
                                    -------   --------   ----       -------   --------    ----       -------    --------     ----
<S>                                 <C>        <C>       <C>        <C>        <C>       <C>         <C>        <C>          <C>  
Assets
Interest-earning assets:
    Loans                           $65,243    $5,567    8.53%      $57,491    $5,158    8.83%       $54,094    $ 4,642      8.58%
    Investment securities-
     held-to-maturity                 8,110       502    6.19        10,306       512    4.97         17,908        860      4.80
                                                        
    Investment securities-
     available-for-sale               8,319       495    5.95         8,474       491    5.79          6,897        271      3.92
    Federal funds sold                4,350       225    5.17         6,966       393    5.64          6,599        254      3.85
                                    -------    ------               -------    ------                -------     ------
                                     86,022     6,789    7.89        83,237     6,554    7.87         85,498      6,027      7.05
Total interest-earning assets                                                                       
                                                                                                    
Noninterest-earning assets:                                                                         
     Cash and due from banks          3,671                           3,293                            2,446
     Premises and equipment, net      1,657                           1,570                            1,318
     Other assets                     2,129                           1,921                            1,385
Less allowance for loan losses         (506)                           (580)                            (606)
                                    -------                         -------                          -------
          Total                     $92,973                         $89,441                          $90,041
                                    =======                         =======                          =======
                                                                                                    
Liabilities and shareholders'                                                                       
 equity                                                                                             
Interest-bearing liabilities:                                                                       
     Demand deposits                $13,072      294     2.25%      $11,777   $  293     2.49%       $11,204     $ 277     2.47%
     Savings deposits                24,046      506     2.10        23,505      521     2.22         20,771       476     2.29
     Time deposits                   34,806    1,651     4.74        37,907    1,722     4.54         35,171     1,341     3.81
     Other borrowed funds             1,821       79     4.34           118        6                   6,544       167     2.57
                                    -------   ------                -------   ------                 -------     -----
Total interest-bearing                                                                              
 liabilities                         73,745    2,530     3.43        73,307    2,542     3.47         73,690     2,261     3.07
                                                                                                    
Noninterest-bearing liabilities:                                                                    
     Demand deposits                 11,197                           7,777                            6,011
     Other                            1,107                           1,772                            4,455
                                                                                                    
Shareholders' equity                  6,924                           6,585                            5,885
                                    -------                         -------                            -----
                      Total         $92,973                         $89,441                          $90,041
                                    =======                         =======                          =======
Net interest earnings                         $4,259                          $4,012                           $3,766
Net yield on interest-                                                                              
 earning assets                                         4.95%                              4.82%                            4.40%
                                                                                                  

</TABLE>

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


<PAGE>


Net Interest Income

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

     Net  interest  income for 1996 totaled  $4.3  million,  an increase of $247
thousand,  or 6.2%,  compared to 1995. Net interest  income in 1995 totaled $4.0
million, an increase of $246 thousand, or 6.5%, compared to 1994.

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

<TABLE>
<CAPTION>


                                          1996 Compared to 1995                1995 Compared to 1994
                                         Increase(Decrease) Due to          Increase (Decrease) Due to
                                         -------------------------          --------------------------
(Thousands of dollars)                Volume        Rate        Net        Volume       Rate         Net
----------------------                ------        ----        ---        ------       ----         ---

<S>                                     <C>         <C>         <C>         <C>           <C>         <C>
Interest earned on:
     Loans                              $ 581       $(172)      $ 409       $ 379         137         516
     Investment securities
       held-to-maturity                  (136)        126         (10)       (421)         73        (348)
     Investment securities
       available-for-sale                 (10)         14           4         135          85         220
     Federal funds sold                  (135)        (33)       (168)         21         118         139
                                        -----       -----       -----       -----       -----       -----
Total interest-earning assets             300         (65)        235         114         413         527
                                        =====       =====       =====       =====       =====       =====

Interest paid on:
     Demand deposits                       29         (28)          1          14           2          16
     Savings deposits                      12         (27)        (15)         60         (15)         45
     Time deposits                       (147)         76         (71)        123         257         380
     Other borrowed funds                  72           1          73        (327)        165        (162)
                                        -----       -----       -----       -----       -----       -----
Total interest-bearing liabilities        (34)         22         (12)       (130)        409         279
                                        =====       =====       =====       =====       =====       =====
Net  interest income                    $ 334       $ (87)      $ 247       $ 244       $   4       $ 248
                                        =====       =====       =====       =====       =====       =====

</TABLE>

----------

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

     In 1996,  there was an increase in net interest income of $334 thousand due
to changes in volume and a decrease of $87 thousand  due to changes in rate.  In
1995,  there was an  increase in net  interest  income of $244  thousand  due to
changes in volume and an increase of $4 thousand due to changes in rate.

     Average  earning  assets  increased  from  $83.2  million  in 1995 to $86.0
million in 1996.  This growth in earning  assets is primarily  attributed  to an
increase in average  demand  deposit  balances  due to  continued  growth in new
checking account  products-- "free" checking and  "entrepreneurial-25"  checking
which were introduced in 1995. These products provide a low-cost/minimum balance
option for personal and small business customers who have relatively  low-volume
activity in their checking accounts. While benefiting customers,  these products
also serve as means of generating noninterest-bearing funds for the Bank as well
as a source of service charge income from overdraft fees. The increase in volume
of  investable  funds  was  primarily  used to  fund  new  loan  originations--a
significant  portion of which  included  student  loans  which carry with them a
lower rate than commercial or other consumer loans;  thereby contributing to the
decline in loan rates. The average earning assets declined from $85.5 million in
1994 to $83.2  million in 1995.  This  decline in  earning  assets is  primarily
attributed to the decline in the level of other borrowed funds from $6.5 million
in 1994 to $118  thousand in 1995.  During  1994,  the Bank entered into reverse
repurchase agreements with another institution to fund earning assets.


<PAGE>

     The Bank's net  interest  margin was 4.95% in 1996  compared  with 4.82% in
1995,  and 4.40% for 1994.  The primary  determinant of the increase in 1996 was
the  increase  in new loan  originations  funded by  noninterest-bearing  demand
deposit  accounts which resulted in higher net interest margin spreads.  Margins
were  positively  impacted by  increases in the prime rate during 1994 and 1995.
The average  prime rate in 1996 was 8.27%  compared with 8.75% in 1995 and 8.55%
in 1994.  Average loans  increased $7.8 million during 1996 and produced a yield
of 8.53%  compared  to 8.83% in 1995 and 8.58% in 1994.  The  decrease  in yield
during  1996 is  primarily  attributed  to the  reduction  in prime rate and the
significant  increase in student loan  originations  during the year which carry
with them a lower yield than commercial and/or installment loans.  However,  the
increase in volume more than compensated for the decline in yield -- producing a
$409  thousand net  increase in interest on loans  during 1996.  

     The  increase  in  yield in 1995 is  primarily  a  result  of a  change  in
composition of the loan portfolio.  At December 31, 1994,  residential  mortgage
loans  made up 77.81%,  or $49.6  million,  of the loan  portfolio  compared  to
59.95%,  or $37.3 million,  at December 31, 1995. As residential  mortgage loans
were sold or paid down, they were replaced with higher  yielding  commercial SBA
loans and student loans.

     The average  federal funds rate declined to 5.17% in 1996 compared to 5.64%
for 1995 which was up from 3.85% for 1994.  During 1996, the average  investment
in federal  funds  declined  by $2.6  million as funds were  invested  in higher
yielding loans. The yield on the investment  portfolio increased 73 basis points
in  1996  compared  to a 78  basis  point  increase  in 1995  due to the  longer
contractual maturity structure and rate adjustment  intervals  characteristic of
the portfolio.

     The cost of  interest-bearing  deposits decreased to 3.41% in 1996 compared
to 3.47% in 1995 and 3.12% in 1994.  In 1996,  interest  rates paid on  deposits
remained relatively constant.  However,  during 1995, the overall interest rates
on deposits increased to compensate for the increasing interest rate environment
which saw the Federal Reserve increase rates 75 basis points during 1995 and 300
basis points during 1994.

Provision for Loan Losses

     The Bank adopted  Statement of Financial  Accounting  Standard ("SFAS") No.
114,  "Accounting  by  Creditors  for  Impairment  of a Loan," and SFAS No. 118,
"Accounting  by Creditors  for  Impairment  of a  Loan--Income  Recognition  and
Disclosures,"  effective January 1, 1995. As a result of applying the new rules,
certain impaired loans are reported at the present value of expected future cash
flows  using the loan's  initial  effective  interest  rate,  or as a  practical
expedient,  at the loan's  observable  market  price or at the fair value of the
collateral if the loan is collateral dependent.  The adoption of these standards
did not have a material  impact on the Bank's  financial  position or results of
operations.

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

     The  provision  for loan losses  charged  against  earnings in 1996 was $85
thousand  compared  to $78  thousand in 1995 and $385  thousand in 1994.  During
1995, the Bank charged off the balance  related to one commercial loan for which
the value of the underlying  collateral declined  significantly during 1994. The
Bank had made significant provisions for this loan during 1994. In addition, the
gradual change in the  composition  of the loan  portfolio  during 1995 and 1996
from residential mortgage loans to purchased or originated  commercial SBA loans
and student loans resulted in a portfolio with  significantly  lower credit risk
characteristics due to the related government guarantees.


<PAGE>

Noninterest Income

     Noninterest  income  increased  $376 thousand  during 1996. The increase is
primarily  attributable to an increase in transactional deposit accounts from an
average  of $19.6  million  in 1995 to $24.3  million in 1996 as a result of the
continued  success of product  offerings  which were  introduced in 1995--"free"
checking" and "entrepreneurial-25"  checking. Deposit related noninterest income
increased to .98% of average  total assets in 1996 from .73% in 1995 and .61% in
1994.  In addition,  in 1996 the Bank  strongly  enforced  compensating  balance
arrangements with its loan customers.  Also contributing to the increase was the
implementation  of a surcharge for all noncustomer  use of the Bank's  Automated
Teller  Machines  (ATMs) in  September  1996 and an expanded  ATM network from 5
machines in 1995 to 15 machines in 1996.  During 1996,  the Bank entered into an
agreement with a growing retail  corporation which provides for the placement of
ATM  machines in its retail  stores.  Finally,  during 1996 the Bank  received a
$90,000 one-time settlement from the RTC related to accrued interest on loans it
was to  acquire.  

     Total noninterest  income decreased $199 thousand in 1995 compared to 1994.
Excluding  gains on sales of loans and losses incurred on the sale of investment
securities  and a one-time $303  thousand RTC fee accrued in 1994,  there was an
increase  of $88  thousand in 1995  compared  to 1994.  The amount of the Bank's
noninterest  income generally reflects the volume of the transactional and other
accounts  handled by the Bank and includes  such fees and charges as low balance
account charges, overdrafts, account analysis, and other customer service fees.

     During 1994,  noninterest  income  included a gain on the sale of loans. In
March 1994,  the Bank sold $12.7  million in loans it had acquired  from the RTC
and were  held-for-sale  at  December  31,  1993.  The Bank  paid PNC Bank  $350
thousand  from the sale  proceeds  related to PNC Bank's  purchase of one of the
Home Unity Savings and Loan branches from the Bank.  This payment was contingent
upon  the  Bank's  sale of loans in  1994.  The net gain on this  loan  sale was
approximately $195 thousand.

     Securities  gains  totaled  $9  thousand  in 1996.  There  were no sales of
securities  during 1995. Losses totaled $201 thousand in 1994 as a result of the
sale of the Bank's  investment of its shares in a mutual fund  comprised of U.S.
Government and agency  securities which generated a loss of  approximately  $183
thousand.  The sale of other debt securities generated a loss of $18 thousand in
1994.

Noninterest Expense

     Excluding   the  one-time  SAIF  Special   Assessment  of  $485   thousand,
noninterest  expense increased $184 thousand,  or 3.4%, in 1996 compared to 1995
versus an increase of $386 thousand ,or 7.6%, in 1995 compared to 1994.

     Salaries and benefits decreased $23 thousand,  or 1%, in 1996 compared with
an increase of $338 thousand in 1995. In addition to normal salary adjustments ,
the  increase in 1995 came  primarily as a result of the Bank's  acquisition  of
branches from the RTC in the third quarter of 1994.  The number of branches grew
from 5 at December 31, 1993 to 7 at September  30, 1994 and for all of 1995.  As
the  number of  branches  has grown so too has the need for  additional  support
staff. During 1996, the Bank closed 2 branches and opened one. However, staffing
levels  remained  relatively  constant  during 1996 with some planned  attrition
during the first  quarter and  management's  concerted  effort to  minimize  new
hirings and control personnel expense.

