| X |   |
|---|--------|

| o |   |
|---|--------|

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

|                      |                                           |
|---------------------------|------------------------------------------------|
| Title of each class  | Name of each exchange onwhich registered  |
| NONE                      | NONE                                           |

----

| Large Accelerated filer | o | Accelerated filer | o | Non-accelerated filer | o | Smaller Reporting Company | X |
|-------------------------|---|-------------------|---|-----------------------|---|---------------------------|---|

|   | Document | Parts Into Which Incorporated |
|--------|----------|-------------------------------|
|   | None     |                          |

----

| Item No. |                                                                                                               | Page           |
|----------|--------------------------------------------------------------------------------------------------------------------|----------------|
|     |                                                                                                               |           |
| PART I   |
|     |                                                                                                               |           |
| 1.       | Business                                                                                                           | 4              |
|     |                                                                                                               |           |
| 1A.      | Risk Factors                                                                                                       | 14             |
|     |                                                                                                               |           |
| 1B.      | Unresolved Staff Comments                                                                                          | 17             |
|     |                                                                                                               |           |
| 2.       | Properties                                                                                                         | 17             |
|     |                                                                                                               |           |
| 3.       | Legal Proceedings                                                                                                  |   18 |
|     |                                                                                                               |           |
|  4. | Mine Safety Disclosures                                                                                            | 18             |
| PART II  |
|     |                                                                                                               |           |
| 5.       | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 19             |
|     |                                                                                                               |           |
| 6.       | Selected Financial Data                                                                                            | 20             |
|     |                                                                                                               |           |
| 7.       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 20             |
|     |                                                                                                               |           |
| 7A.      | Quantitative and Qualitative Disclosures about Market Risk                                                         | 38             |
|     |                                                                                                               |           |
| 8.       | Financial Statements and Supplementary Data                                                                        | 38             |
|     |                                                                                                               |           |
| 9.       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 39             |
|     |                                                                                                               |           |
| 9A.      | Controls and Procedures                                                                                            | 39             |
|     |                                                                                                               |           |
| 9B.      | Other Information                                                                                                  | 39             |
| PART III |
|     |                                                                                                               |           |
| 10.      | Directors, Executive Officers, and Corporate Governance                                                            | 40             |
|     |                                                                                                               |           |
| 11.      | Executive Compensation                                                                                             | 47             |
|     |                                                                                                               |           |
| 12.      | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                     | 51             |
|     |                                                                                                               |           |
| 13.      | Certain Relationships and Related Transactions, and Director Independence                                          | 52             |
|     |                                                                                                               |           |
| 14.      | Principal Accountant Fees and Services                                                                             | 53             |
| PART IV  |
|     |                                                                                                               |           |
| 15.      | Exhibits and Financial Statement Schedules                                                                         | 54             |
|     |                                                                                                               |           |

----

ITEM 1 — BUSINESS

----

----

----

----

----

| ·   | Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, responsible for implementing, examining, and enforcing compliance with federal consumer financial laws, but depository institutions such as the bank with less than $10 billion in assets will continue to be examined and supervised by its current regulators. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Create the Financial Stability Oversight Council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management, and other requirements as companies grow in size and complexity. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provide mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans and new disclosures. In addition, certain compensation for mortgage brokers based on certain loan terms will be restricted. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Require financial institutions to make a reasonable and good faith determination that borrowers have the ability to repay loans for which they apply. If a financial institution fails to make such a determination, a borrower can assert this failure as a defense to foreclosure. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Require financial institutions to retain a specified percentage (5% or more) of certain non-traditional mortgage loans and other assets in the event that they seek to securitize such assets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (“DIF”), and increase the floor on the size of the DIF, which generally will result in a decrease in the level of assessments for institutions with assets less than $10 billion. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Implement corporate governance revisions, including with regard to executive compensation, say on pay votes, proxy access by shareholders, and clawback policies which apply to all public companies, not just financial institutions. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions and other accounts. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Amend the Electronic Funds Transfer Act (EFTA) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Apply the same leverage and risk based capital requirements that apply to insured depository institutions and holding companies. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

----

----

| ·   | increase participation of the Bank’s board of directors in the Bank’s affairs by having the board assume full responsibility for approving the Bank’s policies and objectives and for supervising the Bank’s management; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | retain a bank consultant acceptable to the FDIC and the Department to develop a written analysis and assessment of the Bank’s management needs and thereafter formulate a written management plan; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate and implement written profit and budget plans for each year during which the orders are in effect; |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | develop and implement a strategic plan for each year during which the orders are in effect, to be revised annually; |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its current regulatory examination; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate all assets classified as “Loss” at its current regulatory examination; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | revise the Bank’s loan policy to establish and monitor procedures for adherence to the loan policy and to eliminate credit administration and underwriting deficiencies identified at its current regulatory examination; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | develop a comprehensive policy and methodology for determining the allowance for loan and lease losses; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | develop an interest rate risk policy and procedures to identify, measure, monitor and control the nature and amount of interest rate risk the Bank takes; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | revise its liquidity and funds management policy and update and review the policy annually; |
|--------------------|---------------------------------------------------------------------------------------------|

| ·   | refrain from accepting any brokered deposits; |
|--------------------|-----------------------------------------------|

| ·   | refrain from paying cash dividends without prior approval of the FDIC and the Department; |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | establish an oversight committee of the board of directors of the Bank with the responsibility to ensure the Bank’s compliance with the orders, and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the orders. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

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----

----

ITEM 1A — RISK FACTORS

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| ·   | our ability to originate loans and obtain deposits; |
|--------------------|-----------------------------------------------------|

| ·   | the fair value of our financial assets and liabilities; and |
|--------------------|-------------------------------------------------------------|

| ·   | the average duration of our investment securities portfolio. |
|--------------------|--------------------------------------------------------------|

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----

|   | o | New developments in the banking industry |
|--------|---|------------------------------------------|

|   | o | Variations in quarterly or annual operating results |
|--------|---|-----------------------------------------------------|

|   | o | Litigation involving UBS or the Bank |
|--------|---|--------------------------------------|

|   | o | Changes in accounting policies or procedures |
|--------|---|----------------------------------------------|

ITEM B — UNRESOLVED STAFF COMMENTS

ITEM 2 — PROPERTIES

----

ITEM 3 — LEGAL PROCEEDINGS

ITEM 4 – MINE SAFETY DISCLOSURES

----

ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON EQUITY,

----

ITEM 6 — SELECTED FINANCIAL DATA

|                                              |   | Year ended |   |
|---------------------------------------------------|--------|------------|--------|
| (Dollars in thousands, except per share data)     |   | 2011       |   |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|                                              |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                               |   | $          | 3,068  |   |   | $ | 3,094 |   |   | $ | 3,124 |   |   | $ | 3,291 |   |   | $ | 3,600 |   |
| Provision for loan losses                         |   |       | 170    |   |   |   | 747 |   |   |   | 235 |   |   |   | 368 |   |   |   | 120 |   |
| Noninterest income                                |   |       | 1,071  |   |   |   | 1,465 |   |   |   | 1,313 |   |   |   | 1,209 |   |   |   | 1,320 |   |
| Noninterest expense                               |   |       | 5,000  |   |   |   | 5,040 |   |   |   | 4,747 |   |   |   | 4,785 |   |   |   | 4,753 |   |
| Net income (loss)                                 |   |       | (1,031 | ) |   |   | (1,228 | ) |   |   | (545 | ) |   |   | (653 | ) |   |   | 47 |   |
| Net income (loss) per share – basic         |   |       | (0.97  | ) |   |   | (1.15 | ) |   |   | (0.51 | ) |   |   | (0.61 | ) |   |   | 0.04 |   |
| Net income (loss) per share – fully diluted |   |       | (0.97  | ) |   |   | (1.15 | ) |   |   | (0.51 | ) |   |   | (0.61 | ) |   |   | 0.04 |   |
|                                              |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance sheet totals:                             |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                      |   | $          | 77,017 |   |   | $ | 73,966 |   |   | $ | 68,318 |   |   | $ | 69,435 |   |   | $ | 75,232 |   |
| Net loans                                         |   |       | 40,635 |   |   |   | 44,686 |   |   |   | 46,860 |   |   |   | 48,077 |   |   |   | 44,594 |   |
| Investment securities                             |   |       | 18,490 |   |   |   | 16,477 |   |   |   | 11,834 |   |   |   | 12,562 |   |   |   | 13,921 |   |
| Deposits                                          |   |       | 71,300 |   |   |   | 67,211 |   |   |   | 60,307 |   |   |   | 60,904 |   |   |   | 66,084 |   |
| Shareholders’ equity                        |   |       | 5,261  |   |   |   | 6,297 |   |   |   | 7,531 |   |   |   | 8,050 |   |   |   | 8,685 |   |
| Ratios:                                           |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tangible Equity to average assets                 |   |       | 6.29   | % |   |   | 7.63 | % |   |   | 10.08 | % |   |   | 10.32 | % |   |   | 10.17 | % |
| Equity to assets ratio                            |   |       | 6.83   | % |   |   | 8.51 | % |   |   | 11.02 | % |   |   | 11.59 | % |   |   | 11.54 | % |
| Return on assets                                  |   |       | (1.32  | )% |   |   | (1.68 | )% |   |   | (0.79 | )% |   |   | (0.87 | )% |   |   | 0.06 | % |
| Return on equity                                  |   |       | (18.92 | )% |   |   | (17.49 | )% |   |   | (7.66 | )% |   |   | (8.21 | )% |   |   | 0.62 | % |

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS

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| (In 000's)                                                                       |   | December 31, 2011 |   |   | September 30, 2011 |   |   | June 30, 2011 |   |   | March 31, 2011 |   |   | December 31, 2010 |   |
|----------------------------------------------------------------------------------|--------|-------------------|--------|--------|--------------------|--------|--------|---------------|--------|--------|----------------|--------|--------|-------------------|--------|
|                                                                             |   |              |   |   |               |   |   |          |   |   |           |   |   |              |   |
|          Total nonperforming loans  |   | $                 | 2,132  |   |               | $      | 2,220  |          |   | $      | 2,160          |   |   | $                 | 1,962  |   |   | $ | 2,781 |   |
|          OREO                       |   |              | 1,284  |   |               |   | 1,284  |          |   |   | 1,286          |   |   |              | 2,015  |   |   |   | 1,417 |   |
|          Total nonperforming assets |   | $                 | 3,416  |   |               | $      | 3,504  |          |   | $      | 3,446          |   |   | $                 | 3,977  |   |   | $ | 4,198 |   |
|                                                                             |   |              |   |   |               |   |   |          |   |   |           |   |   |              |   |   |   |   |   |   |
|                                                                             |   |              |   |   |               |   |   |          |   |   |           |   |   |              |   |   |   |   |   |   |
| Nonperforming loans to total loans                                               |   |              | 5.14   | %      |               |   | 4.87   | %             |   |   | 5.20           | %      |   |              | 4.68   | % |   |   | 6.10 | % |
| Nonperforming assests to total loans and OREO                                    |   |              | 7.98   | %      |               |   | 7.47   | %             |   |   | 8.04           | %      |   |              | 9.05   | % |   |   | 8.93 | % |
| Nonperforming assests to total assets                                            |   |              | 4.44   | %      |               |   | 4.49   | %             |   |   | 4.41           | %      |   |              | 5.37   | % |   |   | 5.66 | % |
|                                                                             |   |              |   |   |               |   |   |          |   |   |           |   |   |              |   |   |   |   |   |   |
| Allowance for loan losses as a percentage of:                                    |   |              |   |   |               |   |   |          |   |   |           |   |   |              |   |   |   |
|      Total Loans                                        |   |              | 2.09   | %      |               |   | 1.92   | %             |   |   | 1.84           | %      |   |              | 1.77   | % |   |   | 2.03 | % |
|      Total nonperforming loans                          |   |              | 40.67  | %      |               |   | 35.99  | %             |   |   | 35.51          | %      |   |              | 37.92  | % |   |   | 33.30 | % |