<PAGE>


     Data processing  expenses,  which  represented 13.3% in 1996, 11.4% in 1995
and 10.1% in 1994 of total  noninterest  expense,  are a result of  management's
decision  to  out-source  to  third-party   processors  the  bulk  of  its  data
processing.  Such  expenses  are  reflective  of the high  level of low  balance
accounts  being  serviced for which the Bank is charged a per-account  charge by
processors.  The increase during 1996 is primarily attributable to growth in the
student  loan  portfolio  for which the Bank pays an  outside  vendor to service
based on average  outstanding  balances.  The Bank continues to study methods by
which it may reduce its data  processing  costs,  including but not limited to a
consolidation of servicers,  in-house  processing versus  out-sourcing,  and the
possible renegotiation of existing contracts with servicers.

     Occupancy and  equipment  expenses  increased by $79 thousand,  or 9.6%, in
1996 compared to 1995 and $101  thousand,  or 14%, in 1995 compared to 1994. The
increase in 1996 is primarily attributed to annual escalations in lease payments
and a new  maintenance  contract  entered into to service the Bank's growing ATM
network.  In  addition,  in July 1996,  the Bank  entered into a lease for a new
branch it opened in West  Philadelphia.  In November  1996,  the Bank closed two
branches  it had  acquired  from  the  RTC in  1993  and  1994  under  free-rent
agreements.  These branches were closed due to the significant  level of deposit
run-off  which  occurred  almost  immediately  following the  acquisition  which
rendered them unprofitable to continue to operate.  Remaining  deposits of these
branches were  transferred  to other  branches.  While the closed  branches were
leased under free-rent agreements, significant repairs and maintenance costs and
other  operational costs were incurred while they were open. The Bank expects to
experience a savings in its occupancy  expense  during 1997 as a result of these
closures.

     The increase in occupancy and equipment  expenses during 1995 is related to
general lease  escalations  and the building  maintenance  and  operating  costs
associated  with two branches  acquired in the third  quarter of 1994 which were
operational for the entire year during 1995. In addition,  in November 1995, the
Bank acquired for $165 thousand one of the branches it formerly  leased from the
RTC on a month-to-month basis.

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

<PAGE>

Financial Condition

Sources and Uses of Funds

   The Bank's  financial  condition  can be  evaluated in terms of trends in its
sources  and uses of  funds.  The  comparison  of  average  balances  in Table 3
indicates  how the  Bank  has  managed  these  elements.  Average  funding  uses
increased  approximately $2.8 million, or 3.4%, in 1996 compared with a decrease
of $2.3 million, or 2.6%, in 1995.

Table 3--Sources and Uses of Funds Trends

<TABLE>
<CAPTION>


                                              1996                                 1995                      1994
                                              ----                                 ----                      ----
(Dollars in thousands)                      Increase                              Increase
                                Average    (Decrease)                Average     (Decrease)                Average
                                Balance      Amount        %         Balance       Amount         %        Balance
                                -------      ------      ----        -------       ------       ----       -------
<S>                            <C>           <C>         <C>         <C>           <C>          <C>        <C>    
Funding uses:
   Loans                       $65,243      $7,752      13.48%      $57,491       $3,397       6.28%      $54,094
   Investment securities:
      Held-to-maturity           8,110      (2,196)     (21.31)      10,306       (5,076)     (33.00)       15,382
      Available-for-sale         8,319       (155)       (1.83)       8,474         (949)     (10.07)        9,423
   Federal funds sold            4,350      (2,616)     (37.55)       6,966          367        5.56         6,599
                               -------      ------                  -------       ------                   -------
         Total  uses           $86,022      $2,785                  $83,237      $(2,261)                  $85,498
                               =======      ======                  =======      =======                   =======

Funding sources:
   Demand deposits:
     Noninterest-bearing       $11,197      $3,420      43.98%      $7,777        $1,766       29.38%      $ 6,011
     Interest-bearing           13,072       1,295       11.00       11,777          573        5.11        11,204
   Savings deposits             24,046         541        2.30       23,505        2,734       13.16        20,771
   Time deposits                34,806      (3,101)      (8.18)      37,907        2,736        7.78        35,171
   Other borrowed funds          1,821       1,703    1,443.22          118       (6,426)     (98.20)        6,544
                               -------      ------                  -------       ------                 --- -----
          Total sources        $84,942      $3,858                  $81,084       $1,383                  $ 79,701
                               =======      ======                  =======       ======                  ========
</TABLE>

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

Investment Securities and other Short-term Investments

     Average  investment  securities  and federal funds sold, in the  aggregate,
decreased by $5.0 million in 1996, or 19%, compared to 1995 and $5.6 million, or
18%,  during 1995 compared  with 1994.  The decline in  investments  and federal
funds  during  1996 and 1995 is  attributed  to a shift in  investable  funds to
higher   yielding  loans  to  enhance  the  Bank's  net  interest  margin  while
maintaining adequate liquidity.

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

     As reflected  in Table 4, the assumed  average  maturity of the  investment
portfolio  was 3.6 years at year-end  1996.  Approximately  40% of the portfolio
consists  of  mortgage-backed  pass-through  securities  which have  longer-term
contractual  maturities but are sometimes  paid-off/down before maturity or have
repricing  characteristics  that  occur  before  final  maturity.  The  Bank has
attempted  to  minimize  the  repayment  risk  (risk of very  fast or very  slow
repayment) associated with these types of securities by investing primarily in a
number of seasoned mortgage pools for which there is a repayment  history.  This
history better enables the Bank to project the repayment  speeds of these pools.
In addition, the Bank has minimized the interest rate risk associated with these
mortgage-backed  securities  by investing  in a variety of pools,  many of which
have variable  rates with indices that track  closely with the current  interest
rate environment.


<PAGE>

Table 4---Analysis of Investment Securities

<TABLE>
<CAPTION>



                                                     After One But           After Five But           After Ten
(Dollars in thousands)        Within One Year      Within Five Years       Within Ten Years             Years
                              Amount    Yield      Amount       Yield     Amount    Yield          Amount    Yield      Total
                              ------    -----      ------       -----     ------    -----          ------    -----      -----
                                                                                    
                                                                        
<S>                             <C>       <C>       <C>          <C>       <C>         <C>       <C>       <C>          <C>    
U.S. Treasury                   $999      5.33%     $1,641       5.78%     $  --        --          --         --       $ 2,640
                                                                              --        --                     --               
                                                                                                                         
Other government                                                                                                       
  securities                     --        --        3,499       6.61       2,097      7.67%        --         --         5,596
                                                                                                  ----         --              
                                                                                                                       
Other investments                                     --                                           316        6.00%         316
                                                                                                  ----       -----           
Mutual funds                     80       5.29        --                                                                     80
                                                      --                                                                    
Corporate security                                      15       4.15%                                                       15
                                                    ------      -----                                                   -------
                                                                                                                      
Mortgage-backed securities                                                                                                5,813
                                                                                                                        =======
    Total securities           $1,079               $5,155                 $2,097       --         316                  $14,460
                               ======               ======                 ------      ----       ====                  =======
                                                                                                           
Average maturity                                                                                                    3.60 years

</TABLE>

----------
     The above  table sets forth the  maturities  of  investment  securities  at
December 31, 1996 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  $7.8 million,  or 13.48%,  in 1996
compared with an increase of $4.2 million,  or 7.95%,  in 1995.  The increase in
loans during 1996 was primarily due to the  origination  of more than $5 million
in student  loans.  In addition,  during 1996  commercial  loans  increased $2.1
million while residential  mortgage loans declined  approximately  $650 thousand
due to paydowns and payoffs of loans acquired in prior years.  In February 1997,
the Bank sold $4.9  million  in  student  loans to  reduce  the data  processing
expense  associated  with servicing  these loans and to make funds  available to
originate higher yielding  commercial loans. To head off potential interest rate
risk exposure, in March 1995, the Bank sold $10.2 million fixed rate residential
mortgage  loans.  Throughout  1995 and  1996,  the  Bank  replaced  these  loans
primarily  with  variable  rate  SBA  originated   and/or  purchased  loans  and
guaranteed   student   loans.   As  a  result,   the  Bank  ended  1996  with  a
loan-to-deposit ratio of 78% versus a 73% ratio at December 31, 1995.

     The Bank's policy is to make its loans and  commitments  in the market area
it serves. However, due to the relatively slow loan demand in 1994 and 1995, the
Bank purchased a significant  portion of its loan portfolio to adequately  match
its level of deposits and to improve the net interest  margin.  During 1996, the
Bank  had  originations  and a  strong  pipeline  of loans  located  within  the
Philadelphia region.

<PAGE>

Table 5---Loans Outstanding, net of unearned income

<TABLE>
<CAPTION>

(Thousands of Dollars)                                            December 31
                                              1996        1995        1994        1993         1992
                                              ----        ----        ----        ----         ----
<S>                                        <C>          <C>        <C>          <C>          <C>   
Commercial and industrial                  $10,107      $8,021     $ 3,037      $2,729       $3,828
Commercial real estate                         649         627       1,608       1,735        1,211
Consumer loans                              17,340      16,254       9,503       3,275        1,442
Residential mortgages                       36,622      37,271      39,398      28,691           --
Loans held-for-sale                          4,906          --      10,223      13,118           --
                                             -----     -------     -------     -------       ------
            Total Loans                    $69,624     $62,173     $63,769     $49,548       $6,481
                                           =======     =======     =======     =======       ======
</TABLE>



Table 6---Loan Maturities and Interest Sensitivity



<TABLE>
<CAPTION>
(Thousands of dollars)                                After One But
                                                      Within Five                         
                                    Within One Year   Years          After Five Years      Total
                                    ---------------   -------------  ----------------     --------

<S>                                   <C>               <C>              <C>               <C>    
Commercial and industrial             $ 2,335          $ 2,357          $ 5,415            $10,107
Commercial real estate                     52              543               54                649
Consumer loans                          1,754           18,622            1,870             22,246
Residential mortgages                     -                -             36,622             36,622
                                      -------          -------          -------            -------
            Total Loans               $ 4,141          $21,522          $43,961            $69,624
                                      -------          -------          -------            -------
Loans   maturing  after                            
  one  year with:                                  
       Fixed interest rates           $38,478      
       Variable interest rates        $27,005      
</TABLE>
                                                 
Deposits

     Average deposits, including noninterest-bearing deposits grew approximately
$2.2 million,  or 2.6% in 1996 compared to $7.8  million,  or 11%,  during 1995.
Beginning in 1995, the Bank  strategically  planned to counterbalance the impact
of its prior years' deposit  acquisitions from the RTC that were concentrated in
the areas of savings  and time  deposits  which are  typical of savings and loan
institutions.  While  these  deposits  served as an  addition to the Bank's core
deposit base, they also had the effect of increasing the Bank's cost of funds as
noninterest-bearing  deposits were minimal.  During 1995,  the Bank designed two
new demand deposit products ("free" checking and "entrepreneurial-25"  checking)
to meet the needs of the community and to generate additional low-cost deposits.
As a result, during 1996,  noninterest-bearing  deposits grew approximately $3.8
million.


<PAGE>

Table 7---Deposits by Class and Rate

<TABLE>
<CAPTION>
                                         Years Ended December 31

(Thousands of dollars)             1996                      1995                      1994
                                   ----                      ----                      ----
                            Amount         Rate         Amount         Rate         Amount         Rate
                            ------         ----         ------         ----         ------         ----

<S>                        <C>            <C>          <C>           <C>           <C>            <C>
Noninterest-bearing        $11,197           0%        $ 7,777           0%        $ 5,984           0%
Demand
deposits
Interest-bearing demand     13,072        2.25%         11,777        2.49%        $11,204        2.47%
     deposits
Savings deposits            24,046        2.10%         23,505        2.22%        $20,771        2.29%
Time deposits               34,806        4.74%         37,907        4.54%        $35,171        3.81%

</TABLE>

Other Borrowed Funds

     The average  balance for other  borrowed funds  increased $1.7 million,  or
1,443.22%,  in 1996 compared to 1995 and decreased  $6.4 million,  or 98.2%,  in
1995 compared to 1994. The increase in other borrowed funds is primarily related
to a reverse  repurchase  agreement the Bank entered into in 1996.  The level of
other  borrowed  funds is dependent  on many items such as loan growth,  deposit
growth and interest  rates paid for these funds.  The decline in 1995 was due to
regulatory capital constraints which did not allow for further leveraging of the
Bank's balance sheet.


Nonperforming Loans

     Table 8 reflects the Bank's  nonperforming  loans for the last 5 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 which are well-collateralized and in the process of collection.
When a loan is placed on nonaccrual,  previously  accrued and unpaid interest is
generally  reversed  out of income  unless  adequate  collateral  from  which to
collect the principal of and interest on the loan appears to be available.

<PAGE>

Table 8---Nonperforming Loans


<TABLE>
<CAPTION>
(Thousands of dollars)                        1996             1995              1994             1993             1992
                                              ----             ----              ----             ----             ----
<S>                                           <C>              <C>               <C>              <C>              <C> 
Nonaccrual loans                              $800             $949              $572             $500             $117
Interest   income   included   in  net
  income for the  year                           6               23                --               --               --
     
Interest  income  that would have been
  recorded  under original terms                45               37                41               $6               --
     
Loans past due 90 days, still accruing         408               10                --               --               --

</TABLE>

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

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

     At December  31,  1996,  approximately  24% of the Bank's  commercial  loan
portfolio  was  concentrated  in loans  made to  religious  organizations.  From
inception, the Bank has received support in the form of investments and deposits
and has developed strong relationships with the Philadelphia  region's religious
community.  Loans made to these  organizations  were primarily for expansion and
repair of church  facilities.  At  December  31,  1996,  none of these loans are
nonperforming.

     The  level  of   nonaccrual   loans  during  1996  and  1995  is  primarily
attributable to the aging of the  residential  mortgage loan portfolios the Bank
acquired in 1993 and 1994.  At December  31, 1996 and 1995,  approximately  $327
thousand and $539 thousand,  respectively,  of the total  nonaccrual  loans were
residential  mortgages while the remaining balance consisted  primarily of loans
with SBA  guarantees of principal.  The  underlying  collateral  and  guarantees
minimize the risk of loss  associated  with these loans.  Loans past due 90 days
and still accruing  consist  primarily of student loans for which there is a 98%
guarantee of principal and interest

Allowance for Loan Losses

     The allowance for loan losses reflects  management's  continuing evaluation
of the loan portfolio,  assessment of economic  conditions,  the diversification
and size of the portfolio,  adequacy of collateral,  past and  anticipated  loss
experience and the amount and quality of nonperforming  loans.  Table 9 presents
the  allocation  of loan  losses  by major  category  for the past 4 years.  The
specific  allocations  in any  particular  category may prove to be excessive or
inadequate  and  consequently  may be  re-allocated  in the  future  to  reflect
then-current conditions.
<PAGE>


Table 9---Allocation of allowance for Loan Losses

<TABLE>
<CAPTION>
                                     1996                    1995                    1994                     1993 
                                     ----                    ----                    ----                     ----
                                                                                        Percent of              Percent of 
                                      Percent of               Percent of                Loans in                Loans in
(Thousands of dollars)                 Loans in                 Loans in                   Each                    Each 
                                         Each                     Each                   Category                Category 
                                     Category to               Category to               to Total                to Total
                             Amount  Total Loans       Amount  Total Loans      Amount     Loans        Amount     Loans 
                             ------  -----------       ------  -----------      ------     -----        ------     -----
                                                                                                      
<S>                           <C>       <C>             <C>      <C>            <C>        <C>          <C>          <C>
Commercial and                $222      14.52%          $113     12.90%         $226       4.76%        $ 96         5.5% 
     industrial                                                                                       
Commercial real estate          13        .93             13      1.01            30       2.52           99         3.5
Residential mortgages          245      52.60            246     59.95           429      77.82          426        84.4
Consumer loans                  44      31.95             65     26.14            41      14.90            8         6.6
Unallocated                      4                        39       --                                     --        -- 
                              ----      ----            ----     ----           ----      ----          ----      ---- 
                              $528       100%           $476      100%          $726       100%         $629       100% 
                              ====      ====            ====     ====           ====      ====          ====      ==== 
</TABLE>

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

Table 10-Analysis of Allowance for Loan Losses

<TABLE>
<CAPTION>

                                                                  Years ended December 31

(Thousands of dollars)                         1996         1995          1994          1993         1992
                                               ----         ----          ----          ----         ----
<S>                                           <C>          <C>           <C>           <C>          <C> 
Balance at January 1                          $476         $726          $629          $191         $ --
Charge-offs:                              
     Commercial and industrial                 (17)        (195)         (298)          (77)          --
     Commercial real estate                     --           --                          --           --
     Residential mortgages                      --           --                          --           --
     Consumer loans                            (25)         (5)           (44)          (21)          --
                                               ----         ---           ----         ----         ----
                                               (42)        (200)         (342)          (98)          --
Recoveries--Consumer loans                       9            6             3            --           --
Net charge-offs                                (33)        (194)         (339)          (98)          --
Additions charged to operations                 85           78           385            110          191
Allowance allocated to acquired loans           --           --           185            426          --
                                          
Allowance  previously allocated to        
 sold loans                                     --         (134)         (134)           --           --
                                               ----       -----         -----          ----         ----
                                          
Balance at December 31                         $528        $476          $726          $629         $191
                                               ====        ====          ====          ====         ====
Ratio of net  charge-offs  to average     
  loans outstanding                            .05%        .34%          .63%          1.2%          --
                                               ====        ====          ====          ====         ====

</TABLE>
----------

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

<PAGE>

Liquidity and Interest Rate Sensitivity Management

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

   The Bank is required to maintain  minimum  levels of liquid assets as defined
by FRB regulations. This requirement is evaluated in relation to the composition
and  stability  of  deposits;  the degree and trend of reliance  on  short-term,
volatile sources of funds,  including any undue reliance on particular  segments
of the money market or brokered deposits; any difficulty in obtaining funds; and
the   liquidity   provided  by  securities   and  other  assets.   In  addition,
consideration is given to the nature, volume and anticipated use of commitments;
the adequacy of liquidity  and funding  policies and  practices,  including  the
provision  for  alternate  sources  of  funds;  and  the  nature  and  trend  of
off-balance-sheet  activities.  As of December 31, 1996, management believes the
Bank's liquidity is satisfactory and in compliance with the FRB regulations

     The  Bank's  principal  sources  of  asset  liquidity  include   investment
securities  consisting   principally  of  U.S.  Government  and  agency  issues,
particularly those of shorter maturities,  and  mortgage-backed  securities with
monthly repayments of principal and interest. Securities maturing in one year or
less  amounted to $1.1 million at December 31,  1996,  representing  7.5% of the
investment portfolio.  Other types of assets such as federal funds sold, as well
as maturing loans, are sources of liquidity. Approximately $4.1 million in loans
are scheduled to mature within one year.

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

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

                                                     (Thousands of dollars)
3  months  or less                                           $10,900
Over 3 through 6 months                                        2,780
Over 6 months through 1 year                                     111
Over 1 through five years                                        211
Over five years                                                  --
                                                             -------
     Total                                                   $14,002
                                                             =======

     Interest-rate  sensitivity varies with different types of  interest-earning
assets and interest-bearing liabilities.  Overnight federal funds on which rates
change  daily and  loans  which  are tied to prime or other  short-term  indices
differ considerably from long-term  investment  securities and fixed-rate loans.
Similarly,  time deposits are much more interest sensitive than passbook savings
accounts.  The shorter-term interest rate sensitivities are key to measuring the
interest   sensitivity   gap,   or   excess   interest   earning   assets   over
interest-bearing  liabilities.   Management  of  interest  sensitivity  involves
matching  repricing  dates  of  interest-earning  assets  with  interest-bearing
liabilities  in a manner  designed to optimize  net interest  income  within the
limits imposed by regulatory authorities,  liquidity  determinations and capital
considerations.  Table 12 sets forth the earliest repricing  distribution of the
Bank's interest-earning assets and interest-bearing  liabilities at December 31,
1996, the Bank's interest rate  sensitivity gap ratio (i.e.,  excess of interest
rate sensitive assets over interest rate sensitive liabilities, divided by total
assets) and the Bank's  cumulative  interest  rate  sensitivity  gap ratio.  For
purposes of the table,  except for savings  deposits,  an asset or  liability is
considered  rate-sensitive within a specified period when it matures or could be
repriced  within such period or repriced  within such period in accordance  with
its contractual  terms. At December 31, 1996, a liability  sensitive position is
maintained  on a cumulative  basis  through 1 year of -5.96% which is within the
Bank's policy  guidelines of +/- 15% on a cumulative  1-year basis.  The current
gap position is primarily due to the high  concentration  of fixed rate mortgage
loans the Bank has in its loan portfolio but is somewhat mitigated by the Bank's
high  level  of core  deposits  which  have  been  placed  in  longer  repricing
intervals.  Generally,  because of the Bank's  negative  gap position in shorter
time frames,  the Bank can anticipate that increases in market rates will have a
negative  impact  on the net  interest  income,  while  decreases  will have the
opposite effect.

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


<PAGE>

Table 12---Interest Sensitivity Analysis

<TABLE>
<CAPTION>

                                                     Interest Rate Sensitivity Gaps
                                                          As of December 31, 1996

                                                      Greater than   Greater than     Greater than
                                          0 to 3        3 to 6          6 to 12          1 to 5       Greater than
(Thousands of dollars)                    months        months          months            years         5 years      Cumulative
----------------------                    ------        ------          ------            -----         -------      ----------

<S>                                     <C>            <C>             <C>               <C>           <C>            <C>     
Interest-sensitive assets       
Time deposits                           $    103       $    176        $     41          $   --        $     --       $    320
Investment securities:
   Held-to-maturity                        1,887           --              --             4,492           2,098          8,477
   Available-for-sale                      4,114           --              --               663           1,206          5,983
Federal funds sold                         5,380           --              --              --              --            5,380
Fixed rate loans                             203            137             271           2,726          35,346         38,683
Floating rate loans                       24,737           --             5,273             131            --           30,141
                                        --------       --------        --------        --------        --------       --------

   Total interest-sensitive assets        36,424            313           5,585           8,012          38,650         88,984
                                        --------       --------        --------        --------        --------       --------
Cumulative totals                         36,424         36,737          42,322          50,334          88,984
                                        --------       --------        --------        --------        --------

Interest-sensitive liabilities
Interest checking accounts                   114            342           1,415           2,693            --            4,564
Money market accounts                        317            952           3,933           7,485            --           12,687
Savings accounts                             484          1,451           5,996          11,412            --           19,343
Certificates less than $100,000            7,308          6,004           5,943           6,517            --           25,772
Certificates greater
  than $100,000                           10,900            933           1,847             111             211         14,002
Long-term debt                              --             --              --                75            --               75
                                        --------       --------        --------        --------        --------       --------

   Total Interest-sensitive
     liabilities                          19,123          9,682          19,134          28,293             211         76,443
                                        --------       --------        --------        --------        --------       --------
Cumulative totals                         19,123         28,805          47,939          76,232          76,443
                                        ========       ========        ========        ========        ========

Interest sensitivity gap                  17,301         (9,369)        (13,549)        (20,281)         38,439
                                        ========       ========        ========        ========        ========
Cumulative gap                            17,301          7,932          (5,617)        (25,898)         12,542
                                        ========       ========        ========        ========        ========
Cumulative  gap/total
   earning assets                          19.44%           8.91%          (6.31)%        (29.11)%        14.09%
                                        ========        ========        ========        ========       ========

Interest-sensitive assets to
   interest-sensitive liabilities           1.90             .03             .29             .28         183.18
                                        ========        ========        ========        ========       ========

</TABLE>

----------
Loan balances have been reduced for nonperforming loans.