----

|                                                      |   | 2011    |   |   | 2010     |   |   | 2009   |   |
|-----------------------------------------------------------|--------|---------|--------|--------|----------|--------|--------|--------|--------|
|                                                      |   | Average |   |   |     |   |   | Yield/ |   |   | Average |   |   |   |   |   | Yield/ |   |   | Average |   |   | Average |   |   | Yield/ |   |
| (Dollars in thousands)                                    |   | Balance |   |   | Interest |   |   | Rate   |   |   | Balance |   |   | Interest |   |   | Rate |   |   | balance |   |   | Balance |   |   | rate |   |
| Assets:                                                   |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                  |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                     |   | $       | 42,238 |   |     | $      | 2,666  |   |   |   | 6.31 | % |   | $ | 46,775 |   |   | $ | 2,806 |   |   |   | 6.00 | % |   | $ | 48,568 |   |   | $ | 3,039 |   |   |   | 6.26 | % |
|                                                      |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment securities held-to-maturity                    |   |    | 17,219 |   |     |   | 571    |   |   |   | 3.32 |   |   |   | 13,711 |   |   |   | 508 |   |   |   | 3.71 |   |   |   | 9,888 |   |   |   | 439 |   |   |   | 4.44 |   |
| Investment securities available-for-sale                  |   |    | 1,110  |   |     |   | 45     |   |   |   | 4.05 |   |   |   | 1,348 |   |   |   | 62 |   |   |   | 4.60 |   |   |   | 2,211 |   |   |   | 107 |   |   |   | 4.84 |   |
|      Total investment securities |   |    | 18,329 |   |     |   | 616    |   |   |   | 3.36 |   |   |   | 15,059 |   |   |   | 570 |   |   |   | 3.79 |   |   |   | 12,099 |   |   |   | 546 |   |   |   | 4.51 |   |
|                                                      |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing balances with other banks                |   |    | 305    |   |     |   | 1      |   |   |   | 0.33 |   |   |   | 305 |   |   |   | 1 |   |   |   | 0.33 |   |   |   | 299 |   |   |   | 7 |   |   |   | 2.34 |   |
| Federal funds sold                                        |   |    | 10,958 |   |     |   | 20     |   |   |   | 0.18 |   |   |   | 5,557 |   |   |   | 12 |   |   |   | 0.22 |   |   |   | 3,396 |   |   |   | 8 |   |   |   | 0.24 |   |
| Total interest-earning assets                             |   |    | 71,830 |   |     |   | 3,303  |   |   |   | 4.60 |   |   |   | 67,696 |   |   |   | 3,389 |   |   |   | 5.01 |   |   |   | 64,362 |   |   |   | 3,600 |   |   |   | 5.59 |   |
| Noninterest-earning assets:                               |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and due from banks                                   |   |    | 1,687  |   |     |   |   |   |   |   |   |   |   |   | 1,814 |   |   |   |   |   |   |   |   |   |   |   | 2,294 |   |   |   |   |   |   |   |   |   |
| Premises and equipment, net                               |   |    | 1,079  |   |     |   |   |   |   |   |   |   |   |   | 1,263 |   |   |   |   |   |   |   |   |   |   |   | 1,492 |   |   |   |   |   |   |   |   |   |
| Other assets                                              |   |    | 3,082  |   |     |   |   |   |   |   |   |   |   |   | 2,975 |   |   |   |   |   |   |   |   |   |   |   | 1,863 |   |   |   |   |   |   |   |   |   |
| Less allowance for loan losses                            |   |    | (814   | )      |     |   |   |   |   |   |   |   |   |   | (740 | ) |   |   |   |   |   |   |   |   |   |   | (626 | ) |   |   |   |   |   |   |   |   |
| Total                                                     |   |    | 76,864 |   |     |   |   |   |   |   |   |   |   | $ | 73,008 |   |   |   |   |   |   |   |   |   |   | $ | 69,385 |   |   |   |   |   |   |   |   |   |
| Liabilities and shareholders’ equity:               |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                             |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                           |   | $       | 15,948 |   |     |   | 73     |   |   |   | 0.46 | % |   | $ | 12,455 |   |   |   | 75 |   |   |   | 0.60 | % |   | $ | 11,161 |   |   |   | 89 |   |   |   | 0.80 | % |
| Savings deposits                                          |   |    | 14,236 |   |     |   | 11     |   |   |   | 0.08 |   |   |   | 14,441 |   |   |   | 15 |   |   |   | 0.10 |   |   |   | 15,988 |   |   |   | 34 |   |   |   | 0.21 |   |
| Time deposits                                             |   |    | 26,019 |   |     |   | 151    |   |   |   | 0.58 |   |   |   | 24,450 |   |   |   | 205 |   |   |   | 0.84 |   |   |   | 20,803 |   |   |   | 353 |   |   |   | 1.70 |   |
| Total interest-bearing liabilities                        |   |    | 56,203 |   |     |   | 235    |   |   |   | 0.42 |   |   |   | 51,346 |   |   |   | 295 |   |   |   | 0.57 |   |   |   | 47,952 |   |   |   | 476 |   |   |   | 0.99 |   |
| Noninterest-bearing liabilities:                          |   |    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                           |   |    | 14,458 |   |     |   |   |   |   |   |   |   |   |   | 14,232 |   |   |   |   |   |   |   |   |   |   |   | 13,248 |   |   |   |   |   |   |   |   |   |
| Other                                                     |   |    | -      |   |     |   |   |   |   |   |   |   |   |   | 408 |   |   |   |   |   |   |   |   |   |   |   | 268 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                |   |    | 6,203  |   |     |   |   |   |   |   |   |   |   |   | 7,022 |   |   |   |   |   |   |   |   |   |   |   | 7,917 |   |   |   |   |   |   |   |   |   |
| Total                                                     |   | $       | 76,864 |   |     |   |   |   |   |   |   |   |   | $ | 73,008 |   |   |   |   |   |   |   |   |   |   | $ | 69,385 |   |   |   |   |   |   |   |   |   |
| Net interest income                                       |   |    |   |   |     | $      | 3,068  |   |   |   |   |   |   |   |   |   |   | $ | 3,094 |   |   |   |   |   |   |   |   |   |   | $ | 3,124 |   |   |   |   |   |
| Spread                                                    |   |    |   |   |     |   |   |   |   |   | 4.18 | % |   |   |   |   |   |   |   |   |   |   | 4.44 | % |   |   |   |   |   |   |   |   |   |   | 4.60 | % |
| Net yield on interest-earning assets                      |   |    |   |   |     |   |   |   |   |   | 4.27 | % |   |   |   |   |   |   |   |   |   |   | 4.57 | % |   |   |   |   |   |   |   |   |   |   | 4.85 | % |

----

|                                       |   | 2011 compared to 2010      |   |   | 2010 compared to 2009      |   |
|--------------------------------------------|--------|----------------------------|--------|--------|----------------------------|--------|
|                                       |   | Increase (decrease) due to |   |   | Increase (decrease) due to |   |
| (Dollars in thousands)                     |   | Volume                     |   |   | Rate                       |   |   | Net |   |   | Volume |   |   | Rate |   |   | Net |   |
| Interest earned on:                        |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                      |   | $                          | (276   | )      |                       | $      | 136 |   |   | $ | (140 | ) |   | $ | (107 | ) |   | $ | (126 | ) |   | $ | (233 | ) |
| Investment securities held-to-maturity     |   |                       | 116    |   |                       |   | (53 | ) |   |   | 63 |   |   |   | 142 |   |   |   | (73 | ) |   |   | 69 |   |
| Investment securities available-for-sale   |   |                       | (10    | )      |                       |   | (7 | ) |   |   | (17 | ) |   |   | (40 | ) |   |   | (5 | ) |   |   | (45 | ) |
| Interest-bearing deposits with other banks |   |                       | -      |   |                       |   | - |   |   |   | - |   |   |   | - |   |   |   | (6 | ) |   |   | (6 | ) |
|     Federal funds sold |   |                       | 10     |   |                       |   | (2 | ) |   |   | 8 |   |   |   | 5 |   |   |   | (1 | ) |   |   | 4 |   |
| Total Interest-earning assets              |   |                       | (160   | )      |                       |   | 74 |   |   |   | (86 | ) |   |   | - |   |   |   | (211 | ) |   |   | (211 | ) |
| Interest paid on:                          |   |                       |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                            |   |                       | 15     |   |                       |   | (17 | ) |   |   | (2 | ) |   |   | 8 |   |   |   | (22 | ) |   |   | (14 | ) |
| Savings deposits                           |   |                       | (1     | )      |                       |   | (3 | ) |   |   | (4 | ) |   |   | (2 | ) |   |   | (17 | ) |   |   | (19 | ) |
| Time deposits                              |   |                       | 9      |   |                       |   | (64 | ) |   |   | (54 | ) |   |   | 31 |   |   |   | (179 | ) |   |   | (148 | ) |
| Total interest-bearing liabilities         |   |                       | 23     |   |                       |   | (84 | ) |   |   | (60 | ) |   |   | 37 |   |   |   | (218 | ) |   |   | (181 | ) |
| Net interest income                        |   | $                          | (184   | )      |                       | $      | 158 |   |   | $ | (26 | ) |   | $ | (37 | ) |   | $ | 7 |   |   | $ | (30 | ) |

----

----

----

|                                       |   | 2011    |   |   |       |   |   |    |   |   | 2010    |   |   |       |   |   |    |   |
|--------------------------------------------|--------|---------|--------|--------|------------|--------|--------|---------|--------|--------|---------|--------|--------|------------|--------|--------|---------|--------|
|                                       |   |    |   |   | Increase   |   |   |    |   |   |    |   |   | Increase   |   |   |    |   |
|                                       |   | Average |   |   | (decrease) |   |   |    |   |   | Average |   |   | (decrease) |   |   |    |   |
| (Dollars in thousands)                     |   | Balance |   |   | amount     |   |   | Percent |   |   | balance |   |   | Amount     |   |   | Percent |   |
|  Funding uses:                        |   |    |   |   |       |   |   |    |   |   |    |   |   |       |   |   |    |   |
| Loans                                      |   | $       | 42,238 |   |       | $      | (4,537 | )       |   |   | (9.70   | )%     |   | $          | 46,775 |   |    | $      | (1,793 | ) |   |   | (3.69 | )% |
| Investment securities                      |   |    |   |   |       |   |   |    |   |   |    |   |   |       |   |   |    |   |   |   |   |   |   |   |
| Held-to-maturity                           |   |    | 17,219 |   |       |   | 3,508  |    |   |   | 25.59   |   |   |       | 13,711 |   |    |   | 3,823 |   |   |   | 38.66 |   |
| Available-for-sale                         |   |    | 1,110  |   |       |   | (238   | )       |   |   | (17.66  | )      |   |       | 1,348  |   |    |   | (863 | ) |   |   | (39.03 | ) |
| Interest-bearing balances with other banks |   |    | 305    |   |       |   | -      |    |   |   | -       |   |   |       | 305    |   |    |   | 6 |   |   |   | 2.01 |   |
| Federal funds sold                         |   |    | 10,958 |   |       |   | 5,401  |    |   |   | 97.19   |   |   |       | 5,557  |   |    |   | 2,161 |   |   |   | 63.63 |   |
| Total uses                                 |   | $       | 71,830 |   |       | $      | 4,134  |    |   |   |    |   |   | $          | 67,696 |   |    | $      | 3,334 |   |   |   |   |   |
|  Funding sources:                     |   |    |   |   |       |   |   |    |   |   |    |   |   |       |   |   |    |   |   |   |   |   |   |   |
| Demand deposits:                           |   |    |   |   |       |   |   |    |   |   |    |   |   |       |   |   |    |   |   |   |   |   |   |   |
| Noninterest-bearing                        |   | $       | 14,458 |   |       | $      | 226    |    |   |   | 1.59    |   |   | $          | 14,232 |   |    | $      | 984 |   |   |   | 7.43 |   |
| Interest-bearing                           |   |    | 15,948 |   |       |   | 3,493  |    |   |   | 28.04   |   |   |       | 12,455 |   |    |   | 1,294 |   |   |   | 11.59 |   |
| Savings deposits                           |   |    | 14,236 |   |       |   | (205   | )       |   |   | (1.42   | )      |   |       | 14,441 |   |    |   | (1,547 | ) |   |   | (9.68 | ) |
| Time deposits                              |   |    | 26,019 |   |       |   | 1,569  |    |   |   | 6.42    |   |   |       | 24,450 |   |    |   | 3,647 |   |   |   | 17.53 |   |
| Total sources                              |   | $       | 70,661 |   |       | $      | 5,083  |    |   |   |    |   |   | $          | 65,578 |   |    | $      | 4,378 |   |   |   |   |   |

----

|                              |   | Within one year |   |   | After one butwithin five years |   |   | After five butwithin ten years |   |   | After ten years |   |   |   |   |
|-----------------------------------|--------|-----------------|--------|--------|--------------------------------|--------|--------|--------------------------------|--------|--------|-----------------|--------|--------|--------|--------|
| (Dollars in thousands)            |   | Amount          |   |   | Yield                          |   |   | Amount                         |   |   | Yield           |   |   | Amount |   |   | Yield |   |   | Amount |   |   | Yield |   |   | Total |   |
|  Other government securities |   | $               | -      |   |                           |   | -      | %                              |   | $      | 250             |   |   |   | 2.54   | % |   | $ | 6,504 |   |   |   | 3.22 | % |   | $ | 777 |   |   |   | 2.74 | % |   | $ | 7,531 |   |
| Money market funds                |   |            |   |   |                           |   |   |                           |   |   | -               |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 129 |   |
| Mortgage-backed securities        |   |            | -      |   |                           |   |   |                           |   |   | -               |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 10,830 |   |
| Total securities                  |   | $               | -      |   |                           |   |   |                           |   | $      | -               |   |   |   |   |   |   | $ | 9,369 |   |   |   |   |   |   | $ | 1,033 |   |   |   |   |   |   | $ | 18,490 |   |
| Average maturity                  |   |            |   |   |                           |   |   |                           |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2.42 years |   |

|                                                                          |   | December 31, |   |
|-------------------------------------------------------------------------------|--------|--------------|--------|
| (Dollars in thousands)                                                        |   | 2011         |   |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|  Commercial and industrial                                               |   | $            | 3,730  |   |   | $ | 5,729 |   |   | $ | 4,353 |   |   | $ | 4,286 |   |   | $ | 4,463 |   |
| Commercial real estate                                                        |   |         | 30,197 |   |   |   | 30,738 |   |   |   | 32,294 |   |   |   | 32,199 |   |   |   | 28,640 |   |
| Residential mortgages                                                         |   |         | 3,356  |   |   |   | 4,432 |   |   |   | 5,313 |   |   |   | 6,110 |   |   |   | 6,549 |   |
| Consumer loans                                                                |   |         | 4,219  |   |   |   | 4,713 |   |   |   | 5,626 |   |   |   | 6,068 |   |   |   | 5,532 |   |
|            Total loans |   | $            | 41,502 |   |   | $ | 45,612 |   |   | $ | 47,587 |   |   | $ | 48,663 |   |   | $ | 45,184 |   |
|                                                                          |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Table 6—Loan Maturities and Repricing |   |
|---------------------------------------------|--------|
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| (Dollars in thousands)                      |   | Withinone year |   |   | After one butwithin five years |   |   | Afterfive years |   |   | Total |   |
|  Commercial and industrial             |   | $ | 2,828 |   |   | $ | 1,441 |   |   | $ | 250 |   |   | $ | 4,519 |   |
| Commercial real estate                      |   |   | 4,831 |   |   |   | 16,979 |   |   |   | 7,598 |   |   |   | 29,408 |   |
| Consumer loans                              |   |   | 1,951 |   |   |   | 195 |   |   |   | 2,072 |   |   |   | 4,218 |   |
| Residential mortgage loans                  |   |   | 547 |   |   |   | 31 |   |   |   | 2,779 |   |   |   | 3,357 |   |
| Total loans                                 |   | $ | 10,157 |   |   | $ | 18,646 |   |   | $ | 12,699 |   |   | $ | 41,502 |   |
| Loans maturing after one year with:         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed interest rates                        |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 26,057 |   |
| Variable interest rates                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,287 |   |

| (Dollars in thousands)                                                   |   | 2011   |   |   | 2010   |   |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual loans                                                         |   | $      | 2,133  |   |   | $      | 2,781  |   |   | $      | 3,783  |   |   | $      | 1,701  |   |   | $ | 745 |   |
| Impaired loans                                                           |   |   | 1,687  |   |   |   | 2,516  |   |   |   | 3,553  |   |   | $      | 2,531  |   |   |   | 1,745 |   |
| Interest income on nonaccrual loans included in net income for the year  |   |   | 144    |   |   |   | 110    |   |   |   | 219    |   |   |   | 9      |   |   |   | 35 |   |
|  Interest income that would have been recorded under original terms |   |   | 165    |   |   |   | 186    |   |   |   | 195    |   |   |   | 121    |   |   |   | 65 |   |
|  Interest income recognized on impaired loans                       |   |   | 6      |   |   |   | 63     |   |   |   | 34     |   |   |   | 64     |   |   |   | 112 |   |
| Loans past due 90 days and still accruing                                |   |   | 471    |   |   |   | 205    |   |   |   | 776    |   |   |   | 578    |   |   |   | 1,067 |   |
| Troubled Debt Restructured loans                                         |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |