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

<PAGE>


     In June 1996,  banking  regulators issued a "Joint Agency Policy Statement:
Interest Rate Risk" (FDICIA 305).  The agencies  agreed that the focus should be
on the risk to both net interest  income (or net income) as outlined in Table 12
in the  traditional  gap analysis  and  economic (or fair) value of equity.  The
premise is that changes in interest  rates affect a bank's  earnings by changing
its net  interest  income and the level of other  interest-sensitive  income and
operating  expenses.   However,  changes  in  interest  rates  also  affect  the
underlying   economic   value   of   the   bank's   assets,    liabilities   and
off-balance-sheet  instruments  because the  present  value of future cash flows
and, in some cases,  cash flows  themselves,  change when interest rates change.
The combined  effects of the changes in these present  values reflect the change
in the bank's  underlying  economic value. At a minimum,  this Policy  Statement
requires that policies and  procedures be  implemented  to determine  acceptable
levels of  interest  rate risk  exposure,  given the Bank's  profile and capital
position and to monitor and control the Bank's overall  interest-rate  risk. The
regulators  did not  quantify  the impact on capital  standards  in their policy
statement, but left it up to banks to determine their own limits, with a minimum
requirement based on exposure to a +/- 200 basis point rate change.

     The Bank has revised its policies and procedures to conform with FDICIA 305
and has  established a policy limit of +/- 3% as an acceptable fair value equity
change in a +/- 200 basis point rate shock  environment.  Management  performs a
fair value  simulation which  demonstrates  the fair value of equity  increasing
 .75% if rates  decrease 200 basis points and declining  1.70% if rates  increase
+200 basis  points.  This  analysis  confirms that the Bank has more exposure to
increasing rates than to decreasing rates.

     The Bank's Board of Directors and  management  consider all of the relevant
factors and conditions in the  asset/liability  planning process.  Interest-rate
exposure is not significant as it is within the Bank's policy limits at December
31, 1996.  However,  if  significant  interest  rate risk  arises,  the Board of
Directors  and  management  may take (but are not  limited to) one or all of the
following steps to reposition the balance sheet as appropriate:

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

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

     3.   Restructure the Bank's investment portfolio.

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

Capital Resources

     Total  shareholders'  equity decreased  approximately  $711 thousand during
1996  compared to an  increase  of  approximately  $671  thousand  in 1995.  The
decrease during 1996 was due to the net loss the Bank experienced, most of which
came as a result of the $485  thousand  SAIF Special  Assessment.  However,  the
decrease was offset by approximately $139 thousand in proceeds from the issuance
of common stock during the year.

     The increase in 1995 was  primarily  the result of $250  thousand  from the
issuance of preferred stock in 1995. In addition, approximately $722 thousand in
common stock was sold during the year.  The proceeds  from the issuance of stock
have been used to  stabilize  the  Bank's  capital  and absorb the impact of the
Bank's growth and expansion.

     The Federal Reserve Bank's ("FRB") standards for measuring capital adequacy
for U.S.  Banking  organizations  requires that banks maintain  capital based on
"risk-adjusted" assets so that categories of assets with potentially higher risk
will  require more  capital  backing  than assets with lower risk.  In addition,
banks are required to maintain  capital to support,  on a  risk-adjusted  basis,
certain off-balance-sheet activities such as loan commitments. The FRB standards
classify  capital  into two  tiers,  referred  to as Tier 1 and  Tier 2.  Tier 1
consists of common shareholders' equity,  noncumulative and cumulative perpetual
preferred stock, and minority  interests less goodwill.  Tier 2 capital consists
of allowance for loan losses,  hybrid  capital  instruments,  term  subordinated
debt,  and  intermediate-term  preferred  stock.  Banks are  required  to meet a
minimum ratio of 8% of qualifying capital to risk-adjusted  total assets with at
least 4% Tier 1 capital and a Tier I Leverage ratio of at least 6%. Capital that
qualifies  as Tier 2  capital  is  limited  to 100% of Tier 1  capital.  The FRB
requires "de novo" banks to maintain a primary  capital ratio of 9%. As of March
23, 1995, the Bank's third-year  anniversary,  the Bank was no longer considered
"de novo" by the FRB for purposes of capital requirements.  Therefore,  the Bank
must meet only the normal minimum ratios outlined above.

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

<PAGE>

Table 13--Capital Ratios

<TABLE>
<CAPTION>


(Dollars in thousands)                           1996             1995             1994
                                                 ----             ----             ----
<S>                                            <C>              <C>              <C>    
 Tier 1 Capital                                $ 6,558          $ 6,991          $ 6,746
 Tier 2 Capital                                    504              476              601
                                               -------          -------           ------
     Total qualifying capital                  $ 7,062          $ 7,467          $ 7,347
                                               =======          =======           ======
 Risk-adjusted  total assets  
  (including off-balance-sheet exposures)      $40,306          $51,560          $48,541
 Tier 1 Risk-based capital ratio                16.27%           13.56%           13.90%
 Total (Tier I and II) 
   Risk-based  capital ratio                    17.52%           14.48%           15.14%
 Tier 1 Leverage ratio                           7.09%            8.07%            7.12%

</TABLE>

Regulatory Matters

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

Cautionary Statement

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

<PAGE>





ITEM 8 - FINANCIAL STATEMENTS


                         Report of Independent Auditors


To the Shareholders and Board of Directors
United Bancshares, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  United
Bancshares,  Inc. as of December 31, 1996 and 1995 and the related  consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
three years in the period ended December 31, 1996.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of United Bancshares,
Inc.  at  December  31,  1996 and  1995,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1996 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated  financial  statements,  in 1994, the
Company changed its method of accounting for investment securities.




                                        /s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 24, 1997



<PAGE>



                             United Bancshares, Inc.

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>

                                                                            December 31
                                                                   ----------------------------
                                                                       1996             1995
                                                                       ----             ----

<S>                                                                <C>             <C>         
Assets
Cash and due from banks                                            $  3,544,110    $  2,620,372
Interest bearing deposits with banks                                    320,202         305,175
Federal funds sold                                                    5,380,000       7,900,000
                                                                   ------------    ------------
Cash and cash equivalents                                             9,244,312      10,825,547


Investment securities:
    Held to maturity, at amortized cost (market value $8,489,053
       and $8,083,685 in 1996 and 1995, respectively)
                                                                      8,476,638       8,070,348
    Available-for-sale, at market value                               5,983,461       8,669,695


Loans held for sale (market value $5,016,851)                         4,906,455            --
Loans, net of unearned discount of $428,768 and
    $493,278 in 1996 and 1995, respectively                          64,717,914      62,172,571
Less allowance for loan losses                                         (527,507)       (476,132)
                                                                   ------------    ------------


Net loans                                                            69,096,862      61,696,439


Bank premises and equipment, net                                      1,788,937       1,685,617
Accrued interest receivable                                           1,376,416       1,197,423
Deferred branch acquisition costs (net of accumulated
    amortization of $218,525 and $139,803 in 1996 and 1995,
    respectively)                                                       154,475         233,197
Prepaid expenses and other assets                                       648,300         256,946
                                                                   ------------    ------------
                                                                   $ 96,769,401    $ 92,635,212
                                                                   ============    ============

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                                                            December 31
                                                                   ----------------------------
                                                                       1996             1995
                                                                       ----             ----

Liabilities and Shareholders' Equity

<S>                                                                <C>             <C>         
Demand deposits, noninterest-bearing                               $ 12,393,256    $  8,568,450
Demand deposits, interest-bearing                                    13,126,327      11,911,190
Savings deposits                                                     23,484,301      22,997,104
Time deposits, $100,000 and over                                     14,001,981      13,544,983
Time deposits                                                        25,755,106      27,206,277
                                                                   ------------    ------------
                                                                     88,760,971      84,228,004

Long-term debt                                                           74,561         103,962
Accrued interest payable                                                525,161         489,234
Accrued expenses and other liabilities                                  650,040         344,177
                                                                   ------------    ------------
Total liabilities                                                    90,010,733      85,165,377

Shareholders' equity:
    Preferred Stock Series A, non-cumulative, 6%,
       $.01 par value, 500,000 shares authorized,
       93,150 issued and outstanding in 1996 and 1995                       932             932
    Common Stock, $.01 par value; 2,000,000 shares
       authorized; 816,355 and 802,480 issued and outstanding in
       1996 and 1995, respectively                                        8,163           8,024
    Additional paid-in-capital                                       10,348,989      10,210,580
    Accumulated deficit                                              (3,618,692)     (2,786,937)
    Net unrealized gains on securities
       available-for-sale                                                19,276          37,236
                                                                   ------------    ------------
Total shareholders' equity                                            6,758,668       7,469,835
                                                                   ------------    ------------
                                                                   $ 96,769,401    $ 92,635,212
                                                                   ============    ============

</TABLE>


See accompanying notes.



<PAGE>



                             United Bancshares, Inc.

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                                 Year ended December 31
                                                   ------------------------------------------------
                                                        1996              1995              1994
                                                        ----              ----              ----
<S>                                                 <C>               <C>               <C>        
Interest income:
    Interest and fees on loans                      $ 5,566,650       $ 5,157,578       $ 4,641,902
    Interest on investment securities                   977,117           984,190         1,128,973
    Interest on federal funds sold                      224,594           392,781           254,230
    Interest on time deposits with other banks           20,519            19,474             2,079
                                                    -----------       -----------       ----------- 
Total interest income                                 6,788,880         6,554,023         6,027,184

Interest expense:
    Interest on time deposits                         1,650,740         1,722,086         1,341,179
    Interest on demand deposits                         294,363           292,531           276,597
    Interest on savings deposits                        506,458           521,164           476,397
    Interest on borrowed funds                           78,629             6,375           167,459
                                                    -----------       -----------       ----------- 
Total interest expense                                2,530,190         2,542,156         2,261,632

Net interest income                                   4,258,690         4,011,867         3,765,552
Provision for loan losses                                85,000            78,166           384,739
                                                    -----------       -----------       ----------- 
Net interest income after provision for loan
    losses                                            4,173,690         3,933,701         3,380,813

Noninterest income:
    Gain on sale of loans                                11,188             9,769           194,617
    Customer service fees                               907,557           655,480           546,281
    Resolution Trust Corporation fees                    90,000              --             303,450
    Gain (loss) on sale of investments                    9,157              --            (201,159)
    Other income                                         99,821            76,015            96,662
                                                    -----------       -----------       ----------- 
Total noninterest income                              1,117,722           741,264           939,851

Noninterest expense:
    Salaries, wages, and employee benefits            2,255,079         2,277,613         1,940,920
    Occupancy and equipment                             898,464           819,750           718,459
    Office operations and supplies                      509,158           504,050           703,535
    Marketing and public relations                      136,352            92,556           170,553
    Professional services                               266,955           297,743           240,880
    Data processing                                     811,531           620,831           511,136
    Deposit insurance assessments                       616,025           199,964           171,882
    Other  operating                                    629,603           641,804           610,702
                                                    -----------       -----------       ----------- 
Total noninterest expense                             6,123,167         5,454,311         5,068,067
                                                    -----------       -----------       ----------- 
Net loss                                            $  (831,755)      $  (779,346)      $  (747,403)
                                                    ===========       ===========       =========== 

Loss per common share                                    $(1.03)           $(1.04)           $(1.01)
                                                    ===========       ===========       =========== 

Weighted average number of common shares                810,729           749,055           742,359
                                                    ===========       ===========       =========== 
</TABLE>

See accompanying notes.


<PAGE>

                Consolidated Statements of Stockholders' Equity

                  For the three years ended December 31, 1996


<TABLE>
<CAPTION>

                                                                                                              Net
                                                                                                            Unrealized
                                     Series A   Series A                                                  Gains (Losses)
                                     Preferred  Preferred   Common     Common    Additional               on Securities    Total
                                       Stock      Stock      Stock      Stock      Paid-In   Accumulated   Available-  Shareholders'
                                      Shares     Amount     Shares     Amount      Capital     Deficit      For-Sale      Equity
                                      ------     ------     ------     ------      -------     -------      --------      ------
                                                                                                
                                                                                              
<S>                                   <C>        <C>        <C>       <C>        <C>          <C>            <C>         <C>       
Balances, December 31, 1993             --       $  --      742,349   $742,349   $6,892,449   $(1,260,188)   $(31,972)   $6,342,638
Adjustment to beginning balance                                                                                          
   for change in accounting method                                                                             (4,500)       (4,500)
Conversion to $.01 par value                                          (734,926)     734,926                              
Net change in unrealized gains                                                                                           
   (losses) on available-for-sale                                                                                        
    securities                                                                                               (405,123)     (405,123)
Proceeds from issuance of                                                                                                
   preferred stock                    80,650       807                            1,612,351                               1,613,158
Net loss                                                                                         (747,403)                 (747,403)
                                      ------      ----      -------     ------   -----------  -----------    -------     ----------
                                                                                                                       
Balances, December 31, 1994           80,650       807      742,349      7,423    9,239,726    (2,007,591)  (441,595)     6,798,770
Proceeds from issuance                                                                                                   
   of preferred stock                 12,500       125                              249,875                                 250,000
Proceeds from issuance                                                                                                   
   of common stock                                           60,131        601      720,979                                 721,580
Net change in unrealized                                                                                                 
   gains (losses) on                                                                                                     
   available-for-sale securities                                                                             478,831        478,831
Net loss                                                                                         (779,346)                 (779,346)
                                      ------      ----      -------     ------   -----------  -----------    -------     ----------
                                                                                                                         
Balances, December 31, 1995           93,150       932      802,480      8,024    10,210,580   (2,786,937)    37,236      7,469,835
                                                                                                                         
Proceeds from issuance                                                                                                   
   of common stock                                           13,876        139       138,409                                138,548
Net change in unrealized                                                                                                 
   gains (losses) on                                                                                                     
   available-for-sale securities                                                                             (17,960)       (17,960)
Net loss                                                                                         (831,755)                 (831,755)
                                      ------      ----      -------     ------   -----------  -----------    -------     ----------
                                                                                                                       
Balances, December 31, 1996           93,150      $932      816,356     $8,163   $10,348,989  $(3,618,692)   $19,276     $6,758,668
                                      ======      ====      =======     ======   ===========  ===========    =======     ==========
                                                                                                      
</TABLE>

See accompanying notes.                  
<PAGE>



                             United Bancshares, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                             Year ended December 31
                                                               ----------------------------------------------------
                                                                     1996              1995              1994
                                                                     ----              ----              ----

<S>                                                            <C>                <C>                <C>          
Cash flows from operating activities
Net loss                                                       $   (831,755)      $   (779,346)      $   (747,403)
Adjustments to reconcile net loss to net cash used in
operating activities:
       Provision for loan losses                                     85,000             78,166            384,739
       Gain on sale of loans                                        (11,188)            (9,769)          (194,617)
       Depreciation and amortization                                512,045            446,825            511,919
       Realized investment securities (gains) losses                 (9,157)              --              201,159
       Purchase adjustment loan loss reserve                           --                 --              183,963
       (Increase) decrease in accrued interest receivable
          and other assets                                         (570,347)           214,256           (919,636)
       Increase (decrease) in accrued interest payable
          and other liabilities                                     341,790            (39,690)          (726,298)
                                                               ------------       ------------       ------------
Net cash used in operating activities                              (483,612)           (89,558)        (1,306,174)

Cash flows from investing activities
Purchase of available-for-sale investments                       (4,154,304)           (48,088)        (9,245,706)
Purchase of held-to-maturity investments                         (6,095,331)              --          (36,028,161)
Proceeds from maturity and principal
    reductions of available-for-sale investments                  2,218,412          2,209,082            821,479
Proceeds from maturity and principal
    reductions of held-to-maturity investments                    5,692,377            405,313         41,333,137
Proceeds from sales of available-for-sale investments             4,571,601               --            3,657,784
Net increase in loans                                            (7,474,235)        (9,781,349)        (1,566,586)
Residential mortgage loans acquired                                    --                 --          (25,590,675)
Residential mortgage loans sold to other institutions                  --           11,097,892         12,635,217
Proceeds from deposits acquired in branch  acquisitions                --                 --           22,827,507
Purchase of premises and equipment                                 (498,257)          (391,789)          (805,025)
                                                               ------------       ------------       ------------
Net cash (used in) provided by investing activities              (5,739,737)         3,491,061          8,038,971

Cash flows from financing activities
Net increase (decrease) in deposits                               4,532,967         (3,222,789)        (4,358,170)
Repayments on long-term debt                                        (29,401)           (27,951)           (26,543)
Net proceeds from issuance of common stock                          138,548            721,580               --
Net proceeds from issuance of preferred stock                          --              250,000          1,613,158
                                                               ------------       ------------       ------------
Net cash provided by(used in) financing activities                4,642,114         (2,279,160)        (2,771,555)
(Decrease) increase in cash and cash equivalents                 (1,581,235)         1,122,343          3,961,242
Cash and cash equivalents at  beginning of year                  10,825,547          9,703,204          5,741,962
                                                               ------------       ------------       ------------
Cash and cash equivalents at end of year                       $  9,244,312       $ 10,825,547       $  9,703,204
                                                               ============       ============       ============

Supplemental disclosures of cash flow information:
Cash paid during the year for interest                         $  2,502,283       $  2,511,995       $  1,802,558
                                                               ============       ============       ============
</TABLE>

See accompanying notes.


<PAGE>



                             United Bancshares, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 1996
                    (in thousands, except per share amounts)

1. Summary of Significant Accounting Policies

In April 1993, the  shareholders of United Bank of  Philadelphia  ("UBP" or "the
Bank")  voted  in favor  of the  formation  of a bank  holding  company,  United
Bancshares,  Inc.  ("UBS" or "the Company").  Accordingly,  in October 1994, UBS
became a one bank holding company in conjunction with the issuance of its common
shares in exchange for the common shares of UBP. This  transaction was accounted
for in a  manner  similar  to a  pooling  of  interests  and,  accordingly,  the
consolidated  financial  statements  of the Company  include the accounts of the
Bank for all periods presented.

A summary of the significant  accounting  policies applied in the preparation of
the accompanying financial statements follows.

Principles of Consolidation

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

Statement of Cash Flows

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

Investment Securities

Effective  January 1, 1994, the Bank adopted  Statement of Financial  Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."  Under this standard,  debt  securities  that the Bank has both the
positive  intent and ability to hold to maturity are carried at  amortized  cost
and classified as held-to-maturity.  Debt securities that the Bank does not have
positive  intent to hold to maturity are  classified as  available-for-sale  and
carried  at fair  value.  Unrealized  holding  gains and  losses  on  securities
classified  as  available-for-sale  are  carried  as  a  separate  component  of
shareholders' equity net of related income tax effects.



<PAGE>



================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)

Investment Securities (continued)

Prior  to  January  1,   1994,   the  Bank   classified   debt   securities   as
held-for-investment  and carried  them at cost,  adjusted  for  amortization  of
premium and  accretion of  discount,  which are  recognized  as  adjustments  to
income.  Application  of the new rules  resulted in a decrease of  approximately
$4,500  in  shareholders'  equity  as  of  January  1,  1994,  representing  the
recognition  in  shareholders'  equity of net  unrealized  depreciation  for the
Bank's investment in debt and equity  securities  determined to be available for
sale, previously carried at amortized cost.

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

Loans

Loans are  stated at the  amount of unpaid  principal  reduced  by net  unearned
discount  and an  allowance  for  loan  losses.  Interest  income  on  loans  is
recognized  as earned  based on  contractual  interest  rates  applied  to daily
principal amounts outstanding and accretion of discount. It is the Bank's policy
to  discontinue  the accrual of interest  income when a default of  principal or
interest  exists  for a period of  ninety  days  except  when,  in  management's
judgment,  the collection of principal and interest is reasonably anticipated or
adequate  collateral exists (including a loan impaired under SFAS 114). Interest
received on non accrual loans is either applied against principal or reported as
interest  income  according to  management's  judgment as to  collectibility  of
principal. When interest accruals are discontinued,  interest credited to income
is reversed and the loan is classified as non-performing.

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

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

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


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)

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

Allowance for Loan Losses

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

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

Bank Premises and Equipment

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


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)

Income Taxes

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

Loss Per Share

Loss per share is based on the weighted average common shares outstanding during
each period.

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.

Management's Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain  reclassifications  of previous years' financial statements were made to
conform with the 1996 presentation.


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



2. Cash and Due from Bank Balances

The Bank  maintains  various  deposit  accounts of $808,000 at December 31, 1996
with other banks to meet normal funds transaction requirements and to compensate
other  banks  for  certain  correspondent  services.  The  withdrawal  or  usage
restrictions  of  these  balances  did  not  have a  significant  impact  on the
operations of the Bank as of December 31, 1996.

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, 1996 are as follows:

<TABLE>
<CAPTION>


                                                            Gross            Gross
                                                          Unrealized        Unrealized          Market
                                      Amortized Cost        Gains           (Losses)            Value
                                      --------------        -----           --------            -----
<S>                                     <C>              <C>               <C>               <C>        
Available-for-sale:
    U. S. Treasury Securities           $   648,385      $      --         $    (1,277)      $   647,108
    Corporate securities                     14,865             --                 (36)           14,829
    Mortgage-backed securities            4,904,609           20,589              --           4,925,198
                                        -----------      -----------       -----------       -----------
    Total debt securities                 5,567,859           20,589            (1,313)        5,587,135
    Investments in mutual funds              80,326             --                --              80,326
    Other investments                       316,000             --                --             316,000
                                        -----------      -----------       -----------       -----------
                                        $ 5,964,185      $    20,589       $    (1,313)      $ 5,983,461
                                        ===========      ===========       ===========       ===========
                                     
Held-to-maturity:                    
    U.S. Treasury securities            $ 1,993,459      $       128       $      --         $ 1,993,587
    Other Government securities           5,595,569           20,917              --           5,616,486
    Mortgage-backed securities              887,610             --              (8,630)          878,980
                                        -----------      -----------       -----------       -----------
    Total debt securities               $ 8,476,638      $    21,045       $    (8,630)      $ 8,489,053
                                        ===========      ===========       ===========       ===========
</TABLE>

<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



3. Investments (continued)

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, 1995 are as follows:

<TABLE>
<CAPTION>


                                                           Gross              Gross
                                                         Unrealized         Unrealized          Market
                                    Amortized Cost         Gains             (Losses)           Value
                                    --------------         -----             --------           -----
<S>                                   <C>               <C>                <C>                <C>        
Available-for-sale:
    Corporate securities              $    58,358       $      --          $      (330)       $    58,028
    Mortgage-backed securities          8,210,341            61,778            (24,213)         8,247,906
                                      -----------       -----------        -----------        -----------
    Total debt securities               8,268,699            61,778            (24,543)         8,305,934
    Investments in mutual funds            76,161              --                 --               76,161
    Other investments                     287,600              --                 --              287,600
                                      -----------       -----------        -----------        -----------
                                      $ 8,632,460       $    61,778        $   (24,543)       $ 8,669,695
                                      ===========       ===========        ===========        ===========

Held-to-maturity:
    U.S. Treasury securities          $ 3,987,777       $    13,619        $      (466)       $ 4,000,930
    Other Government securities         2,999,738              --               (4,127)         2,995,611
    Mortgage-backed securities          1,082,833             4,311               --            1,087,144
                                      -----------       -----------        -----------        -----------
    Total debt securities             $ 8,070,348       $    17,930        $    (4,593)       $ 8,083,685
                                      ===========       ===========        ===========        ===========
</TABLE>

Pursuant to the  transition  provisions of the FASB's  Special Report on FAS 115
which  allowed  transfers  from  the  held-to-maturity  investment  category  to
available-for-sale  between  November 15, 1995 and  December 31, 1995,  the Bank
transferred  investment  securities  with an amortized  cost of $1,696,985  from
held-to-maturity  to  available-for-sale.  The related  unrealized loss on these
investment securities was $24,213.



<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



3. Investments (continued)

Maturities  of  investment  securities  classified  as  available-for-sale   and
held-to-maturity  were as follows at December 31, 1996.  Expected maturities may
differ from contractual maturities.

                                                  Amortized           Market
                                                    Cost              Value
                                                    ----              -----

Available-for-sale:
    Due in  three months or less                  $     --         $     --
    Due after three months through one year             --               --
    Due after  one year through five years           663,249          661,937
    Due after five years through ten years              --               --
    Due after ten years                                 --               --
    Mortgage-backed securities                     4,904,609        4,925,198
                                                  ----------       ----------
Total debt securities                             $5,567,858       $5,587,135
                                                  ==========       ==========
Held-to-maturity:
    Due in  three months or less                  $  999,159       $  998,828
    Due after three months through one year             --               --
    Due after  one year through five years         4,492,505        4,492,244
    Due after 5 years through ten years            2,097,364        2,119,001
    Due after 10 years                                  --               --
    Mortgage-backed securities                       887,610          878,980
                                                  ----------       ----------
Total debt securities                             $8,476,638       $8,489,053
                                                  ==========       ==========

The  proceeds  from sales of  investments  in debt  securities  during 1996 were
$4,571,601.  Gross gains of $9,157 were  realized on those sales.  There were no
sales of investments during 1995. The proceeds from sales of investments in debt
securities  during 1994 were $3,657,784.  Gross losses of $201,159 were realized
on those sales.