----

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

| ·   | Historical Charge-Off Component – Applies a rolling, twelve-quarter historical charge-off rate to all pools of non-classified loans. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|                      |   |       |   |       |                             |       |   |       |   |       |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |
|---------------------------|--------|------------|--------|------------|----------------------------------|------------|--------|------------|--------|------------|-----------------------------------|--------|--------|--------|--------|--------|-----------------------------------|--------|--------|--------|--------|--------|-----------------------------------|--------|--------|--------|--------|--------|-----------------------------------|--------|
|                      |   |       |   |       |                             |       |   |       |   |       |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |
|                      |   |  2011 |   |  2010 |                             |  2009 |   |  2008 |   |  2007 |
|                      |   |       |   |       | Percentof loansin eachcategoryto |       |   |       |   |       | Percentof loansin eachcategory to |   |   |   |   |   | Percentof loansin eachcategory to |   |   |   |   |   | Percentof loansin eachcategory to |   |   |   |   |   | Percentof loansin eachcategory to |   |
|                      |   | Amount     |   |       | Total loans                      |       |   | Amount     |   |       | total loans                       |   |   | Amount |   |   | total loans                       |   |   | Amount |   |   | total loans                       |   |   | Amount |   |   | total loans                       |   |
| (Dollars in thousands)    |   |       |   |       |                             |       |   |       |   |       |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |
|                      |   |       |   |       |                             |       |   |       |   |       |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |   |   |   |   |                              |   |
| Commercial and industrial |   | $          | 387    |       |                             |       | 8.99   | %          |   | $          | 301                               |   |   |   | 12.56  | %      |                              | $      | 324    |   |   |   | 8.54                              | %      |   | $      | 282    |   |                              |   | 8.81 | % |   | $ | 517 |   |   |   | 9.88 | % |
| Commercial real estate    |   |       | 412    |       |                             |       | 72.76  |       |   |       | 553                               |   |   |   | 67.39  |   |                              |   | 298    |   |   |   | 68.47                             |   |   |   | 210    |   |                              |   | 66.17 |   |   |   | 28 |   |   |   | 63.38 |   |
| Residential mortgages     |   |       | 40     |       |                             |       | 10.17  |       |   |       | 36                                |   |   |   | 10.33  |   |                              |   | 38     |   |   |   | 11.17                             |   |   |   | 33     |   |                              |   | 12.56 |   |   |   | 8 |   |   |   | 14.49 |   |
| Consumer loans            |   |       | 28     |       |                             |       | 8.09   |       |   |       | 36                                |   |   |   | 9.72   |   |                              |   | 65     |   |   |   | 11.82                             |   |   |   | 62     |   |                              |   | 12.47 |   |   |   | 37 |   |   |   | 12.25 |   |
| Unallocated               |   |       | -      |       |                             |       | -      |       |   |       | -                                 |   |   |   | -      |   |                              |   | 2      |   |   |   | -                                 |   |   |   | -      |   |                              |   | - |   |   |   | - |   |   |   |   |   |
|                      |   | $          | 867    |       |                             |       | 100.00 | %          |   | $          | 926                               |   |   |   | 100.00 | %      |                              | $      | 727    |   |   |   | 100.00                            | %      |   | $      | 587    |   |                              |   | 100.00 | % |   | $ | 590 |   |   |   | 100.00 | % |

|                                                               |   | Year ended December 31, |   |
|--------------------------------------------------------------------|--------|-------------------------|--------|
| (Dollars in thousands)                                             |   | 2011                    |   |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|  Balance at January 1                                         |   | $                       | 926    |   |   | $ | 727 |   |   | $ | 587 |   |   | $ | 590 |   |   | $ | 561 |   |
|                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Charge-offs:                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                                          |   |                    | (65    | ) |   |   | (189 | ) |   |   | (22 | ) |   |   | (464 | ) |   |   | (91 | ) |
| Commercial real estate                                             |   |                    | (150   | ) |   |   | (227 | ) |   |   | (62 | ) |   |   | (4 | ) |   |   | - |   |
| Residential mortgages                                              |   |                    | -      |   |   |   | (8 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer loans                                                     |   |                    | (50    | ) |   |   | (177 | ) |   |   | (57 | ) |   |   | (51 | ) |   |   | (139 | ) |
|                                                               |   |                    | (265   | ) |   |   | (601 | ) |   |   | (141 | ) |   |   | (519 | ) |   |   | (230 | ) |
| Recoveries:                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial loans                                                   |   |                    | 10     |   |   |   | 7 |   |   |   | 2 |   |   |   | 107 |   |   |   | 92 |   |
| Commercial real estate                                             |   |                    | -      |   |   |   | 1 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Consumer loans                                                     |   |                    | 27     |   |   |   | 45 |   |   |   | 44 |   |   |   | 41 |   |   |   | 46 |   |
|                                                               |   |                    | 37     |   |   |   | 53 |   |   |   | 46 |   |   |   | 148 |   |   |   | 138 |   |
| Net recoveries (charge-offs)                                       |   |                    | (228   | ) |   |   | (548 | ) |   |   | (95 | ) |   |   | (371 | ) |   |   | (91 | ) |
| Provisions charged to operations                                   |   |                    | 170    |   |   |   | 747 |   |   |   | 235 |   |   |   | 368 |   |   |   | 120 |   |
|                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31                                             |   | $                       | 867    |   |   | $ | 926 |   |   | $ | 727 |   |   | $ | 587 |   |   | $ | 590 |   |
| Ratio of net (recoveries) charge-offs to average loans outstanding |   |                    | 0.54   | % |   |   | 1.17 | % |   |   | 0.20 | % |   |   | 0.77 | % |   |   | 0.21 | % |
|                                                               |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                |   | 2011   |   |   | 2010   |   |   | 2009   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)              |   | Amount |   |   | Rate   |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
|                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits |   | $      | 14,458 |   |   |   | -      | %      |   | $ | 14,232 |   |   |   | - | % |   | $ | 13,248 |   |   |   | - | % |
| Interest-bearing demand deposits    |   |   | 15,948 |   |   |   | 0.46   |   |   |   | 12,455 |   |   |   | 0.60 |   |   |   | 11,161 |   |   |   | 0.80 |   |
| Savings deposits                    |   |   | 14,236 |   |   |   | 0.08   |   |   |   | 14,441 |   |   |   | 0.10 |   |   |   | 15,988 |   |   |   | 0.21 |   |
| Time deposits                       |   |   | 26,019 |   |   |   | 0.58   |   |   |   | 24,450 |   |   |   | 0.84 |   |   |   | 20,803 |   |   |   | 1.70 |   |

|                                  |   | 2011   |   |   | 2010   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |
| Commitments to extend credit          |   | $      | 9,163  |   |   | $      | 7,531 |   |
| Outstanding standby letters of credit |   |   | 1,208  |   |   |   | 695 |   |

----

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

|   | o | Sell participations of existing commercial credits to other financial institutions in the region |
|--------|---|--------------------------------------------------------------------------------------------------|

----

| (Dollars in thousands)       |   | December 31, 2011 Contractual Terms |   |   | December 31, 2011 ProformaWith 2012 Early Redemptions |   |
|------------------------------|--------|-------------------------------------|--------|--------|-------------------------------------------------------|--------|
|                         |   |                                |   |   |                                                  |   |
| 3 months or less             |   | $                                   | 3,564  |   |                                                  | $      | 8,564 |   |
| Over 3 through 6 months      |   |                                | 5,620  |   |                                                  |   | 7,620 |   |
| Over 6 months through 1 year |   |                                | 7,794  |   |                                                  |   | 794 |   |
| Over 1 through five years    |   |                                | 606    |   |                                                  |   | 606 |   |
| Over five years              |   |                                | -      |   |                                                  |   | - |   |
| Total                        |   | $                                   | 17,584 |   |                                                  | $      | 17,584 |   |

| (Dollars in thousands)        |   | Total  |   |   | Less than one year |   |   | One to three years |   |   | Four to five years |   |   | After five years |   |
|-------------------------------|--------|--------|--------|--------|------------------------------|--------|--------|------------------------------|--------|--------|-------------------------|--------|--------|-----------------------|--------|
|  Certificates of Deposit |   | $      | 25,532 |   |                         | $      | 23,731 |                         |   | $      | 1,004                   |   |   | $                     | 571    |   |   | $ | 46 |   |
| Operating Lease Obligations   |   |   | 2,363  |   |                         |   | 473    |                         |   |   | 1,465                   |   |   |                  | 178    |   |   |   | 247 |   |
| Total                         |   | $      | 27,715 |   |                         | $      | 24,204 |                         |   | $      | 2,469                   |   |   | $                     | 749    |   |   | $ | 293 |   |

----

| Interest rate sensitivity gaps as of December 31, 2011                      |   |
|-----------------------------------------------------------------------------|--------|
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Dollars in thousands)                                                      |   | 3 months or less |   |   | Over 3 through12months |   |   | Over 1 year through3 years |   |   | Over 3 through 5 years |   |   |  Over5 years |   |   | Cumulative |   |
| Interest-sensitive assets:                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits with banks                                        |   | $ | - |   |   |   | 305 |   |   |   | - |   |   |   | - |   |   |   | - |   |   | $ | 305 |   |
| Investment securities                                                       |   |   | 8,459 |   |   |   | 2,183 |   |   |   | 1,306 |   |   |   | 965 |   |   |   | 5,448 |   |   |   | 18,361 |   |
| Federal funds sold                                                          |   |   | 11,413 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 11,413 |   |
| Loans                                                                       |   |   | 12,900 |   |   |   | 9,182 |   |   |   | 7,608 |   |   |   | 3,271 |   |   |   | 6,410 |   |   |   | 18,361 |   |
|  Total interest-sensitive assets                                       |   |   | 32,772 |   |   |   | 11,670 |   |   |   | 8,914 |   |   |   | 4,236 |   |   |   | 11,858 |   |   |   | 69,449 |   |
|  Interest-sensitive liabilities:                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest checking accounts                                                  |   | $ | 1,878 |   |   |   | - |   |   | $ | 1,878 |   |   |   | - |   |   |   | - |   |   |   | 3,756 |   |
| Savings and money market accounts                                           |   |   | 15,787 |   |   |   | - |   |   |   | 15,787 |   |   |   | - |   |   |   | - |   |   |   | 31,574 |   |
| Certificates  $100,000 or more                                    |   |   | 3,564 |   |   |   | 13,414 |   |   |   | 352 |   |   |   | 254 |   |   |   | - |   |   |   | 17,584 |   |
| Certificates of less than $100,000                                          |   |   | 2,645 |   |   |   | 4,109 |   |   |   | 652 |   |   |   | 362 |   |   |   | - |   |   |   | 7,768 |   |
| Total interest-sensitive liabilities                                        |   |   | 21,996 |   |   |   | 17,523 |   |   |   | 16,791 |   |   |   | 616 |   |   |   | -- |   |   |   | 56,926 |   |
|  Interest sensitivity gap                                              |   | $ | 10,776 |   |   | $ | (5,853 | ) |   | $ | (7,877 | ) |   | $ | 3,620 |   |   | $ | 11,858 |   |   | $ | 12,523 |   |
|  Cumulative gap                                                        |   | $ | 10,776 |   |   | $ | 4,923 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Cumulative gap/total earning assets                                   |   |   | 15.52 | % |   |   | 7.08 | % |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Cumulative Interest-sensitive assetsto interest-sensitive Liabilities |   |   | 1.49 |   |   |   | 1.12 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|   | Year 1                                               |                   |                        |   |
|--------|-----------------------------------------------------------|------------------------|-----------------------------|--------|
|   |                                                      | Net interest           | Percent of                  |   |
|   | Changes in rate                                           | Income                 | Risk                        |   |
|   |  (Dollars in thousands)                              |                   |                        |   |
|   |  +400 basis points+300 basis points+200 basis points |  $3,3173,2693,182 |  12.51%10.88 7.93 |   |
|   | +100 basis points                                         | 3,071                  |  4.17                  |   |
|   | Flat rate                                                 | 2,948                  | -                           |   |
|   | -100 basis points                                         | 2,860                  | (2.98)                      |   |
|   | -200 basis points-300 basis points-400 basis points       | 2,6842,5082,349        | (8.95)(14.91)(20.34)        |   |

|   | Year 2                                               |                    |                  |   |
|--------|-----------------------------------------------------------|-------------------------|-----------------------|--------|
|   |                                                      | Net interest            | Percent of            |   |
|   | Changes in rate                                           | Income                  | Risk                  |   |
|   |  (Dollars in thousands)                              |                    |                  |   |
|   |  +400 basis points+300 basis points+200 basis points |  $6,6386,5416,,366 |  13.26%11.608.62 |   |
|   | +100 basis points                                         | 6,131                   | 4.60                  |   |
|   | Flat rate                                                 | 5,861                   | -                     |   |
|   | -100 basis points                                         | 5,642                   | (3.73)                |   |
|   | -200 basis points-300 basis points-400 basis points       | 5,1864,7294,323         | (11.52)(19.31)(26.24) |   |

|   | MV of equity                                        |             |                |   |
|--------|-----------------------------------------------------|------------------|---------------------|--------|
|   | Changes in rate                                     | MV equity        | Risk change         |   |
|   |  (Dollars in thousands)                   |             |                |   |
|   | +400 basis points+300 basis points+200 basis points | $2,8773,7884,752 | (46.0)%(28.9)(10.8) |   |
|   | +100 basis points                                   | 5,137            | (3.5)               |   |
|   | Flat rate                                           | 5,326            | -                   |   |
|   | -100 basis points                                   | 5,538            | 4.0                 |   |
|   | -200 basis points-300 basis points-400 basis points | 5,8435,7225,728  | 9.77.47.6           |   |

----

| 1. | Limit jumbo certificates of deposit and movement into money market deposit accounts and short-term certificates of deposit through pricing and other marketing strategies. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2. | Purchase quality loan participations with appropriate interest rate/gap match for the Bank’s balance sheet.                                                          |
| 3. | Restructure the Bank’s investment portfolio.                                                                                                                         |

----

|                                       |   |   Actual |   |   |  For capital adequacy purposes |   |   | To be well capitalized under prompt correctiveaction provisions |   |
|--------------------------------------------|--------|--------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                                       |   | Amount             |   |   | Ratio                               |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2011:                   |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-                     |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   | $                  | 5,460  |   |                                |   | 12.45  | %                                                               |   | $ | 3,513 |   |   |   | 8.00 | % |   |   | N/A |   |   |   |   |
|      Bank         |   |               | 5,440  |   |                                |   | 12.41  | %                                                               |   |   | 3,507 |   |   |   | 8.00 | % |   | $ | 4,384 |   |   |   | 10.00 | % |
| Tier I capital to risk-                    |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 4,908  |   |                                |   | 11.20  | %                                                               |   |   | 1,756 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 4,888  |   |                                |   | 11.15  | %                                                               |   |   | 1,754 |   |   |   | 4.00 | % |   | $ | 2,630 |   |   |   | 6.00 | % |
| Tier I capital to average assets:          |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 4,908  |   |                                |   | 6.29   | %                                                               |   |   | 3,122 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 4,888  |   |                                |   | 6.27   | %                                                               |   |   | 3,119 |   |   |   | 4.00 | % |   | $ | 3,899 |   |   |   | 5.00 | % |