As of December  31, 1996 and 1995,  investment  securities  with a book value of
$8,378,429 and $11,999,804,  respectively,  were pledged as collateral to secure
public deposits and for other purposes required or permitted by law.


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


4. Loans and Allowance for Loan Losses

The composition of the net loans is as follows at December 31:

                                     1996                1995
                                     ----                ----

Commercial and industrial       $ 10,106,925        $  8,020,697
Commercial real estate               649,026             626,638
Residential mortgages             36,621,993          37,271,312
Consumer loans                    22,246,425          16,253,924
                                ------------        ------------
Total loans                       69,624,369          62,172,571

Less:
Allowance for loan losses           (527,507)           (476,132)
                                ------------        ------------
Net loans                       $ 69,096,862        $ 61,696,439
                                ============        ============

Student  loans held for sale at December  31, 1996  totaled  $4,906,455  and are
carried at the lower of cost or market.

As of December  31, 1996 and 1995,  the Bank had loans to certain  officers  and
directors  and  their  affiliated   interests  in  aggregate  dollar  amount  of
approximately  $819,000 and $185,000,  respectively and held deposits of certain
officers and  directors at December 31, 1996 and 1995 of $196,000 and  $144,000,
respectively.  During  1996,  new  loans to such  related  parties  amounted  to
$759,000 and  repayments  amounted to $125,000.  Such  transactions  are made on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time for other non related party transactions.

Non-accrual loans totaled approximately $800,000 and $949,000 as of December 31,
1996 and 1995, respectively.

At  December  31, 1996 and 1995,  unamortized  deferred  fees and costs  totaled
$120,439 and $32,456, respectively.



<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


4. Loans and Allowance for Loan Losses (continued)

Changes in the allowance for possible loan losses for the year ended December 31
are as follows:

<TABLE>
<CAPTION>
                                                1996             1995            1994
                                                ----             ----            ----

<S>                                          <C>              <C>              <C>      
Balance, beginning of period                 $ 476,132        $ 726,242        $ 628,855
Provision                                       85,000           78,166          384,739
Allowance allocated to acquired loans
                                                  --               --            185,765
Chargeoffs                                     (42,271)        (199,517)        (341,994)
Recoveries                                       8,646            5,500            3,042
Allowance previously allocated to sold
  loans                                           --           (134,259)        (134,165)
                                             =========        =========        =========
                                             $ 527,507        $ 476,132        $ 726,242
                                             =========        =========        =========


</TABLE>

At December 31, 1996 and 1995,  the recorded  investment in loans that were on a
nonaccrual  basis and were considered to be impaired under SFAS 114 was $368,000
and $271,000, respectively. At December 31, 1996 and 1995, the related allowance
for loan  losses was  $111,000  and  $43,000,  respectively.  Impaired  loans of
$228,000  are SBA  guaranteed  and do not have an allowance  for loan loss.  The
average  recorded  investment in impaired  loans during the years ended December
31, 1996 and 1995 was approximately $353,000 and $406,000, respectively. For the
years  ended  December  31,  1996 and 1995,  respectively,  the Bank  recognized
interest income on those impaired loans of $500 and $7,700.

The Bank  grants  commercial,  residential,  and  consumer  loans  to  customers
primarily located in Philadelphia County,  Pennsylvania and surrounding counties
in the Delaware Valley. Although the Bank has a diversified loan portfolio,  its
debtors' ability to honor their contracts is influenced by the region's economy.
During 1996,  approximately  24% of the Bank's  commercial  loan  portfolio  was
concentrated in loans made to religious organizations.


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


5. Bank Premises and Equipment

The major  classes of bank  premises  and  equipment  and the total  accumulated
depreciation are as follows at December 31:

                                                1996                1995
                                                ----                ----

Buildings and leasehold improvements        $   856,620         $   909,282
Furniture and equipment                       1,633,498           1,247,750
                                            -----------         -----------
                                              2,490,118           2,157,032
Less: accumulated depreciation                 (701,181)           (471,415)
                                            -----------         -----------
                                            $ 1,788,937         $ 1,685,617
                                            ===========         ===========

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

      1997                  $  264,041
      1998                     275,160
      1999                     290,708
      2000                     297,330
      2001                     301,706
      Thereafter               518,665
                            ----------
      Total                 $1,947,610
                            ==========

In  conjunction  with the  branch  acquisitions  discussed  in Note 14, the Bank
operated  three  branches under a 5-year free rent agreement. In November 1996,
the Bank closed two of these  branches and terminated  the related  leases.  The
Bank  continues to operate one branch under a free-rent  agreement for which the
related lease expires on July 30, 1998. Upon expiration, the Bank has the option
to purchase the building at a price equivalent to 93% of the appraised value.

The total rental  expense  included in the statement of operations for the years
ended December 31, 1996, 1995, and 1994 was  approximately  $244,000,  $261,000,
and $280,000, respectively.


<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



6. Long-Term Debt

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

            1997                  $   30,895
            1998                      32,476
            1999                      11,190


7. Deposits

At December 31, 1996, the scheduled maturities of CDs are as follows:

                                           (Thousands of
                                              dollars)

            1997                             $32,891
            1998                               2,932
            1999                               1,397
            2000                                 733
            2001 and thereafter                1,804
                                             -------
                                             $39,757
                                             =======
                                      
8. Reverse Repurchase Agreements

During 1996,  the Bank  entered into sales of  securities  under  agreements  to
repurchase  identical securities or reverse repurchase  agreements.  The amounts
advanced  under  these  agreements  represent  short-term  loans  and  would  be
reflected as a payable in the balance  sheet when  outstanding.  The  securities
underlying the agreements are book-entry



<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


8. Reverse Repurchase Agreements (continued)

securities  and were held in custody  by the  counterparty  to the  transaction.
There were no outstanding  agreements at December 31, 1996. The average  balance
of reverse purchase agreements entered into during 1996 was $1.7 million and the
maximum amounts outstanding at any month-end during 1996 was $10 million.

9. Capital Stock Offerings

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

In June,  1994,  UBS began a limited  offering of its Series A  Preferred  Stock
(non-cumulative  6%, $.01 par value) on a best  efforts  basis.  The  non-voting
preferred stock was offered at a price of $20 per share with a minimum  purchase
of 750 shares and integral  multiples  thereof.  During  1995,  UBS had received
$250,000 and had issued  12,500  shares of preferred  stock from this  offering.
During 1994,  UBS had received  $1,613,158 and issued 80,650 shares of preferred
stock from this offering. The offering terminated on December 31, 1995.

Upon the declaration of a common dividend, each of the Series A preferred shares
will  be  accorded  a  non-cumulative  dividend  preference  equal  to 6% of the
purchase  price of the stock per annum prior to the  payment of any  dividend on
account of any other class or series of UBS. No dividends  were declared or paid
during 1996, 1995 or 1994.

In April  1995,  UBS began its third  offering  of a maximum  250,000  shares of
common  stock at a price of $12 per share.  For every  share  purchased  in this
offering  each  investor  received 3 warrants  which allowed the purchase of one
additional common share in each of the next three years, that is 1996, 1997, and
1998,  at a price of $8.00,  $9.00,  and $10.00,  respectively  up to the amount
purchased in this offering.  As of December 31, 1995, UBS had received  $221,580
and had issued 18,465 shares of common stock



<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


9. Capital Stock Offerings (continued)

and 55,395  warrants from this  offering.  This offering was limited to existing
shareholders of record as of April 21, 1995. The offering terminated on December
31, 1995. In 1995, UBS also received $500,000 and issued 41,666 shares of common
stock.  During 1996, UBS received $55,536 and issued 6,942 shares as a result of
warrants exercised by shareholders to purchase common stock at a price of $8 per
share. As of December 31, 1996, 36,930 warrants remain outstanding.

10. Income Taxes

The Bank accounts for income taxes in accordance with SFAS 109.

At  December  31,  1996,  the  Bank  has net  operating  loss  carryforwards  of
approximately $3,271,000 for income tax purposes that begin to expire in 2007.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amount used for income tax purposes.  For  financial  reporting
purposes,  a valuation  allowance of $1,130,494  and $841,423 as of December 31,
1996 and 1995,  respectively,  has been  recognized  to offset the  deferred tax
assets  related  to the  cumulative  temporary  differences  and  the  tax  loss
carryforwards.  Significant  components of the Bank's  deferred tax assets as of
December 31, 1996, and 1995 are as follows:

<TABLE>
<CAPTION>

                                                             1996                1995
                                                             ----                ----
<S>                                                     <C>                 <C>        
Deferred tax assets (liabilities):
    Preoperating costs                                  $     5,973         $    50,476
    Provision for loan losses                                 7,457              (3,976)
    FAS 115                                                  (6,554)            (12,660)
    Depreciation                                             24,318              14,408
    Net operating loss carryforwards                      1,112,149             835,831
    Other                                                   (12,849)            (42,656)
    Valuation allowance for deferred  tax assets         (1,130,494)           (841,423)
                                                        -----------         -----------
Net deferred tax assets                                 $        --         $        --
                                                        ===========         ===========

</TABLE>

<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


11. Financial Instrument Commitments

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

Summaries  of the  Bank's  financial  instrument  commitments  are as follows at
December 31:

                                           1996                1995
                                           ----                ----

Commitments to extend credit            $4,528,915          $6,857,398
Outstanding letters of credit              115,000             155,000


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

12. Fair Values of Financial Instruments

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



<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


12. Fair Values of Financial Instruments (continued)

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

<TABLE>
<CAPTION>


                                                                 December 31
                                                  1996                                1995
                                         Carrying                            Carrying 
                                          Amount          Fair Value          Amount        Fair Value 
                                          ------          ----------          ------        ---------- 

                                                               (in thousands)

<S>                                      <C>               <C>               <C>               <C>    
Assets
Cash and cash equivalents                $  9,244          $  9,244          $10,825           $10,825
Securities                                 14,460            14,473           16,740            16,753
Loans held for sale                         4,906             5,017                -                 -
Loans, net of allowance                    64,190            65,554           61,696            64,341
    for loan loss
Liabilities
Demand deposits                            25,520            25,520           20,480            20,480
Savings deposits                           23,484            23,484           22,997            22,997
Time deposits                              39,757            39,577           40,751            40,675

Off-Balance Sheet
Commitments to extend credit
                                            4,529               (91)           6,857              (137)
Outstanding Letters of
    Credit                                    115                 -              155                 -

</TABLE>


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 sheets
for cash and cash equivalents approximate those assets' fair value.

Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available,  fair
values are based on quoted market prices of comparable instruments.


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



12. Fair Values of Financial Instruments (continued)

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

Loans: The fair value of loans was estimated using discounted cash flow analysis
which  considered  estimated  prepayments  and  amortizations.  Prepayments  and
discount  rates  were  based  on  current  marketplace  estimates  and  pricing.
Residential  mortgage  loans were  discounted  at the current  effective  yield,
including  fees, of  conventional  loans  adjusted for their  maturities  with a
spread to the Treasury yield curve.

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

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

13. Employee Compensation

The Bank has an employment  agreement with its chief executive  officer covering
such items as salary,  bonuses, and benefits.  The agreement expires in 2000 and
provides for guaranteed minimum annual compensation of $150,000 over the term of
the  contract.  The  contract,  entered into on  September  13, 1993 and amended
January 1, 1994, also granted the chief executive  officer the option to acquire
up to 4% of the Company's  stock as of December 31, 1993 at a price of $8.54 per
share which was the book value at the date of grant. The contract, as amended on
January 1, 1997, provides for a minimum  contribution of $58,200 per year to the
chief executive officer's  retirement  benefit.  The Company made no stock-based
compensation awards to any employee during 1996 or 1995.



<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


14. Branch Acquisitions

On  September  23, 1994,  the Bank  acquired  one branch with  approximately  $7
million  dollars in  deposits  from  Central  Pennsylvania  Savings  Association
("Central Penn").

On June 24, 1994, the Bank acquired one branch with approximately  $15.9 million
in deposits of Ukrainian  Federal  Savings  Association  ("Ukrainian")  from the
Resolution Trust Corporation.