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

----

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ITEM 9A—CONTROLS AND PROCEDURES

ITEM 9B—OTHER INFORMATION

----

| 50.42% Shares Voted | 440,555 of 873,725 Shares |
|---------------------|---------------------------|

| Question                                                                 | FOR                  | AGAINST   | WITHHOLD/ABSTAIN   |
|--------------------------------------------------------------------------|----------------------|-----------|--------------------|
| Election of Directors:William B. MooreEvelyn Smalls  (CLASS D) |  408,738409,838 |  00  |  22,33321,233 |
| Ratify McGladrey and Pullen, LLP                                         |  438,055        |  600 |  1,900        |

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

|                |   | Principal occupation and                                                                     | Year first      | Term        |
|---------------------|--------|----------------------------------------------------------------------------------------------|-----------------|-------------|
| Name                | Age    | other directorships                                                                          | became director | Will expire |
| Bernard E. Anderson | 74     | EconomistWhitney M. Young, Jr. Professor EmeritiusWharton School, University of Pennsylvania | 2002            | 2014        |
|                |   | Philadelphia, PA                                                                             |            |        |
|                |   |                                                                                         |            |        |
| David R. Bright     | 72     | Retired, Executive Vice President                                                            |            |        |
|                |   | Meridian Bancorp                                                                             | 2002            | 2014        |
|                |   | Philadelphia, PA                                                                             |            |        |
|                |   |                                                                                         |            |        |
| Joseph T. Drennan   | 67     | Former Chief Financial Officer                                                               | 2004            | 2014        |
|                |   | Universal Capital Management, Inc.                                                           |            |        |
|                |   | Wilmington, DE                                                                               |            |        |
|                |   |                                                                                         |            |        |
| L. Armstead Edwards | 69     | Chairman of the Board,                                                                       | 1993            | 2012        |
|                |   | United Bancshares, Inc.                                                                      |            |        |
|                |   | Owner and President,                                                                         |            |        |
|                |   | Edwards Entertainment., Inc.                                                                 |            |        |
|                |   | Philadelphia, Pennsylvania                                                                   |            |        |

| Marionette Y. Wilson(Frazier) | 66     | Retired as co-Founder,                 | 1996   | 2012   |
|-------------------------------|--------|----------------------------------------|--------|--------|
|                          |   | John Frazier, Inc.                     |   |   |
|                          |   | Philadelphia, Pennsylvania             |   |   |
|                          |   |                                   |   |   |
| Maurice R. Mitts              | 51     | Founder/Partner,                       | 2008   | 2013   |
|                          |   | Mitts Milavec, LLP, Attorney at Law    |   |   |
|                          |   | Philadelphia, Pennsylvania   |   |   |

----

| William B. Moore | 68     | Vice Chairman of the Board, |   |   |
|------------------|--------|-----------------------------|--------|--------|
|             |   | United Bancshares, Inc.     |   |   |
|             |   | Pastor, Tenth Memorial      | 1993   | 2011   |
|             |   | Baptist Church              |   |   |
|             |   | Philadelphia, Pennsylvania  |   |   |

| Evelyn F. Smalls | 66     | President and CEO of Registrant | 2000   | 2011   |
|------------------|--------|---------------------------------|--------|--------|
|             |   | and United Bank of Philadelphia |   |   |
|             |   |                            |   |   |
| Ernest L. Wright | 83     | Founder, President and          | 1993   | 2012   |
|             |   | CEO of Ernest L. Wright         |   |   |
|             |   | Construction Company            |   |   |
|             |   | Philadelphia, Pennsylvania      |   |   |
|             |   |                            |   |   |

| Name                    | Age    | Office                                           |
|-------------------------|--------|--------------------------------------------------|
|                    |   |                                             |
| Evelyn F. Smalls        | 66     | President and Chief Executive Officer            |
| Brenda M. Hudson-Nelson | 50     | Executive Vice President/Chief Financial Officer |

----

----

----

----

----

|   | Respectfully submitted:        |
|--------|--------------------------------|
|   | Joseph T. Drennan (Chairman),  |
|   | William B. Moore               |
|   | L. Armstead Edwards,           |
|   | Marionette Y. Wilson (Frazier) |

----

|  Name, Principal Occupation andBusiness Experience For Past 5 Years |  Age as ofMarch 5, 2012 |   Office with the UBS and/or Bank                         | UBS StockBeneficiallyOwned |
|--------------------------------------------------------------------------|------------------------------|---------------------------------------------------------------------|----------------------------|
| Evelyn F. Smalls(1)(2)                                                   | 66                           | President and Chief Executive Officer andDirector of UBS and Bank   | 500                        |
| Brenda M. Hudson-Nelson (3)                                              | 50                           | Executive Vice President and Chief Financial Officerof UBS and Bank | 50                         |

----

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

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

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

ITEM 11 — EXECUTIVE COMPENSATION

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

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

|   | o | To assist with succession Planning to ensure adequate replacement for key executives |
|--------|---|--------------------------------------------------------------------------------------|

----

|   | • | Salary; |
|--------|---------|---------|

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

|   | • | Automobile Allowance. |
|--------|---------|-----------------------|

----

|                                              |   |   |                     |   |            |   |                                          |        |   |   |              |   |   |               |            |   |                                    |          |            |                                                                    |   |          |                        |   |   |          |            |
|---------------------------------------------------|--------|--------|--------------------------|--------|-----------------|--------|-----------------------------------------------|-------------|--------|--------|-------------------|--------|--------|--------------------|-----------------|--------|-----------------------------------------|---------------|-----------------|-------------------------------------------------------------------------|--------|---------------|-----------------------------|--------|--------|---------------|-----------------|
| Name and PrincipalPosition                        |   | Year   |                     |   | Salary ($) |   |                                          | Bonus($)(1) |   |   | StockAwards($)(1) |   |   | OptionAwards($)(1) |            |   | Non-EquityIncentive PlanCompensation(1) |          |            | Change inPensionValue andNonqualifiedDeferredCompensationEarnings($)(1) |   |          | All OtherCompensation($)(2) |   |   | Total($)      |            |
| Evelyn F. SmallsChief Executive Officer           |   |   | 201120102009             |   |            | $      | 168,000 168,000 160,000             |        |   | $      | 0 0 0   |   |   | $                  | 0 0 0 |   |                                    | $   | 0 0 0 |                                                                    |   | $   | 0 0 0             |   |   | $   | 00 0       |   |   | $   | 6,209 6,209 6,209 |   |   | $   | 174,209 174,209 166,209 |   |
|                                              |   |   |                     |   |            |   |                                          |        |   |   |              |   |   |               |            |   |                                    |          |            |                                                                    |   |          |                        |   |   |          |            |   |   |   |   |   |   |   |   |   |
| Brenda Hudson-NelsonChief Financial Officer  |   |   | 2011 2010 2009 |   |            |   | 121,000  121,000  115,000 |        |   |   | 0 0 0   |   |   |               | 0 0 0 |   |                                    |          | 0 0 0 |                                                                    |   |          | 000                         |   |   |          | 0 0 0 |   |   |   | 6,095 6,095 6,905 |   |   |   | 127,095  127,095  121,095 |   |

| (1) | Amounts are not included in the Bonus, Stock Awards, Option Awards, Non-equity Incentive Plan Compensation, Change in Pension and Nonqualified Deferred Compensation Earnings and All Other Compensation columns of the table because no compensation of this nature was paid by UBS or the Bank and the restricted stock awards and long term incentive payouts columns are not included in the Compensation Table since these benefits are not made available by UBS or the Bank. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | UBS’ executives receive a $500 per month automobile allowance. UBS’ executive are provided with life insurance policies equivalent to two times their annual salary for which the cost is $209/annually for Evelyn Smalls and $95/annually for Brenda Hudson-Nelson                                                                                                                                                                                                          |

----

|   | Respectfully submitted: |
|--------|-------------------------|
|   |                    |
|   | L. Armstead Edwards     |
|   | William B. Moore        |
|   | Marionette Y. Wilson    |
|   | Joseph T. Drennan       |
|   | David R. Bright         |

----

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

| Name and Addressof Beneficial Owner            |   | Amount and Nature ofBeneficial Ownershipof CorporationCommon Stock |   |   | Percentage ofOutstandingCorporationCommon StockOwned |   |
|------------------------------------------------|--------|--------------------------------------------------------------------|--------|--------|------------------------------------------------------|--------|
| Philadelphia Municipal                         |   |                                                               | 71,667 |   |                                                 |   | 8.20 % |   |
| Retirement System                              |   |                                                               |   |   |                                                 |   |   |   |
| 2000 Two Penn Center                           |   |                                                               |   |   |                                                 |   |   |   |
| Philadelphia, Pennsylvania 19102          |   |                                                               |   |   |                                                 |   |   |   |
| Wells Fargo, (formerly, Wachovia Corporation)2 |   |                                                               | 50,000 |   |                                                 |   | 5.72 % |   |
| 301 S College Street, Floor 27                 |   |                                                               |   |   |                                                 |   |   |   |
| Charlotte, NC 28288                            |   |                                                               |   |   |                                                 |   |   |   |
|                                           |   |                                                               |   |   |                                                 |   |   |   |
| Greater Philadelphia Urban Affairs Coalition   |   |                                                               | 47,500 |   |                                                 |   | 5.44 % |   |
| 1207 Chestnut Street, Floor 7                  |   |                                                               |   |   |                                                 |   |   |   |
| Philadelphia, PA  19107              |   |                                                               |   |   |                                                 |   |   |   |
|                                           |   |                                                               |   |   |                                                 |   |   |   |
| The Estate of James F. Bodine                  |   |                                                               | 44,583 |   |                                                 |   | 5.10 % |   |
| 401 Cypress Street                             |   |                                                               |   |   |                                                 |   |   |   |
| Philadelphia, PA  19106              |   |                                                               |   |   |                                                 |   |   |   |

| (1) |   As of March 5, 2012, there were 876,921 shares of UBS’ voting Common Stock outstanding. |
|-----|------------------------------------------------------------------------------------------------------|

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

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

----

|   Name                     | CommonStock1,2,3 | Percent ofOutstanding Stock |
|--------------------------------------|------------------|-----------------------------|
| Current Directors                    |             |                        |
| L. Armstead Edwards             | 10,833           | 1.24%                       |
| Marionette Y. Wilson (Frazier)  | 17,900           | 2.05%                       |
| Ernest L. Wright                | 7,084            | *                           |
| Bernard E. Anderson             | 850              | *                           |
| David R. Bright                 | 850              | *                           |
| Joseph T. Drennan               | 783              | *                           |
| Maurice R. Mitts                | 833              | *                           |
| William B. Moore                | 1,834            | *                           |
| Evelyn F. Smalls                     | 500              | *                           |

| Certain Executive Officers                         |   |   |
|---------------------------------------------------------|--------|--------|
| Evelyn F. Smalls                                   | 500**  | *      |
| Brenda M. Hudson-Nelson                            | 50     | *      |
| All Current Directors and Executive Officers as a Group | 41,517 | 4.75%  |

| *      | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **     | Ms. Smalls is also a Director; see listing above.                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| (1)    | Stock ownership information is given as of March 5, 2012, and includes shares that the individual has the right to acquire (other than by exercise of stock options) within sixty (60) days of March 5, 2012. Unless otherwise indicated, each director and each such named executive officer holds sole voting and investment power over the shares listed.                                         |
| (2)    | The number of shares “beneficially owned” in each case includes, when applicable, shares owned beneficially, directly or indirectly, by the spouse or minor children of the director, and shares owned by any other relatives of the director residing with the director. None of the directors holds title to any shares of UBS of record that such director does not own beneficially. |
| (3)    | None of the common stock of directors and executive officers is pledged to secure a debt.                                                                                                                                                                                                                                                                                                            |

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

----

ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES

|               |   | 2011   |    |   | 2010   |   |
|--------------------|--------|--------|---------|--------|--------|--------|
|               |   |   |    |   |   |   |
| Audit Fees         |   | $      | 118,975 |   |   | $      | 111,804 |   |
| Audit-related fees |   |   | 1,819   |   |   |   | - |   |
| Tax fees           |   |   | 11,000  |   |   |   | 11,000 |   |
| All other fees     |   |   | -       |   |   |   | - |   |
| Total fees         |   | $      | 131,799 |   |   | $      | 122,804 |   |

| 1)           | Audit Fees—These are fees for professional services performed by McGladrey and Pullen, LLP in 2011 and 2010 for the audit, including an audit of consolidated  financial statements reporting, and review of financial statements included in our Form 10-Q and Form 10-K filings.                              |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                            |
| 2)           | Tax Fees—These are fees for professional services performed by RSM McGladrey, Inc. (an independent company associated with McGladrey and Pullen, LLP through an alternative practice structure) with respect to tax compliance and tax advice. This includes preparation of our tax returns, tax research and tax advice. |

----

ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

|   |   |                                                                                                                                                                                          | Page   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                          |   |
| (a)    | 1.     | Financial Reports of United Bancshares, Inc.                                                                                                                                                  |   |
|   |   |                                                                                                                                                                                          |   |
|   |   | Report of Independent Registered Public Accounting Firm.                                                                                                                                      | 58     |
|   |   |                                                                                                                                                                                          |   |
|   |   | Consolidated Balance Sheets at December 31, 2011 and 2010.                                                                                                                                    | 59     |
|   |   | Consolidated Statements of Operations for the two years endedDecember 31, 2011.                                                                                                               | 60     |
|   |   |                                                                                                                                                                                          |   |
|   |   | Consolidated Statements of Changes in Shareholders’ Equity for the two years ended December 31, 2011.                                                                                   | 61     |
|   |   |                                                                                                                                                                                          |   |
|   |   | Consolidated Statements of Cash Flows for the two years endedDecember 31, 2011.                                                                                                               | 62     |
|   |   |                                                                                                                                                                                          |   |
|   |   | Notes to Consolidated Financial Statements                                                                                                                                                    | 63     |
|   |   |                                                                                                                                                                                          |   |
|   |   |                                                                                                                                                                                          |   |
|   | 2.     | Financial Statement Schedules                                                                                                                                                                 |   |
|   |   |                                                                                                                                                                                          |   |
|   |   | Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto. |   |
|   |   |                                                                                                                                                                                          |   |
|   | 3.     | The following Exhibits are filed herewith or incorporated by reference as a part of this Annual Report:                                                                                       |   |

|   | Exhibit Number | Item                                                                                                      |
|--------|----------------|-----------------------------------------------------------------------------------------------------------|
|   |           |                                                                                                      |
|   | (3(i))         | Articles of Incorporation (Incorporated by reference to Registrant’s 1998 Form 10-K).               |
|   |           |                                                                                                      |
|   | (3(ii))        | Bylaws (Incorporated by reference to Registrant’s 1997 Form 10-K).                                  |
|   |           |                                                                                                      |
|   | (9.1)          | Voting Trust Agreement with NationsBank (Incorporated by reference to Registrant’s 1997 Form 10-K). |
|   |           |                                                                                                      |
|   | (9.2)          | Voting Trust Agreement with Fahnstock (Incorporated by reference to Registrant’s 1997 Form 10-K).   |
|   |           |                                                                                                      |

----

|   |   |               |
|--------|--------|--------------------|
|   | (10)   | Material Contracts |

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

| g)    | Lease for Retail office located at The Graham Building, 30 S. 15th Street, Philadelphia, PA, , (Incorporated by reference to Registrant’s 2005 Form 10-K)                                                  |
|----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| h)    | Sublease for Retail office located at The Graham Building, 30 S. 15th Street, Philadelphia, PA(Incorporated by reference to Registrant’s 2005 Form 10-K)                                                   |
| i)    | Lease for branch office located at 1520 North Broad Street (Incorporated by reference to Registrant’s 2005 Form 10-K)                                                                                      |
| j)    | First Amendment to lease for corporate headquarters office located at The Graham Building, 30 S. 15th Street, Suite 1200, Philadelphia, PA(incorporated by reference to Registrant’s 2009 Form 10-K)  |
| k)    | FDIC Stipulation and Consent to Issuance of a Consent Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)                                                                      |
| l)    | FDIC Consent Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)                                                                                                               |
| m)         | Pennsylvania Department of Banking Stipulation and Consent to Entry of Order(incorporated by reference to Registrant’s January 31, 2012 Form 8-K)                                                     |
| n)    | Pennsylvania Department of Banking Consent Order(incorporated by reference to Registrant’s March 5, 2012 Form 8-K/A)                                                                                  |

|   | (11)   | Statement of Computation of Earnings Per Share.  Included at Note 16 of the Financial Statements hereof. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                               |   |
|   | (12)   | Statement of Computation of Ratios.  Included at Note 17 of the Financial Statements hereof.             |
|   |   |                                                                                                               |
|   | (14)   | Code of Conduct and Ethics (Incorporated by reference to Registrant’s 2004 10-K)                             |
|   |   |                                                                                                               |   |
|   | (21)   | Subsidiaries of Registrant                                                                                         |
|   |   |                                                                                                               |   |
|   |   | Name                                                                                                               | State of Incorporation |
|   |   | United Bank of Philadelphia                                                                                        | Pennsylvania |
|   |   |                                                                                                               |   |
|   | (31)   | Certification of the Annual Report                                                                                 |
|   |   | (31.1) Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     |
|   |   | (31.2) Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     |

----

|   |   |                                            |                                                                                                                                                                                                                   |
|--------|--------|-------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (32)   | Certification Pursuant to issue of Section 1350 |
|   |   | (A)                                             | Exhibit 32.1                                                                                                                                                                                                           |
|   |   |                                            |  Certification Pursuant to 18U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer attached hereto as Exhibit 99.1.                            |
|   |   | (B)                                             | Exhibit 32.2                                                                                                                                                                                                           |
|   |   |                                            |  Certification Pursuant to 18U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer attached hereto as Exhibit 99.2.                            |
|   |   |                                            |                                                                                                                                                                                                                   |
|   | (99)   | Supplemental Information                        |
|   |   | (A)                                             | The Annual Report to Shareholders and Proxy material will be furnished after the filing of Form 10-K.  Copies of these materials will be submitted to the Commission when they are sent to the shareholders. |

----

| UNITED BANCSHARES, INC.                                         | DATE                 |
|-----------------------------------------------------------------|----------------------|
|                                                            |                 |
| /s/_________________________________________                    | April 16, 2012       |
|                                                            |                 |
| Evelyn F. Smalls, President & CEO, Director                 |                 |
|                                                            |                 |
|                                                            |                 |
| /s/_________________________________________                    | April 16, 2012       |
| Brenda M. Hudson-Nelson, EVP, CFO                               |                 |
|                                                            |                 |
|                                                            |                 |
| /s/___________________________________                          | April 16, 2012       |
| L. Armstead Edwards, Chairman, Director                         |                 |
|                                                            |                 |
|                                                            |                 |
| /s/_________________________________________                    |  April 16, 2012 |
|                                                            |                 |
| Marionette Y. Wilson(Frazier),  Secretary, Director   |                 |
|                                                            |                 |
|                                                            |                 |
| /s/_________________________________________                    | April 16, 2012       |
|                                                            |                 |
| William B. Moore, Secretary,  Vice Chairman, Director |                 |
|                                                            |                 |
|                                                            |                 |
| /s/________________________________________                     |  April 16, 2012 |
|                                                            |                 |
| Bernard E. Anderson, Director                                   |                 |
|                                                            |                 |
|                                                            |                 |
| /s/________________________________________                     |  April 16, 2012 |
|                                                            |                 |
| David R. Bright, Director                                       |                 |
|                                                            |                 |
| /s/________________________________________                     |  April 16, 2012 |
|                                                            |                 |
| Maurice R. Mitts, Director                                      |                 |
|                                                            |                 |
| /s/________________________________________                     |  April 16, 2012 |
|                                                            |                 |
| Joseph T. Drennan, Treasurer, Director                          |                 |
|                                                            |                 |
|                                                            |                 |
| /s/_________________________________________                    |  April 16, 2012 |
| Ernest L. Wright, Director                                      |                 |

----

----

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                     |   | 2011   |       |   | 2010   |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Assets:                                                                                                                                  |   |   |       |   |   |   |
| Cash and due from banks                                                                                                                  |   | $      | 2,778,924  |   |   | $      | 2,144,390 |   |
| Interest-bearing deposits with banks                                                                                                     |   |   | 305,405    |   |   |   | 304,721 |   |
| Federal funds sold                                                                                                                       |   |   | 11,413,000 |   |   |   | 6,247,000 |   |
|    Cash and cash equivalents                                                                                              |   |   | 14,497,329 |   |   |   | 8,696,111 |   |
|                                                                                                                                     |   |   |       |   |   |   |   |   |
| Investment securities:                                                                                                                   |   |   |       |   |   |   |   |   |
| Available-for-sale, at fair value                                                                                                        |   |   | 1,280,874  |   |   |   | 1,338,898 |   |
| Held-to-maturity, at amortized cost (fair value of $17,738,368                                                                           |   |   |       |   |   |   |   |   |
|    and $15,242,856 in 2011 and 2010, respectively)                                                                        |   |   | 17,209,295 |   |   |   | 15,138,389 |   |
|                                                                                                                                     |   |   |       |   |   |   |   |   |
| Loans, net of unearned discount of $39,024 and $44,418 in 2011                                                                           |   |   |       |   |   |   |   |   |
|    and 2010, respectively                                                                                                 |   |   | 41,502,204 |   |   |   | 45,612,217 |   |
| Less allowance for loan losses                                                                                                           |   |   | (867,019   | )      |   |   | (925,905 | ) |
|    Net loans                                                                                                              |   |   | 40,635,186 |   |   |   | 44,686,312 |   |
|  Bank premises and equipment, net                                                                                                   |   |   | 988,170    |   |   |   | 1,143,347 |   |
| Accrued interest receivable                                                                                                              |   |   | 342,029    |   |   |   | 363,348 |   |
| Other real estate owned                                                                                                                  |   |   | 1,284,390  |   |   |   | 1,416,543 |   |
| Intangible assets                                                                                                                        |   |   | 313,811    |   |   |   | 491,889 |   |
| Prepaid expenses and other assets                                                                                                        |   |   | 465,838    |   |   |   | 690,878 |   |
|    Total assets                                                                                                           |   |   | 77,016,922 |   |   |   | 73,965,715 |   |
|  Liabilities and Shareholders’ Equity                                                                                         |   |   |       |   |   |   |   |   |
|  Liabilities:                                                                                                                       |   |   |       |   |   |   |   |   |
| Demand deposits, noninterest-bearing                                                                                                     |   | $      | 14,373,040 |   |   | $      | 13,528,781 |   |
| Demand deposits, interest-bearing                                                                                                        |   |   | 16,886,633 |   |   |   | 13,802,602 |   |
| Savings deposits                                                                                                                         |   |   | 14,688,985 |   |   |   | 13,856,033 |   |
| Time deposits, under $100,000                                                                                                            |   |   | 7,768,057  |   |   |   | 8,047,679 |   |
| Time deposits, $100,000 and over                                                                                                         |   |   | 17,583,743 |   |   |   | 17,975,595 |   |
|    Total deposits                                                                                                         |   |   | 71,300,458 |   |   |   | 67,210,690 |   |
|  Accrued interest payable                                                                                                           |   |   | 58,361     |   |   |   | 56,907 |   |
| Accrued expenses and other liabilities                                                                                                   |   |   | 397,187    |   |   |   | 400,702 |   |
|    Total liabilities                                                                                                      |   |   | 71,756,006 |   |   |   | 67,668,299 |   |
|                                                                                                                                     |   |   |       |   |   |   |   |   |
| Commitments and Contingencies (Notes 5, 9, and 14)                                                                                       |   |   |       |   |   |   |   |   |
|                                                                                                                                     |   |   |       |   |   |   |   |   |
| Shareholders’ equity:                                                                                                              |   |   |       |   |   |   |   |   |
| Series A preferred stock, noncumulative, 6%, $0.01 par value,   500,000 shares authorized; 136,842 issued and outstanding |   |   | 1,368      |   |   |   | 1,368 |   |
| Common stock, $0.01 par value; 2,000,000 shares authorized;                                                                              |   |   |       |   |   |   |   |   |
|    876,921 issued and outstanding                                                                                         |   |   | 8,769      |   |   |   | 8,769 |   |
| Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value;                                                             |   |   |       |   |   |   |   |   |
|    191,667 issued and outstanding                                                                                         |   |   | 1,917      |   |   |   | 1,917 |   |
| Additional paid-in-capital                                                                                                               |   |   | 14,749,852 |   |   |   | 14,749,852 |   |
| Accumulated deficit                                                                                                                      |   |   | (9,539,831 | )      |   |   | (8,508,591 | ) |
| Accumulated other comprehensive income                                                                                                   |   |   | 38,841     |   |   |   | 44,101 |   |
|    Total shareholders’ equity                                                                                       |   |   | 5,260,916  |   |   |   | 6,297,416 |   |
|    Total liabilities and shareholders’ equity                                                                       |   | $      | 77,016,922 |   |   | $      | 73,965,715 |   |

----

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                    |   | 2011   |       |   | 2010   |   |
|-----------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Interest income:                                                                        |   |   |       |   |   |   |
|    Interest and fees on loans                                            |   | $      | 2,665,637  |   |   | $      | 2,806,458 |   |
|    Interest on investment securities                                     |   |   | 616,754    |   |   |   | 569,778 |   |
|    Interest on federal funds sold                                        |   |   | 20,100     |   |   |   | 11,685 |   |
|    Interest on time deposits with other banks                            |   |   | 695        |   |   |   | 1,260 |   |
|       Total interest income                               |   |   | 3,303,186  |   |   |   | 3,389,181 |   |
|                                                                                    |   |   |       |   |   |   |   |   |
| Interest expense:                                                                       |   |   |       |   |   |   |   |   |
|    Interest on time deposits                                             |   |   | 150,443    |   |   |   | 205,291 |   |
|    Interest on demand deposits                                           |   |   | 73,139     |   |   |   | 75,400 |   |
|    Interest on savings deposits                                          |   |   | 11,403     |   |   |   | 14.407 |   |
|       Total interest expense                              |   |   | 234,985    |   |   |   | 295.098 |   |
|       Net interest income                                 |   |   | 3,068,201  |   |   |   | 3,094,083 |   |
| Provision for loan losses                                                               |   |   | 170,000    |   |   |   | 747,000 |   |
|                                                                                    |   |   |       |   |   |   |   |   |
|       Net interest income after provision for loan losses |   |   | 2,898,201  |   |   |   | 2,347,083 |   |
|                                                                                    |   |   |       |   |   |   |   |   |
| Noninterest income:                                                                     |   |   |       |   |   |   |   |   |
|    Customer service fees                                                 |   |   | 379,933    |   |   |   | 432,676 |   |
|    ATM fee income                                                        |   |   | 348,948    |   |   |   | 366,971 |   |
|    Loan syndication fee income                                           |   |   | 145,000    |   |   |   | 140,000 |   |
|    Grant income                                                          |   |   | -          |   |   |   | 394,400 |   |
|    Net gain on sale of other real estate                                 |   |   | 111,291    |   |   |   | - |   |
|    Other income                                                          |   |   | 85,708     |   |   |   | 130,776 |   |
|       Total noninterest income                            |   |   | 1,070,880  |   |   |   | 1,464,823 |   |
|                                                                                    |   |   |       |   |   |   |   |   |
| Noninterest expense:                                                                    |   |   |       |   |   |   |   |   |
|    Salaries, wages and employee benefits                                 |   |   | 1,643,327  |   |   |   | 1,717,137 |   |
|    Occupancy and equipment                                               |   |   | 1,096,040  |   |   |   | 1,017,477 |   |
|    Office operations and supplies                                        |   |   | 304,373    |   |   |   | 291,458 |   |
|    Marketing and public relations                                        |   |   | 113,290    |   |   |   | 43,140 |   |
|    Professional services                                                 |   |   | 261,183    |   |   |   | 315,390 |   |
|    Data processing                                                       |   |   | 488,899    |   |   |   | 473,788 |   |
|    Loan and collection cost                                              |   |   | 209,643    |   |   |   | 344,695 |   |
|    Deposit insurance assessments                                         |   |   | 167,695    |   |   |   | 144,183 |   |
|    Other operating                                                       |   |   | 715,871    |   |   |   | 692,436 |   |
|       Total noninterest expense                           |   |   | 5,000,321  |   |   |   | 5,039,704 |   |
|       Net loss before income taxes                        |   |   | (1,031,240 | )      |   |   | (1,227,798 | ) |
| Provision for income taxes                                                              |   |   | -          |   |   |   | - |   |
|       Net loss                                            |   | $      | (1,031,240 | )      |   | $      | (1,227,798 | ) |
|                                                                                    |   |   |       |   |   |   |   |   |
| Net loss per common share—basic  and diluted                            |   | $      | (0.97      | )      |   | $      | (1.15 | ) |
| Weighted average number of common shares                                                |   |   | 1,068,588  |   |   |   | 1,068,588 |   |