On July 28,  1993,  the Bank  acquired  two branches  with  approximately  $11.8
million in deposits of Chase Federal Savings and Loan Association ("Chase").

On August 27, 1993,  the Bank acquired  three  branches with  approximately  $97
million in deposits of Home Unity Savings and Loan  Association  ("Home  Unity")
from the RTC and  immediately  sold one branch with deposits of $34.5 million to
PNC Bank.

The  Bank  incurred  approximately  $149,000  and  $224,000  in 1994  and  1993,
respectively,  in consulting  and other costs  directly  related to these branch
acquisitions  which have been  deferred  and are being  amortized  over 5 years.
Amortization  for the years ended  December  31,  1995,  1994,  and 1993 totaled
approximately $78,700, $78,700, and $58,900, respectively.

15. Loan Sales and Acquisitions

In March 1995, the Bank sold approximately  $10.2 million fixed rate residential
mortgage loans. There was no gain or loss on this sale transaction.  At December
31, 1994, these loans were classified as held for sale.

Pursuant to the  acquisition  of Chase and Home Unity branches in 1993, the Bank
acquired loans with outstanding  principal  balances totaling $107.6 million for
$104.4 million,  net of a discount of $3.2 million.  The Bank  immediately  sold
$64.8  million of these loans at a net gain of $2.6  million.  The Bank retained
the  remaining  $42.8  million  of these  loans and  allocated  $426,000  of the
remaining  discount to an allowance for loan losses to cover potential losses in
the acquired and retained portfolio.  The discount remaining after the loan loss
allocation  is being  amortized  over the remaining  life of the retained  loans
using the interest method.


<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)



15. Loan Sales and Acquisitions (continued)

In 1994,  the Bank  acquired  loans from  other  institutions  with  outstanding
principal  balances totaling $26.1 million for $25.6 million,  net of a discount
of $544,000.  The Bank  allocated  $185,000 of the discount to an allowance  for
losses to cover potential losses in the acquired portfolio.

16. Resolution Trust Corporation Fee

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


<PAGE>


================================================================================
                             United Bancshares, Inc.
================================================================================


             Notes to Consolidated Financial Statements (continued)


17. Condensed Financial Information--Parent Company Only

United Bancshares, Inc.(Parent Company Only) Condensed Balance Sheets:

                                                             December 31
                                                      1996             1995
                                                      ----             ----
                                                       (Dollars in thousands)

Assets:
    Due from banks (subsidiary)                      $    186         $    186
    Investment in United Bank of Philadelphia           6,573            7,284
                                                     --------         --------
Total assets                                         $  6,759         $  7,470
                                                     ========         ========

Shareholders' equity:
    Preferred stock, Series A                        $      1         $      1
    Common stock                                            8                8
    Additional paid-in-capital                         10,349           10,210
    Accumulated deficit                                (3,618)          (2,786)
    Net unrealized gains on securities
       available-for-sale                                  19               37
                                                     --------         --------
Total shareholders' equity                           $  6,759         $  7,470
                                                     ========         ========

United Bancshares Inc. (Parent Company Only) Statement of Operations:

                                                Year ended December 31
                                         1996          1995          1994
                                         ----          ----          ----
                                                (Dollars in thousands)

Equity in net loss of subsidiary        $(832)        $(779)        $(747)
                                        -----         -----         -----
Net loss                                $(832)        $(779)        $(747)
                                        =====         =====         =====


<PAGE>
================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)




17. Condensed Financial Information--Parent Company Only (continued)

United Bancshares, Inc. (Parent Company Only) Statement of Cash Flows:


<TABLE>
<CAPTION>

                                                               Year ended December 31
                                                         1996          1995         1994
                                                         ----          ----         ----

                                                                (dollars in thousands)
<S>                                                    <C>           <C>           <C>     
Operating activities
Net Loss                                               $  (832)      $  (779)      $  (747)
Adjustments
Equity in net loss of subsidiary                           832           779           747
                                                       -------       -------       -------
Net cash provided by operating activities                 --            --            --

Investing activities
Investment in subsidiary                                  (139)         (947)       (1,452)
                                                       -------       -------       -------
Net cash used by investing activities                     (139)         (947)       (1,452)

Financing activities
Issuance of preferred stock                               --             250         1,613
Issuance of common stock                                   139           722          --
                                                       -------       -------       -------
Net cash provided by financing activities                  139           972         1,613
                                                       -------       -------       -------
Increase in cash and cash equivalents                     --              25           161
Cash and cash equivalents at the beginning of the
    year                                                   186           161          --
                                                       -------       -------       -------
Cash and cash equivalents at the end of the year
                                                       $   186       $   186       $   161
                                                       =======       =======       =======
</TABLE>

18. Regulatory Matters

The Bank engages in the commercial banking business,  with a particular focus on
serving  Blacks,  Hispanics,  Asians  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,  UBS and the Bank,  respectively,  are
subject  to  regulation  by the  Federal  Reserve  Board  and  the  Pennsylvania
Department  of  Banking  and  are  required  to  maintain  capital  requirements
established by those regulators. Prompt corrective actions may be taken by those
regulators against banks that do not meet minimum capital  requirements.  Prompt
corrective  actions  range  from  the  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---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 for prompt and corrective action,
the Bank  must  meet  specific  capital  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.


<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================

             Notes to Consolidated Financial Statements (continued)


18. Regulatory Matters (continued)

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of total Tier 1 Capital (as defined in the  regulations) to risk-weighted
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.

The  most  recent   notification   from  the  FDIC   categorized   the  Bank  as
"well-capitalized"  under the  regulatory  framework  for prompt and  corrective
action. To be categorized as "well-capitalized",  the Bank must maintain minimum
total risk-based,  tier 1 risk-based, and tier 1 leverage ratios as set forth in
the table  below.  There are no  conditions  or events at December 31, 1996 that
management  believes  have changed the  institution's  category.  The  continued
ability of UBS and the Bank to meet the regulators' capital requirements will be
dependent  on the  ability  of UBS and the  Bank to  achieve  profitable  future
operations and raise  additional  capital from  investors.  Potential  risks and
uncertainties  that could affect the Bank's ability to achieve profitable future
operating results and UBS' ability to raise capital include, without limitation,
general  economic  conditions,  expanded market share of the Bank's products and
services, and the ability to diversify and expand the Bank's loan portfolio with
profitable loans, the ability of the Bank to continue to create new, competitive
and profitable products (such as noninterest bearing deposits) and services, the
possibility of adverse publicity, and continued competitive and pricing pressure
in the  marketplace.  A change in applicable  law or regulation  may also have a
material effect on the Bank's business.

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

<TABLE>
<CAPTION>

                                                                                     To be Well Capitalized
                                                     For Capital Adequacy           Under Prompt Corrective
   As of December 31,             Actual                   Purposes                    Action Provisions
                            -----------------        ---------------------          ----------------------- 
           1996:            Amount      Ratio        Amount        Ratio             Amount            Ratio
           -----            ------      -----        ------        -----             ------            -----

<S>                         <C>         <C>         <C>      <C>                      <C>       <C>   
Total capital to risk-
 weighted assets:
      Consolidated          $7,062      17.52%      $3,224   Greater than/=8.00%      $4,031    Greater than/=10.00%
      Bank                  $6,876      17.06%      $3,224   Greater than/=8.00%      $4,031    Greater than/=10.00%
Tier 1 capital to risk-
 weighted assets:
      Consolidated          $6,558      16.27%      $1,612   Greater than/=4.00%      $2,418     Greater than/=6.00%
      Bank                  $6,372      15.81%      $1,612   Greater than/=4.00%      $2,418     Greater than/=6.00%
Tier   1   capital    to
 average  assets:
      Consolidated          $6,558       7.09%      $3,702   Greater than/=4.00%      $4,627     Greater than/=5.00%
      Bank                  $6,372       6.89%      $3,694   Greater than/=4.00%      $4,618     Greater than/=5.00%

</TABLE>


<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================


             Notes to Consolidated Financial Statements (continued)


18. Regulatory Matters (continued)

<TABLE>
<CAPTION>


                                                                                         To be Well Capitalized
                                                      For Capital Adequacy              Under Prompt Corrective
   As of December 31,             Actual                    Purposes                       Action Provisions
                            --------------------      --------------------              -----------------------
           1995:            Amount      Ratio       Amount       Ratio                   Amount           Ratio
           -----            ------      -----       ------       -----                   ------           -----


<S>                         <C>         <C>         <C>         <C>                      <C>        <C>   
Total capital to risk-
 weighted assets:
      Consolidated          $7,467      14.48%      $4,125      Greater than/=8.00%      $5,156     Greater than/=10.00%
      Bank                   7,281      14.12%      $4,125      Greater than/=8.00%      $5,156     Greater than/=10.00%
Tier 1 capital to risk-
 weighted assets:
      Consolidated          $6,991      13.56%      $2,062      Greater than/=4.00%      $3,094     Greater than/=6.00%
      Bank                  $6,805      13.20%      $2,062      Greater than/=4.00%      $3,094     Greater than/=6.00%
Tier 1 capital to average
 assets:
      Consolidated          $6,991       8.07%      $3,463      Greater than/=4.00%      $4,329     Greater than/=5.00%
      Bank                  $6,805       7.35%      $3,456      Greater than/=4.00%      $4,320     Greater than/=5.00%

</TABLE>

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



<PAGE>

================================================================================
                             United Bancshares, Inc.
================================================================================


             Notes to Consolidated Financial Statements (continued)


19. Deposit Insurance Assessments

Deposits of the Bank are insured by the Federal  Deposit  Insurance  Corporation
(FDIC).  On September  30, 1996,  Congress  passed a Bill to  re-capitalize  the
Savings Association  Insurance Fund (SAIF) of the FDIC. As a result,  commercial
banks,  like the Bank,  which were members of the Bank  Insurance Fund (BIF) but
owned  SAIF-assessable  deposits were required to pay on November 27, 1996 a one
time assessment of 65.7 basis points of total SAIF-assessable deposits.  Because
the Bank  acquired  deposits of failed  savings and loan  institutions  from the
Resolution Trust Corporation  (RTC) in 1993 and 1994,  approximately $71 million
of its deposits are considered SAIF-assessable. As a result, the Bank had to pay
a one time SAIF Special Assessment of approximately  $485,000. The Bank filed an
appeal of this because management believes a significant portion of its deposits
are misclassified under SAIF, as at the time of acquisition of branches from the
RTC, it had over $30 million in deposits  accumulated  and insurable  under BIF.
Further, since its acquisition of deposits, a significant amount of acquired RTC
savings  and loan  deposits  have  run-off  and been  replaced  with  commercial
deposits. Currently, the law does not make any provision for deposit run-off, or
for  appeals  on this  basis.  As of  December  31,  1996,  the  Bank  has  been
unsuccessful in its appeal efforts.

<PAGE>


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

         None.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         (a)      Directors of the Registrant.


<TABLE>
<CAPTION>

                           PRINCIPAL OCCUPATION AND           YEAR FIRST                TERM
NAME              AGE      OTHER DIRECTORSHIPS                BECAME DIRECTOR           WILL EXPIRE
----              ---      -------------------                ---------------           -----------

<S>               <C>      <C>                                <C>                       <C>
James F.
 Bodine ...       75       Retired as Managing                1993                      1998
                           Partner, Urban Affairs
                           Partnership
                           Phila., PA. since 1987.

S. Amos
 Brackeen ...     78       Founder and Pastor,                1993                      1999
                           Philippian Baptist
                           Church of Phila., PA.

Emma C.
 Chappell ..      56       Chairman of                        1993                      1999
                           the Board, President and CEO
                           of Registrant and United Bank
                           of Philadelphia, Prior to 1991,
                           Vice President, Continental Bank

Luis A.
 Cortes, Jr..     39       Executive Director                 1993                      2000
                           of the Hispanic Clergy
                           of Philadelphia & Vicinity.
Kemel G.
 Dawkins ...      73       President, Kemrodco                1993                      1997
                           Development and
                           Construction Company, Inc.,
                           President, Kem-Her
                           Construction Company
                           Inc., Phila., PA.