----

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       | Accumulated   |   |   |       |   |   |          |   |
|-------------------------------------------------------------------------------------|--------|--------------------------|---------|--------|--------------|--------|--------|---------|--------|--------|-------------|--------|--------|---------------|--------|--------|---------------------|--------|------------|---------------|--------|--------|------------|--------|--------|---------------|--------|
|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   | Additional    |   |   |                |   |       | other         |   |   | Total      |   |   |          |   |
|                                                                                |   | Series A preferred stock |    |   | Common stock |   |   | paid-in |   |   | Accumulated |   |   | comprehensive |   |   | shareholders’ |   |       | Comprehensive |   |
|                                                                                |   | Shares                   |    |   | Amount       |   |   | Shares  |   |   | Amount      |   |   | capital       |   |   | deficit             |   |       | income (loss) |   |   | equity     |   |   | income (loss) |   |
|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       |          |   |   |       |   |   |          |   |
| Balance at December 31, 2009                                                        |   |                     | 136,842 |   |         | $      | 1,368  |    |   |   | 1,068,588   |   |   | $             | 10,686 |   |                | $      | 14,749,852 |          |   | $      | (7,280,793 | )      |   | $             | 50,163 |   |   | $ | 7,531,276 |   |   |   |   |
|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       |          |   |   |       |   |   |          |   |   |   |   |   |   |   |   |   |
| Unrealized losses on investment securities,     net of tax |   |                     | -       |   |         |   | -      |    |   |   | -           |   |   |          | -      |   |                |   | -          |          |   |   | -          |   |   |          | (6,062 | ) |   |   | (6,062 | ) |   | $ | (6,062 | ) |
|  Net loss                                                                      |   |                     | -       |   |         |   | -      |    |   |   | -           |   |   |          | -      |   |                |   | -          |          |   |   | (1,227,798 | )      |   |          | -      |   |   |   | (1,227,798 | ) |   |   | (1,227,798 | ) |
|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       |          |   |   |       |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss                                                            |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       |          |   |   |       |   |   |          |   |   |   |   |   |   |   | $  | (1,233,860  | ) |
|                                                                                |   |                     |    |   |         |   |   |    |   |   |        |   |   |          |   |   |                |   |       |          |   |   |       |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2010                                                        |   |                     | 136,842 |   |         | $      | 1,368  |    |   |   | 1,068,588   |   |   | $             | 10,686 |   |                | $      | 14,749,852 |          |   | $      | (8,508,591 | )      |   | $             | 44,101 |   |   | $ | 6,297,416 |   |   |   |   |   |

| Unrealized losses on investment securities,     net of tax |   |   | -       |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -          |   |   |   |       |   |   | (5,260 | )      |   |   | (5,260 | )          |   | $      | (5,260 | )          |
|-------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|
|  Net loss                                                                      |   |   | -       |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -          |   |   |   | (1,031,240 | )      |   |   |   |   |   |   | (1,031,240 | )      |   |   | (1,031,240 | ) |
|                                                                                |   |   |    |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Total comprehensive loss                                                            |   |   |    |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |   |       |   |   | $      | (1,036,500 | ) |
|                                                                                |   |   |    |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Balance at December 31, 2011                                                        |   |   | 136,842 |   |   | $      | 1,368  |   |   |   | 1,068,588 |   |   | $      | 10,686 |   |   | $      | 14,749,852 |   |   | $      | (9,539,831 | )      |   | $      | 38,841 |   |   | $      | 5,260,916  |   |   |   |       |   |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                           |   | 2011   |        |   | 2010   |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                           |   |   |        |   |   |   |
| Cash flows from operating activities:                                                                          |   |   |        |   |   |   |
| Net loss                                                                                                       |   | $      | (1,031,240  | )      |   | $      | (1,227,798 | ) |
|    Adjustments to reconcile net loss to net cash                                                |   |   |        |   |   |   |   |   |
|       (used in) provided by operating activities:                                |   |   |        |   |   |   |   |   |
|         Provision for loan losses                                      |   |   | 170,000     |   |   |   | 747,000 |   |
|         Net gain on sale of other real estate                          |   |   | (111,291    | )      |   |   | - |   |
|         Amortization of premiums on investments                        |   |   | 76,181      |   |   |   | 43,328 |   |
|         Amortization of core deposit intangible                        |   |   | 178,078     |   |   |   | 178,078 |   |
|         Depreciation on fixed assets                                   |   |   | 246,272     |   |   |   | 274,151 |   |
|         Decrease in accrued interest receivable and                    |   |   |        |   |   |   |   |   |
|           other assets                                       |   |   | 246,359     |   |   |   | 251,945 |   |
|         Decrease in accrued interest payable and                       |   |   |        |   |   |   |   |   |
|           other liabilities                                  |   |   | (2,061      | )      |   |   | (22,287 | ) |
|           Net cash (used in)provided by operating activities |   |   | (227,702    | )      |   |   | 244,417 |   |
|                                                                                                           |   |   |        |   |   |   |   |   |
| Cash flows from investing activities:                                                                          |   |   |        |   |   |   |   |   |
|         Purchase of available-for-sale investment securities           |   |   | (262,041    | )      |   |   | - |   |
|         Purchase of held-to-maturity investment securities             |   |   | (12,696,606 | )      |   |   | (16,415,439 | ) |
|         Proceeds from maturity and principal reductions of             |   |   |        |   |   |   |   |   |
|           available-for-sale investment securities           |   |   | 310,689     |   |   |   | 515,363 |   |
|         Proceeds from maturity and principal reductions of             |   |   |        |   |   |   |   |   |
|           held-to-maturity investment securities             |   |   | 10,553,635  |   |   |   | 11,207,199 |   |
|         Proceeds from sale of other real estate owned                  |   |   | 845,544     |   |   |   | 355,859 |   |
|         Net decrease (increase) in loans                               |   |   | 3,279,026   |   |   |   | (345,999 | ) |
|         Purchase of bank premises and equipment                        |   |   | (91,095     | )      |   |   | (59,202 | ) |
| Net cash provided by (used in) investing activities                                                            |   |   | 1,939,152   |   |   |   | (4,742,219 | ) |
|                                                                                                           |   |   |        |   |   |   |   |   |
| Cash flows from financing activities:                                                                          |   |   |        |   |   |   |   |   |
|         Net increase in deposits                                       |   |   | 4,089,768   |   |   |   | 6,904,069 |   |
|         Net cash provided by financing activities                      |   |   | 4,089,768   |   |   |   | 6,904,069 |   |
|         Net increase in cash and cash equivalents                      |   |   | 5,801,218   |   |   |   | 2,406,267 |   |
| Cash and cash equivalents at beginning of year                                                                 |   |   | 8,696,111   |   |   |   | 6,289,844 |   |
| Cash and cash equivalents at end of year                                                                       |   |   | 14,497,329  |   |   | $      | 8,696,111 |   |
| Supplemental disclosure of cash flow information:                                                              |   |   |        |   |   |   |   |   |
|         Cash paid during the year for interest                         |   | $      | 233,531     |   |   | $      | 302,145 |   |
|         Noncash transfer of loans to other real estate owned           |   | $      | 602,100     |   |   | $      | 1,772,402 |   |

----

|   | UNITED BANCSHARES, INC. AND SUBSIDIARY |
|--------|----------------------------------------|

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|--------|--------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1.  |   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----------|---------------------------------------------------|

----

|   | UNITED BANCSHARES, INC. AND SUBSIDIARY |
|--------|----------------------------------------|

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued |
|----|--------------------------------------------------------|

|   | Bank will be required to sell the security prior to recovery.  In these circumstances, the loss is determined to be other-than-temporary and the difference between the security’s fair value and its amortized cost is reflected as a loss in the statement of operations.  If management does not intend to sell the security and likely will not be required to sell the security prior to forecasted recovery, management evaluates whether it expects to recover the entire amortized cost of the debt security or if there is a credit loss.  In evaluating whether there is a credit loss, management considers various qualitative factors which include (1) the length of time and the extent to which the fair value has been less than cost, (2) the reasons for the decline in the fair value, and (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events.  If, based on an analysis of these factors, management concludes that there is a credit loss, then management calculates the expected cash flows and records a loss in earnings equal to the difference between the amortized cost of the debt security and the expected cash flows.  The portion of the decline in fair value that is due to factors other than credit loss is recognized in other comprehensive income.  No investment securities held by the Bank as of December 31, 2011 and 2010 were subjected to a write-down due to credit related other-than-temporary impairment.  Interest income from securities adjusted for the amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the contractual lives of the related securities.  Realized gains and losses, determined using the amortized cost value of the specific securities sold, are included in noninterest income in the statement of operations. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Loans |
|--------|-------|

|   | The Bank has both the positive intent and ability to hold the majority of its loans to maturity.  These loans are stated at the amount of unpaid principal, reduced by net unearned discount and an allowance for loan losses.  Interest income on loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding and accretion of discount.  It is the Bank’s policy to discontinue the accrual of interest income when a default of principal or interest exists for a period of 90 days except when, in management’s judgment, the loan is well collateralized and in the process of collection. Interest received on nonaccrual loans is either applied against principal or reported as interest income according to management’s judgment as to collectability of principal.  When interest accruals are discontinued, unpaid accrued interest previously credited to income is reversed and the loan is classified as impaired. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

----

|   | UNITED BANCSHARES, INC. AND SUBSIDIARY |
|--------|----------------------------------------|

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued |
|----------|--------------------------------------------------------|

|   |  Allowance for Loan Losses |
|--------|---------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued |
|----|--------------------------------------------------------|

| ·   | During regularly scheduled meetings of the Asset Quality Committee |
|--------------------|--------------------------------------------------------------------|

| ·   | During regular reviews of the delinquency report |
|--------------------|--------------------------------------------------|

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

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

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

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

|   | Income Taxes |
|--------|--------------|

|   | The liability method is used in accounting for income taxes.  Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  Realization of deferred tax assets is dependent on generating sufficient taxable income in the future. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1.   |   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued |
|----------------|---------------------------------------------------------------------|

|                          |   | 2011   |       |   | 2010   |   |
|-------------------------------|--------|--------|------------|--------|--------|--------|
|                          |   |   |       |   |   |   |
| Core Deposit Premium (cost)   |   | $      | 2,449,488  |   |   | $      | 2,449,488 |   |
| Less accumulated amortization |   |   | (2,135,677 | )      |   |   | (1,957,599 | ) |
|                          |   | $      | 313,811    |   |   | $      | 491,889 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1.   | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued |
|----------------|--------------------------------------------------------------|

|   | The Bank had approximately $1,284,000 and $1,417,000 in foreclosed real estate as of December 31, 2011 and 2010, respectively. |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

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

|   | Reclassifications |
|--------|-------------------|

|   | Comprehensive Income |
|--------|----------------------|

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

|                                                 |   | December 31, 2011 |   |
|------------------------------------------------------|--------|-------------------|--------|
|                                                 |   | Before tax        |   |   | Tax |   |   | Net of tax |   |
|                                                 |   | amount            |   |   | benefit |   |   | Amount |   |
| Unrealized loss on securities                        |   |              |   |   |   |   |   |   |   |
| Unrealized holding loss arising during period        |   | $                 | (7,851 | ) |   | $ | 2,591 |   |   | $ | (5,260 | ) |
| Less: reclassification adjustment for gains (losses) |   |              |   |   |   |   |   |   |   |   |   |   |
| realized in net loss                                 |   |              | -      |   |   |   | - |   |   |   | - |   |
| Other comprehensive loss, net                        |   | $                 | (7,851 | ) |   | $ | 2,591 |   |   | $ | (5,260 | ) |
|                                                 |   |              |   |   |   |   |   |   |   |   |   |   |

|                                                 |   | December 31, 2010 |    |
|------------------------------------------------------|--------|-------------------|---------|
|                                                 |   | Before tax        |    |   | Tax |   |   | Net of tax |   |
|                                                 |   | amount            |    |   | benefit |   |   | Amount |   |
|                                                 |   |              |    |   |   |   |   |   |   |
| Unrealized loss on securities                        |   |              |    |   |   |   |   |   |   |
| Unrealized holding loss arising during period        |   | $                 | ( 9,048 | ) |   | $ | 2,986 |   |   | $ | ( 6,062 | ) |
| Less: reclassification adjustment for gains (losses) |   |              |    |   |   |   |   |   |   |   |   |   |
| realized in net loss                                 |   |              | -       |   |   |   | - |   |   |   | - |   |
| Other comprehensive loss, net                        |   | $                 | (9,048  | ) |   | $ | 2,986 |   |   | $ | (6,062 | ) |
|                                                 |   |              |    |   |   |   |   |   |   |   |   |   |

|   |  (Continued) |
|--------|-------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 1.   | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued |
|----------------|--------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   | 2.  CASH AND DUE FROM BANK BALANCES |
|--------|-----------------------------------------------|

|   | The Bank maintains various deposit accounts with other banks to meet normal fund transaction requirements and to compensate other banks for certain correspondent services.  The withdrawal or usage restrictions of these balances did not have a significant impact on the operations of the Bank as of December 31, 2011.  Reserve balances were $125,000, as of December 31, 2011 and 2010.  In addition, the proceeds from matured investment security held as collateral for governmental deposits totaling approximately $500,000 was restricted until January 2012 when replacement collateral was transferred. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.  INVESTMENTS |
|--------|---------------------------|

|   | The amortized cost, gross unrealized holding gains and losses, and estimated fair value of the available-for-sale and held-to-maturity investment securities by major security type at December 31, 2011 and 2010 are as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (In 000’s)                                                                   |   | 2011       |   |
|------------------------------------------------------------------------------------|--------|------------|--------|
|                                                                               |   |       |   |   | Gross |   |   | Gross |   |   |   |   |
|                                                                               |   | Amortized  |   |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                               |   | Cost       |   |   | gains |   |   | losses |   |   | value |   |
| Available-for-sale:                                                                |   |       |   |   |   |   |   |   |   |   |   |   |
| Government Sponsored Enterprises  residential mortgage-backed securities |   | $          | 1,094  |   |   | $ | 58 |   |   | $ | - |   |   | $ | 1,152 |   |
| Investments in money market funds                                                  |   |       | 129,   |   |   |   | - |   |   |   | - |   |   |   | 129 |   |
|                                                                               |   | $          | 1,223  |   |   | $ | 58 |   |   | $ | - |   |   | $ | 1,281 |   |
|                                                                               |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held-to-maturity:                                                                  |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities                                                  |   | $          | 7,531  |   |   | $ | 158 |   |   | $ | - |   |   | $ | 7,689 |   |
| Government Sponsored Enterprises residential mortgage-backed securities            |   |       | 9,678  |   |   |   | 373 |   |   |   | (2 | ) |   |   | 10,049 |   |
|                                                                               |   | $          | 17,209 |   |   | $ | 531 |   |   | $ | (2 | ) |   | $ | 17,738 |   |
|                                                                               |   |       |   |
|                                                                               |   |  2010 |   |
|                                                                               |   |       |   |   |   | Gross |   |   | Gross |   |   |   |   |   |
|                                                                               |   | Amortized  |   |   | unrealized |   |   | unrealized |   |   | Fair |   |
|                                                                               |   | Cost       |   |   | gains |   |   | losses |   |   | Value |   |
| Available-for-sale:                                                                |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government Sponsored Enterprises residential mortgage-backed securities            |   | $          | 1,144  |   |   | $ | 66 |   |   | $ | - |   |   | $ | 1,210 |   |
| Investments in money market funds                                                  |   |       | 129    |   |   |   | - |   |   |   | - |   |   |   | 129 |   |
|                                                                               |   | $          | 1,273  |   |   | $ | 66 |   |   | $ | - |   |   | $ | 1,339 |   |
|                                                                               |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held-to-maturity:                                                                  |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities                                                  |   | $          | 10,402 |   |   | $ | 90 |   |   | $ | (145 | ) |   | $ | 10,347 |   |
| Government Sponsored Enterprises residential mortgage-backed securities            |   |       | 4,736  |   |   |   | 166 |   |   |   | (6 | ) |   |   | 4,896 |   |
|                                                                               |   | $          | 15,138 |   |   | $ | 256 |   |   | $ | (151 | ) |   | $ | 15,243 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 3. |   INVESTMENTS-Continued |
|----|-----------------------------------|

|                            |   | Number     |   |   | Less than 12 months |   |   | 12 months or longer |   |   | Total  |   |
|---------------------------------|--------|------------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|--------|--------|
| Description of                  |   | of         |   |   | Fair                |   |   | Unrealized          |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| Securities                      |   | securities |   |   | value               |   |   | Losses              |   |   | Value  |   |   | losses |   |   | value |   |   | losses |   |
|                            |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage backed                 |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities          |   |       | 4      |   |                | $      | 1,018  |                |   |   | (2     | )      |   |   | - |   |   |   | - |   |   | $ | 1,018 |   |   |   | (2 | ) |
| Total temporarily               |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   impaired investment |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities          |   |       | 4      |   |                | $      | 1,018  |                |   | $      | (2     | )      |   | $ | - |   |   | $ | - |   |   | $ | 1,018 |   |   | $ | (2 | ) |

|                            |   | Number     |   |   | Less than 12 months |   |   | 12 months or longer |   |   | Total  |   |
|---------------------------------|--------|------------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|--------|--------|
| Description of                  |   | of         |   |   | Fair                |   |   | Unrealized          |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
| Securities                      |   | securities |   |   | value               |   |   | Losses              |   |   | Value  |   |   | losses |   |   | value |   |   | losses |   |
|                            |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government                 |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   agency securities   |   |       | 14     |   |                | $      | 5,398  |                |   | $      | (145   | )      |   | $ | - |   |   | $ | - |   |   | $ | 5,398 |   |   | $ | (145 | ) |
|                            |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage backed                 |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities          |   |       | 4      |   |                |   | 536    |                |   |   | (6     | )      |   |   | - |   |   |   | - |   |   |   | 536 |   |   |   | (6 | ) |
| Total temporarily               |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   impaired investment |   |       |   |   |                |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities          |   |       | 18     |   |                | $      | 5,934  |                |   | $      | (151   | )      |   | $ | - |   |   | $ | - |   |   | $ | 5,934 |   |   | $ | (151 | ) |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|                                                                                                 |   | Amortized |   |   | Fair   |   |
|------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------|--------|
|                                                                                                 |   | Cost      |   |   | Value  |   |
| Available-for-sale:                                                                                  |   |      |   |   |   |   |
| Due in one year                                                                                      |   | $         | -      |   |   | $      | - |   |
| Due after one year through five years                                                                |   |      | -      |   |   |   | - |   |
| Due after five years through ten years                                                               |   |      | -      |   |   |   | - |   |
| Government-sponsored enterprises     residential mortgage-backed securities |   |      | 1,094  |   |   |   | 1,152 |   |
| Total debt securities                                                                                |   |      | 1,094  |   |   |   | 1,152 |   |
| Investments in mutual funds                                                                          |   |      | 129    |   |   |   | 129 |   |
|                                                                                                 |   | $         | 1,223  |   |   | $      | 1,281 |   |
|                                                                                                 |   |      |   |   |   |   |   |   |
| Held-to-maturity:                                                                                    |   |      |   |   |   |   |   |   |
| Due in one year                                                                                      |   | $         | -      |   |   | $      | - |   |
| Due after one year through five years                                                                |   |      | 250    |   |   |   | 251 |   |
| Due after five years through ten years                                                               |   |      | 6,504  |   |   |   | 6,659 |   |
| Due after ten years                                                                                  |   |      | 777    |   |   |   | 779 |   |
| Government-sponsored enterprises     residential mortgage-backed securities |   |      | 9,678  |   |   |   | 10,049 |   |
|                                                                                                 |   | $         | 17,209 |   |   | $      | 17,738 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   |  4.  LOANS AND ALLOWANCE FOR LOAN LOSSES |
|--------|---------------------------------------------------------|

|   | The composition of the net loans is as follows: |
|--------|-------------------------------------------------|

|   |   |
|--------|--------|

|                                                                               |   |         |   |   |         |   |
|------------------------------------------------------------------------------------|--------|--------------|--------|--------|--------------|--------|
|                                                                               |   | December 31, |   |   | December 31, |   |
| (In 000's)                                                                         |   | 2011         |   |   | 2010         |   |
|                                                                               |   |         |   |   |         |   |
|                                                                               |   |         |   |   |         |   |
| Commercial and industrial:                                                         |   |         |   |   |         |   |
|      Commercial                                           |   | $            | 1,486  |   |         | $      | 3,133 |   |
|      SBA loans                                            |   |         | 235    |   |         |   | 229 |   |
|      Assets-based                                         |   |         | 2,009  |   |         |   | 2,367 |   |
|         Total commercial and industrial    |   |         | 3,730  |   |         |   | 5,730 |   |
|                                                                               |   |         |   |   |         |   |   |   |
| Commercial real estate:                                                            |   |         |   |   |         |   |   |   |
|                                                                               |   |         |   |   |         |   |   |   |
|      Commercial mortgages                                 |   |         | 14,676 |   |         |   | 15,774 |   |
|      SBA loans                                            |   |         | 477    |   |         |   | 1,311 |   |
|      Construction                                         |   |         | 1,391  |   |         |   | - |   |
|      Religious organizations                              |   |         | 13,653 |   |         |   | 13,653 |   |
|          Total commercial real estate |   |         | 30,197 |   |         |   | 30,738 |   |
|                                                                               |   |         |   |   |         |   |   |   |
| Consumer real estate:                                                              |   |         |   |   |         |   |   |   |
|      Home equity loans                                    |   |         | 2,145  |   |         |   | 1,813 |   |
|      Home equity lines of credit                          |   |         | 85     |   |         |   | 714 |   |
|      1-4 family residential mortgages                     |   |         | 3,356  |   |         |   | 4,432 |   |
|          Total consumer real estate   |   |         | 5,586  |   |         |   | 6,959 |   |
|                                                                               |   |         |   |   |         |   |   |   |
| Total real estate                                                                  |   |         | 35,783 |   |         |   | 37,698 |   |
|                                                                               |   |         |   |   |         |   |   |   |
| Consumer and other:                                                                |   |         |   |   |         |   |   |   |
|      Consumer installment                                 |   |         | 58     |   |         |   | 82 |   |
|      Student loans                                        |   |         | 1,761  |   |         |   | 1,912 |   |
|      Other                                                |   |         | 170    |   |         |   | 191 |   |
|          Total consumer and other     |   |         | 1,989  |   |         |   | 2,185 |   |
|                                                                               |   |         |   |   |         |   |   |   |
|          Loans, net                   |   | $            | 41,502 |   |         | $      | 45,612 |   |
|                                                                               |   |         |   |   |         |   |   |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| Change in  Related Party Loans: |   |   |      |   |   |   |
|-------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                      |   |   |      |   |   |   |
|                                      |   | 2011   |      |   | 2010   |   |
| Balance outstanding at December 31,       |   | $      | 1,931,722 |   |   | $      | 1,535,973 |   |
| Principal additions                       |   |   | -         |   |   | $      | 1,012,362 |   |
| Principal reductions                      |   |   | (229,074  | )      |   | $      | (616,613 | ) |
| Balance outstanding at December 31,       |   | $      | 1,702,648 |   |   | $      | 1,931,722 |   |
|                                      |   |   |      |   |   |   |   |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |
|------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|--------------------------------------|--------|--------|------------|--------|--------|----------------------------|--------|--------|--------------|--------|--------|-------------|--------|
| (In 000's)                                                                         |   | Loans30-89 DaysPast Due |   |   | AccruingLoans 90 orMore DaysPast Due |   |   | Nonaccrual |   |   |   Total PastDue Loans |   |   | CurrentLoans |   |   | Total Loans |   |
| Commercial and industrial:                                                         |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |
|      Commercial                                           |   | $                       | 32     |   |                                 | $      | -      |       |   | $      | 491                        |   |   |         | 523    |   |        | $      | 963 |   |   | $ | 1,486 |   |
|      SBA loans                                            |   |                    | -      |   |                                 |   | -      |       |   |   | -                          |   |   |         | -      |   |        |   | 235 |   |   |   | 235 |   |
|      Asset-based                                          |   |                    | -      |   |                                 |   | -      |       |   |   | 101                        |   |   |         | 101    |   |        |   | 1,908 |   |   |   | 2,009 |   |
|         Total Commercial and industrial    |   |                    | 32     |   |                                 |   | -      |       |   |   | 592                        |   |   |         | 624    |   |        |   | 3,106 |   |   |   | 3,730 |   |
|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Commercial real estate:                                                            |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Commercial mortgages                                 |   |                    | 99     |   |                                 |   | -      |       |   |   | 677                        |   |   |         | 776    |   |        |   | 13,900 |   |   |   | 14,676 |   |
|      SBA loans                                            |   |                    | -      |   |                                 |   | -      |       |   |   | -                          |   |   |         | -      |   |        |   | 477 |   |   |   | 477 |   |
|      Construction                                         |   |                    | -      |   |                                 |   | -      |       |   |   | -                          |   |   |         | -      |   |        |   | 1,391 |   |   |   | 1,391 |   |
|      Religious organizations                              |   |                    | 559    |   |                                 |   | 173    |       |   |   | 418                        |   |   |         | 1,150  |   |        |   | 12,503 |   |   |   | 13,653 |   |
|          Total Commercial real estate |   |                    | 658    |   |                                 |   | 173    |       |   |   | 1,095                      |   |   |         | 1,926  |   |        |   | 28,271 |   |   |   | 30,197 |   |
|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Consumer real estate:                                                              |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Home equity loans                                    |   |                    | 173    |   |                                 |   | 152    |       |   |   | 106                        |   |   |         | 431    |   |        |   | 1,714 |   |   |   | 2,145 |   |
|      Home equity lines of credit                          |   |                    | -      |   |                                 |   | -      |       |   |   | 38                         |   |   |         | 38     |   |        |   | 47 |   |   |   | 85 |   |
|      1-4 family residential mortgages                     |   |                    | -      |   |                                 |   | -      |       |   |   | 301                        |   |   |         | 301    |   |        |   | 3,055 |   |   |   | 3,356 |   |
|          Total consumer real estate   |   |                    | 173    |   |                                 |   | 152    |       |   |   | 445                        |   |   |         | 770    |   |        |   | 4,816 |   |   |   | 5,586 |   |
|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Total real estate                                                                  |   |                    | 831    |   |                                 |   | 325    |       |   |   | 1,540                      |   |   |         | 2,696  |   |        |   | 33,087 |   |   |   | 35,783 |   |
|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Consumer and other:                                                                |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Consumer installment                                 |   |                    | -      |   |                                 |   | -      |       |   |   | -                          |   |   |         | -      |   |        |   | 58 |   |   |   | 58 |   |
|      Student loans                                        |   |                    | 112    |   |                                 |   | 146    |       |   |   | -                          |   |   |         | 258    |   |        |   | 1,503 |   |   |   | 1,761 |   |
|      Other                                                |   |                    | 3      |   |                                 |   | -      |       |   |   | -                          |   |   |         | 3      |   |        |   | 167 |   |   |   | 170 |   |
|          Total consumer and other     |   |                    | 115    |   |                                 |   | 146    |       |   |   | -                          |   |   |         | 261    |   |        |   | 1,728 |   |   |   | 1,989 |   |
|                                                                               |   |                    |   |   |                                 |   |   |       |   |   |                       |   |   |         |   |   |        |   |   |   |   |   |   |   |
|          Total loans                  |   | $                       | 978    |   |                                 | $      | 471    |       |   | $      | 2,132                      |   |   | $            | 3,581  |   |        | $      | 37,921 |   |   | $ | 41,502 |   |
|                                                                               |   |                    |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |
|------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|--------|------------|--------|--------|---------------------------|--------|--------|--------------|--------|--------|-------------|--------|
| (In 000's)                                                                         |   |               |   |   | Accruing          |   |   |       |   |   |                      |   |   |         |   |   |        |   |
|                                                                               |   | Loans              |   |   | Loans 90 or       |   |   |       |   |   |                      |   |   |         |   |   |        |   |
|                                                                               |   | 30-89 DaysPast Due |   |   | More DaysPast Due |   |   | Nonaccrual |   |   | Total Past Due Loans |   |   | CurrentLoans |   |   | Total Loans |   |
| Commercial and industrial:                                                         |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |
|      Commercial                                           |   | $                  | 442    |   |              | $      | -      |       |   | $      | 505                       |   |   |         | 946    |   |        | $      | 2,187 |   |   | $ | 3,133 |   |
|      SBA loans                                            |   |               | 12     |   |              |   | -      |       |   |   | 18                        |   |   |         | 30     |   |        |   | 199 |   |   |   | 229 |   |
|      Asset-based                                          |   |               | -      |   |              |   | -      |       |   |   |                      |   |   |         | -      |   |        |   | 2,367 |   |   |   | 2,367 |   |
|         Total commercial and industrial    |   |               | 454    |   |              |   | -      |       |   |   | 523                       |   |   |         | 976    |   |        |   | 4,753 |   |   |   | 5,729 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Commercial real estate:                                                            |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Commercial mortgages                                 |   |               | 125    |   |              |   | -      |       |   |   | 1,495                     |   |   |         | 1,620  |   |        |   | 14,154 |   |   |   | 15,774 |   |
|      SBA loans                                            |   |               |   |   |              |   |   |       |   |   | 58                        |   |   |         | 58     |   |        |   | 1,253 |   |   |   | 1,311 |   |
|      Religious organizations                              |   |               | 126    |   |              |   | -      |       |   |   | 315                       |   |   |         | 441    |   |        |   | 13,213 |   |   |   | 13,653 |   |
|          Total commercial real estate |   |               | 251    |   |              |   | -      |       |   |   | 1,868                     |   |   |         | 2,119  |   |        |   | 28,620 |   |   |   | 30,738 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Consumer real estate:                                                              |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Home equity loans                                    |   |               | 155    |   |              |   | 142    |       |   |   | 130                       |   |   |         | 427    |   |        |   | 1,386 |   |   |   | 1,813 |   |
|      Home equity lines of credit                          |   |               | -      |   |              |   | -      |       |   |   | -                         |   |   |         | -      |   |        |   | 714 |   |   |   | 714 |   |
|      1-4 family residential mortgages                     |   |               | -      |   |              |   | -      |       |   |   | 261                       |   |   |         | 261    |   |        |   | 4,171 |   |   |   | 4,432 |   |
|          Total consumer real estate   |   |               | 155    |   |              |   | 142    |       |   |   | 391                       |   |   |         | 688    |   |        |   | 6,271 |   |   |   | 6,959 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Total real estate                                                                  |   |               | 406    |   |              |   | 142    |       |   |   | 2,258                     |   |   |         | 2,806  |   |        |   | 34,891 |   |   |   | 37,697 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
| Consumer and other:                                                                |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
|      Consumer installment                                 |   |               | 8      |   |              |   | -      |       |   |   | -                         |   |   |         | 8      |   |        |   | 74 |   |   |   | 82 |   |
|      Student loans                                        |   |               | 87     |   |              |   | 44     |       |   |   | -                         |   |   |         | 131    |   |        |   | 1,781 |   |   |   | 1,912 |   |
|      Other                                                |   |               | 13     |   |              |   | 19     |       |   |   | -                         |   |   |         | 32     |   |        |   | 159 |   |   |   | 191 |   |
|          Total consumer and other     |   |               | 108    |   |              |   | 63     |       |   |   | -                         |   |   |         | 171    |   |        |   | 2,015 |   |   |   | 2,185 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |
|          Total loans                  |   | $                  | 967    |   |              | $      | 205    |       |   | $      | 2,781                     |   |   | $            | 3,953  |   |        | $      | 41,659 |   |   | $ | 45,612 |   |
|                                                                               |   |               |   |   |              |   |   |       |   |   |                      |   |   |         |   |   |        |   |   |   |   |   |   |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |
|------------------------------------------------------------------------------------|--------|-------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|--------|------------|--------|--------|-------------|--------|
| (In 000's)                                                                         |   | Unpaid      |   |   | Recorded   |   |   | Recorded   |   |   |       |   |   |      |   |   |       |   |   | Interest    |   |
|                                                                               |   | Contractual |   |   | Investment |   |   | Investment |   |   | Total      |   |   |      |   |   | Average    |   |   | recognized  |   |
|                                                                               |   | Principal   |   |   | With No    |   |   | With       |   |   | Recorded   |   |   | Related   |   |   | Recorded   |   |   | on impaired |   |
|                                                                               |   | Balance     |   |   | Allowance  |   |   | Allowance  |   |   | Investment |   |   | Allowance |   |   | Investment |   |   | loans       |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |
| Commercial and industrial:                                                         |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |
|      Commercial                                           |   | $           | 491    |   |       | $      | 78     |       |   | $      | 413        |   |   | $         | 491    |   |       | $      | 246    |        |   | $ | 483 |   |   | $ | - |   |
|      SBA  loans                                 |   |        | -      |   |       |   | -      |       |   |   | -          |   |   |      | -      |   |       |   | -      |        |   |   | 15 |   |   |   | - |   |
|      Asset-based                                          |   |        | 101    |   |       |   | -      |       |   |   | 101        |   |   |      | 101    |   |       |   | 62     |        |   |   | 59 |   |   |   | - |   |
|         Total Commercial and industrial    |   |        | 592    |   |       |   | 78     |       |   |   | 514        |   |   |      | 592    |   |       |   | 308    |        |   |   | 557 |   |   |   | - |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |   |   |   |   |   |   |   |
| Commercial real estate:                                                            |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |   |   |   |   |   |   |   |
|      Commercial mortgages                                 |   |        | 677    |   |       |   | 677    |       |   |   | -          |   |   |      | 677    |   |       |   | -      |        |   |   | 797 |   |   |   | 2 |   |
|      SBA  Loans                                 |   |        | -      |   |       |   | -      |       |   |   | -          |   |   |      | -      |   |       |   | -      |        |   |   | 49 |   |   |   | - |   |
|      Religious Organizations                              |   |        | 418    |   |       |   | 418    |       |   |   | -          |   |   |      | 418    |   |       |   | -      |        |   |   | 436 |   |   |   | 3 |   |
|          Total Commercial real estate |   |        | 1,095  |   |       |   | 1,095  |       |   |   | -          |   |   |      | 1,095  |   |       |   | -      |        |   |   | 1,282 |   |   |   | 5 |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |        |   |   |   |   |   |   |   |   |
|          Total Loans                  |   | $           | 1,687  |   |       | $      | 1,173  |       |   | $      | 514        |   |   | $         | 1,687  |   |       | $      | 308    |        |   | $ | 1,839 |   |   | $ | 5 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |
|------------------------------------------------------------------------------------|--------|-------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|--------|------------|--------|--------|----------------------|--------|
|                                                                               |   | Unpaid      |   |   | Recorded   |   |   | Recorded   |   |   |       |   |   |      |   |   |       |   |   | Interest   |   |
|                                                                               |   | Contractual |   |   | Investment |   |   | Investment |   |   | Total      |   |   |      |   |   | Average    |   |   | Collected            |   |
|                                                                               |   | Principal   |   |   | With No    |   |   | With       |   |   | Recorded   |   |   | Related   |   |   | Recorded   |   |   | on impaired          |   |
|                                                                               |   | Balance     |   |   | Allowance  |   |   | Allowance  |   |   | Investment |   |   | Allowance |   |   | Investment |   |   | loans                |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |
| Commercial and industrial:                                                         |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |
|      Commercial                                           |   | $           | 505    |   |       | $      | 422    |       |   | $      | 83         |   |   | $         | 505    |   |       | $      | 83     |                 |   | $ | 73 |   |   | $ | 21 |   |
|      SBA  loans                                 |   |        | 21     |   |       |   | 18     |       |   |   | -          |   |   | $         | 18     |   |       |   | -      |                 |   |   | 20 |   |   |   | - |   |
|      Asset-based                                          |   |        | -      |   |       |   | -      |       |   |   | -          |   |   |      | -      |   |       |   | -      |                 |   |   | 20 |   |   |   | - |   |
|         Total commercial and industrial    |   |        | 526    |   |       |   | 440    |       |   |   | 83         |   |   |      | 523    |   |       |   | 83     |                 |   |   | 113 |   |   |   | 21 |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |   |   |   |   |   |   |   |
| Commercial real estate:                                                            |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |   |   |   |   |   |   |   |
|      Commercial mortgages                                 |   |        | 1,412  |   |       |   | 577    |       |   |   | 835        |   |   |      | 1,412  |   |       |   | 156    |                 |   |   | 1,700 |   |   |   | 25 |   |
|      SBA  loans                                 |   |        | 150    |   |       |   | 140    |       |   |   | -          |   |   |      | 140    |   |       |   | -      |                 |   |   | 289 |   |   |   | - |   |
|      Construction                                         |   |        | -      |   |       |   | -      |       |   |   | -          |   |   |      | -      |   |       |   | -      |                 |   |   | 338 |   |   |   | - |   |
|      Religious organizations                              |   |        | 441    |   |       |   | 441    |       |   |   | -          |   |   |      | 441    |   |       |   | -      |                 |   |   | 312 |   |   |   | 17 |   |
|          Total commercial real estate |   |        | 2,003  |   |       |   | 1,158  |       |   |   | 835        |   |   |      | 1,993  |   |       |   | 156    |                 |   |   | 2,639 |   |   |   | 42 |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |   |   |   |   |   |   |   |
|          Total Loans                  |   | $           | 2,529  |   |       | $      | 1,598  |       |   | $      | 918        |   |   | $         | 2,516  |   |       | $      | 238    |                 |   | $ | 2,752 |   |   | $ | 63 |   |
|                                                                               |   |        |   |   |       |   |   |       |   |   |       |   |   |      |   |   |       |   |   |                 |   |   |   |   |   |   |   |   |