</TABLE>


<PAGE>




<TABLE>
<CAPTION>

                           PRINCIPAL OCCUPATION AND            YEAR FIRST               TERM
NAME              AGE      OTHER DIRECTORSHIPS                 BECAME DIRECTOR          WILL EXPIRE
----              ---      -------------------                 ---------------          -----------
                                                                                     
<S>               <C>      <C>                                <C>                       <C>
L. Armstead                                                             
 Edwards ...      54       Treasurer,                          1993                      2000
                           United Bancshares, Inc.
                           Owner and President,
                           P.A.Z., Inc.,
                           Philadelphia., PA

William C.
 Green ...        72       Co-founder, Ivy Leaf                1993                      1998
                           Middle School,
                           Philadelphia, PA

Angela M.
 Huggins ...      53       Director of Facilities              1993                      1997
                           Services, RMS Technologies
                           Inc., Marlton, NJ;
                           Director A & J Management,
                           Inc.; Director, Mainline
                           Academy.

Marionette Y.                                                   
  Frazier ...     52       Partner, John Frazier, Inc.         1996                      2000
                           Philadelphia, PA


William B.
 Moore ...        54       Secretary,
                           United Bancshares, Inc.
                           Pastor, Tenth Memorial              1993                      1999
                           Baptist Church,
                           Philadelphia, PA

Wilbur V.
 Tyler ...        70       President and Owner,                1993                      1998
                           Thompson's Insurance
                           Agency, Inc.,
                           Philadelphia, PA

Ernest L.
 Wright ...       68       Founder, President and              1993                      2000
                           CEO of Ernest L. Wright
                           Construction Company
                           Phila., PA


Elmer
 Young, Jr..      72       Retired;                            1993                      1997
                           Previously Vice President
                           Glenmede Trust Company;
                           Senior Vice President
                           First Pennsylvania Bank

</TABLE>

<PAGE>

     (b) Executive Officers of Registrant.


NAME                                AGE         OFFICE
----                                ---         ------

Emma C. Chappell (1)....            56          Chairman, President and Chief
                                                Executive Officer

James F. Bodine ...........         75          Vice Chairman

Reverend William B.
 Moore .......................      54          Secretary

L. Armstead Edwards .....           54          Treasurer

----------

(1)  Dr.  Chappell is the only Executive  Officer of the Registrant  compensated
     for her services as such. Dr.  Chappell  serves as Chairman,  President and
     Chief  Executive  Officer  of the Bank  pursuant  to a  written  employment
     agreement amended as of January 1, 1994 and further amended January 1, 1997
     by and  among Dr.  Chappell,  the Bank and  United  Bancshares,  Inc.  This
     employment  agreement  provides for an employment  term until  December 31,
     2000 and further  provides  that Dr.  Chappell  will  receive a  guaranteed
     annual base salary of  $150,000.  A copy of this  employment  agreement  is
     filed as an Exhibit hereto.


     (c) Family Relationships.

     There are currently no family relationships between any director, executive
officer  or person  nominated  or chosen  by the Bank to  become a  director  or
executive officer.

     (d) Other

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



<PAGE>


ITEM 11 - EXECUTIVE COMPENSATION.

                               COMPENSATION TABLE

<TABLE>
<CAPTION>

Name of
Individual or
Number            Capacities in
in Group          Which Served                       1996 Salary                1996 Cash Bonus
--------          ------------                       -----------                ---------------

<S>               <C>                                <C>                        <C>
Emma C.           Chairman, President                $162,000                   $0
Chappell          Chief Executive Officer
                                                     1995 Salary                1995 Cash Bonus
                                                     -----------                ---------------

                                                     $150,000                   $23,285

                                                     1994 Salary                1994 Cash Bonus
                                                     -----------                ---------------

                                                     $150,000                   $35,000
</TABLE>

     Directors  of the Bank are  compensated  for each  meeting  attended in the
amount of three hundred dollars fifty ($350) per Board meeting  attended and one
hundred fifty dollars ($150) for each committee meeting attended.  Directors who
are also  salaried  officers  of the Bank  receive  no  remuneration  for  their
services as Directors.  During the year ended  December 31, 1996,  the Bank paid
Directors' fees to its "non-interested" Directors totalling $34,550. UBS paid no
director fees since its inception.

     At a Board of  Directors  meeting of the Bank held  November  16,  1996 the
Board voted to reduce the fees paid for Board and committee meetings to $175 for
each Board meeting attended and $75 for each committee meeting attended.

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

     William X. Smith serves as Chief Operating Officer of the Bank, pursuant to
an employment agreement entered into between the Bank and Mr. Smith. Pursuant to
this  employment  agreement  which expires  April,  1997,  Mr. Smith receives an
annual  salary of $85,000  for his  services  to the Bank.  Mr.  Smith is not an
employee of Registrant.

     One hundred  thousand  shares of the Bank's  Common  Stock are subject to a
Long Term  Incentive  Compensation  Plan (the  "Plan")  under  which  options to
purchase the Bank's  Common Stock may be granted to key employees of a price not
less than the fair market  value  thereof at the date of the grant  ("Options"),
and Common  Stock may be awarded as  Restricted  Stock,  subject for a period of
time to  substantial  risk of forfeiture  and  restrictions  on  disposition  as
determined  by  the  Compensation   Committee  as  of  the  date  of  the  grant
("Restricted  Stock").  Pursuant to the Plan, options are granted in tandem with
Stock  Appreciation  Rights  allowing the holder of an Option to  surrender  the
Option and  receive an amount  equal to the  appreciation  in market  value of a
fixed  number of shares of Common Stock from the date of the grant of the Option
("SARs").  SARs may be payable in Common Stock or cash or a combination of both.
The Plan also allows the  Compensation  Committee to grant  Performance  Shares,
which are contingent rights to receive,  when certain performance  criteria have
been attained,  amounts of Common Stock and cash determined by the  Compensation
Committee for such an award.  Such rights are subject to forfeiture or reduction
if performance  goals  specified are not met during the performance  period.  No
such options, restricted stock or SARs were granted for 1996 performance.

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

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


<PAGE>

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

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


<TABLE>
<CAPTION>

                                                  Amount of UBS               Percentage
Shareholders                                      Beneficial Ownership       Common Stock
------------                                      --------------------       ------------

<S>                                                  <C>                       <C>  
CoreStates Bank, N.A.                                50,000                    6.12%
Broad and Chestnut Sts.
Philadelphia, PA  19101

Greater Philadelphia Urban Affairs Coalition         47,500                    5.82%
121 North Broad Street
Philadelphia, PA  19107

Philadelphia Municipal
Retirement System
2000 Two Penn Center                                 41,667                    5.10%
Philadelphia, PA  19102

</TABLE>


                       Directors and Officers of the Bank

                          Shares of Registrant's Common Stock
Name                             Beneficially Owned              Percentage
----                             ------------------              ----------
James F. Bodine                      10,833                         1.33%
S. Amos Brackeen                      5,000                          .61%
Emma C. Chappell(1)                   7,000                          .86%
Luis A. Cortes, Jr.                     500                          .06%
Kemel G. Dawkins                      8,333                         1.02%
L. Armstead Edwards                  10,833                         1.33%
William C. Green (2)                 13,833                         1.69%
Angela M. Huggins                     4,200                          .51%
William B. Moore                      1,000                          .12%
Wilbur V. Tyler                       4,833                          .59%
Ernest L. Wright                      5,000                          .62%
Elmer Young, Jr.                        100                          .01%
                                     ------                         -----
         TOTAL                       71,465                         8.75%
                                     ======                         =====
                                                       
(1)  Dr. Chappell also acts as Trustee of a voting trust  agreement  pursuant to
     which Fahnstock, Inc deposited 5,209 shares of Common Stock of UBS with Dr.
     Chappell as Trustee,  to be voted by Dr. Chappell  pursuant to the terms of
     the Voting Trust. The term of the Voting Trust is ten years.

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

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

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




<PAGE>



ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                           UNITED BANK OF PHILADELPHIA

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

<TABLE>
<CAPTION>

                                    PRINCIPAL OCCUPATION                        YEAR FIRST
NAME              AGE               OTHER DIRECTORSHIPS                         BECAME DIRECTOR
----              ---               -------------------                         ---------------

<S>               <C>               <C>                                         <C>
James F.
 Bodine ...       75                Retired as Managing                         1992
                                    Partner, Urban Affairs
                                    Partnership
                                    Phila., PA. since 1987.
S. Amos
 Brackeen ...     78                Founder and Pastor,                         1992
                                    Philippian Baptist
                                    Church of Phila., PA.

Emma C.
 Chappell ...     56                Founder, Chairman of                        1992
                                    the Board, President
                                    and CEO of the
                                    Bank and Registrant. Prior to 1991,
                                    Vice President, Continental Bank
Luis A.
 Cortes, Jr...    39                Executive Director                          1992
                                    of the Hispanic Clergy
                                    of Philadelphia & Vicinity.
Kemel G.
 Dawkins ...      73                President, Kemrodco                         1992
                                    Development and
                                    Construction Company, Inc.,
                                    President, Kem-Her
                                    Construction Company
                                    Inc., Phila., PA.
L. Armstead
 Edwards ...      54                Owner and President,                        1992
                                    P.A.Z., Inc.,
                                    Philadelphia., PA
William C.
 Green ....       72                Co-Founder, Ivy Leaf                        1992
                                    Middle School,
                                    Philadelphia, PA

Marionette Y.                                                   
  Frazier ...     52                Partner, John Frazier, Inc.                 1996
                                    Philadelphia, PA
                       

Angela M.
 Huggins ...      56                Director of Facilities                      1992
                                    Services, RMS Technologies
                                    Inc., Marlton, NJ;
                                    Director A & J Management,
                                    Inc.; Director, Mainline
                                    Academy.

William B.
 Moore ...        54                Pastor, Tenth Memorial                      1992
                                    Baptist Church,
                                    Philadelphia, PA
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                    PRINCIPAL OCCUPATION                        YEAR FIRST
NAME              AGE               OTHER DIRECTORSHIPS                         BECAME DIRECTOR
----              ---               -------------------                         ---------------

<S>               <C>               <C>                                         <C>
Wilbur V.
 Tyler ...        70                President and Owner,                        1992
                                    Thompson's Insurance
                                    Agency, Inc.,
                                    Philadelphia, PA
Ernest L.
 Wright ...       68                Founder, President and                      1992
                                    CEO of Ernest L. Wright
                                    Construction Company, Phila., PA

Elmer
 Young, Jr...     72                Retired;                                    1992
                                    Previously Vice President
                                    Glenmede Trust Company;
                                    Senior Vice President
                                    First Pennsylvania Bank
</TABLE>

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

<PAGE>


                                     PART IV

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

(a)(1)   Financial Statements:   December 31, 1996
         The consolidated financial statements are listed on Item 8 and are 
         filed as part of this report.  

         Report of Independent Auditors, March 24, 1997

         Consolidated Balance Sheets at December 31, 1996 and 1995

         Consolidated  Statements of Operations for the years ended December 31,
         1996, 1995, and 1994.

         Consolidated  Statements  of  Shareholders'  Equity for the years ended
         December 31, 1996, 1995, and 1994.

         Consolidated  Statements of Cash Flows for the years ended December 31,
         1996, 1995, and 1994.

         Notes to Consolidated Financial Statements.


   (2)   Financial Statement Schedules:

         Not Applicable.



<PAGE>

   (3)   Exhibits:

          The  following  Exhibits  are  filed  on  Form SE as  Paper  Exhibits.
          (Exhibit  numbers  correspond to the exhibits  required by Item 601 of
          Regulation  S-K for an  annual  report  on Form  10-K).  Page  No.  in
          Sequential Exhibit No.

3(i)     Articles of Incorporation of the Bank and UBS

3(ii)    Bylaws of the Bank and UBS

4        Not Applicable

9        Voting Trust Agreements

10(a)    Long Term Incentive Compensation Plan

10(b)    Lease Agreements for the Bank's premises.

10(c)    Employment Agreement among Registrant, the Bank and 
         Dr. Emma C. Chappell

10(d)    Employment Agreement between the Bank and William X. Smith

11       Not Applicable

12       Not Applicable

13       Not Applicable

16       Not Applicable

18       Not Applicable

21       Not Applicable

22       Not Applicable

23       Not Applicable

24       Not Applicable

27       None

28       Not Applicable

Reports on Form 8-K

         Not Applicable.



<PAGE>


                                   SIGNATURES

UNITED BANCSHARES, INC.



BY: /s/ Emma C. Chappell                                 April 7, 1997
    -------------------------------------------
    Emma C. Chappell, Chairman, President & CEO   




   /s/ Brenda M. Hudson                                 April 7, 1997
   -------------------------------------------
   Brenda M. Hudson, Controller