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

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

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

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

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

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

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

|   | For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality.  Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt.  These credit quality indicators are updated on an ongoing basis.  A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| (In 000's)                                                     |   |  December 31, 2011                                             |   |
|----------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                           |   | Good/Excellent                                                      |   |   | Satisfactory |   |   | Pass |   |   | Special Mention |   |   | Subtandard |   |   | Doubtful |   |   | Total |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial:                                     |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Commercial                             |   | $                                                                   | 379    |   |   | $ | 586 |   |   | $ | - |   |   | $ | 31 |   |   | $ | 264 |   |   | $ | 226 |   |   | $ | 1,486 |   |
|     SBA loans                              |   |                                                                | -      |   |   |   | 130 |   |   |   | 56 |   |   |   | - |   |   |   | 49 |   |   |   | - |   |   |   | 235 |   |
|     Asset-based                            |   |                                                                | -      |   |   |   | 1,847 |   |   |   | 61 |   |   |   | - |   |   |   | 101 |   |   |   | - |   |   |   | 2,009 |   |
|                                                           |   |                                                                | 379    |   |   |   | 2,563 |   |   |   | 117 |   |   |   | 31 |   |   |   | 414 |   |   |   | 226 |   |   |   | 3,730 |   |
| Commercial real estate:                                        |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Commercial mortgages                   |   |                                                                | -      |   |   |   | 13,118 |   |   |   | 151 |   |   |   | - |   |   |   | 1,408 |   |   |   | - |   |   |   | 14,677 |   |
|      SBA Loans                        |   |                                                                | -      |   |   |   | 471 |   |   |   | - |   |   |   | - |   |   |   | 5 |   |   |   | - |   |   |   | 476 |   |
|     Construction                           |   |                                                                | -      |   |   |   | 1,391 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,391 |   |
|     Religious organizations                |   |                                                                | -      |   |   |   | 9,751 |   |   |   | 2,925 |   |   |   | - |   |   |   | 977 |   |   |   | - |   |   |   | 13,653 |   |
|                                                           |   |                                                                | -      |   |   |   | 24,731 |   |   |   | 3,076 |   |   |   | - |   |   |   | 2,390 |   |   |   |   |   |   |   | 30,197 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total commercial loans                                         |   | $                                                                   | 379    |   |   | $ | 27,294 |   |   | $ | 3,193 |   |   | $ | 31 |   |   | $ | 2,804 |   |   | $ | 226 |   |   | $ | 33,927 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |  December 31, 2011                                             |   |   |   |   |   |
|                                                           |   | Residential Mortgage & Consumer Loans- Performing/Nonperforming |   |   |   |   |   |
|                                                           |   | Performing                                                          |   |   |   |   |   |   | Nonperforming |   |   | Total |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer Real Estate:                                          |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Home equity                      |   | $                                                                   | 2,039  |   |   |   |   |   |   | $ | 106 |   |   |   |   |   |   | $ | 2,145 |   |   |   |   |   |   |   |   |   |
|      Home equity line of credit       |   |                                                                | 47     |   |   |   |   |   |   |   | 38 |   |   |   |   |   |   |   | 85 |   |   |   |   |   |   |   |   |   |
|      1-4 family residential mortgages |   |                                                                | 3,055  |   |   |   |   |   |   |   | 301 |   |   |   |   |   |   |   | 3,356 |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                | 5,141  |   |   |   |   |   |   |   | 445 |   |   |   |   |   |   |   | 5,586 |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer Other:                                                |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consumer Installment             |   |                                                                | 58     |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 58 |   |   |   |   |   |   |   |   |   |
|      Student loans                    |   |                                                                | 1,761  |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 1,761 |   |   |   |   |   |   |   |   |   |
|      Other                            |   |                                                                | 170    |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 170 |   |   |   |
|                                                           |   |                                                                | 1,989  |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 1,989 |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  consumer loans                                |   | $                                                                   | 7,130  |   |   |   |   |   |   | $ | 445 |   |   |   |   |   |   | $ | 7,575 |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                                                    |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 41,502 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

| (In 000's)                                                     |   |  December 31, 2010                                             |   |
|----------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                           |   | Good/Excellent                                                      |   |   | Satisfactory |   |   | Pass |   |   | Special Mention |   |   | Subtandard |   |   | Total |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial:                                     |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Commercial                             |   | $                                                                   | 379    |   |   | $ | 2,079 |   |   | $ | 72 |   |   | $ | 98 |   |   | $ | 505 |   |   | $ | 3,133 |   |
|     SBA loans                              |   |                                                                | -      |   |   |   | 90 |   |   |   | 71 |   |   |   | - |   |   |   | 68 |   |   |   | 229 |   |
|     Asset-based                            |   |                                                                | -      |   |   |   | 2,083 |   |   |   | 184 |   |   |   | 100 |   |   |   | - |   |   |   | 2,367 |   |
|                                                           |   |                                                                | 379    |   |   |   | 4,252 |   |   |   | 327 |   |   |   | 198 |   |   |   | 573 |   |   |   | 5,729 |   |
| Commercial real estate:                                        |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Commercial mortgages                   |   |                                                                | -      |   |   |   | 13,902 |   |   |   | 264 |   |   |   | - |   |   |   | 1,608 |   |   |   | 15,774 |   |
|      SBA Loans                        |   |                                                                |   |   |   |   | 1,241 |   |   |   | - |   |   |   | - |   |   |   | 70 |   |   |   | 1,311 |   |
|     Religious organizations                |   |                                                                | -      |   |   |   | 9,920 |   |   |   | 2,932 |   |   |   | 360 |   |   |   | 441 |   |   |   | 13,653 |   |
|                                                           |   |                                                                | -      |   |   |   | 25,063 |   |   |   | 3,196 |   |   |   | 360 |   |   |   | 2,119 |   |   |   | 30,738 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total commercial loans                                         |   | $                                                                   | 379    |   |   | $ | 29,315 |   |   | $ | 3,523 |   |   | $ | 558 |   |   | $ | 2,692 |   |   | $ | 36,467 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   |  December 31, 2010                                             |   |
|                                                           |   | Residential Mortgage & Consumer Loans- Performing/Nonperforming |   |
|                                                           |   | Performing                                                          |   |   |   |   |   |   | Nonperforming |   |   |   |   |   |   | Total |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer Real Estate:                                          |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Home equity                      |   | $                                                                   | 1,683  |   |   |   |   |   |   | $ | 130 |   |   |   |   |   |   | $ | 1,813 |   |   |   |   |   |
|      Home equity line of credit       |   |                                                                | 714    |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 714 |   |   |   |   |   |
|      1-4 family residential mortgages |   |                                                                | 4,171  |   |   |   |   |   |   |   | 261 |   |   |   |   |   |   |   | 4,432 |   |   |   |   |   |
|                                                           |   |                                                                | 6,568  |   |   |   |   |   |   |   | 391 |   |   |   |   |   |   |   | 6,959 |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer Other:                                                |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consumer Installment             |   |                                                                | 82     |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 82 |   |   |   |   |   |
|      Student loans                    |   |                                                                | 1,912  |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 1,912 |   |   |   |   |   |
|      Other                            |   |                                                                | 192    |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 192 |   |   |   |   |   |
|                                                           |   |                                                                | 2,186  |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 2,186 |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  consumer loans                                |   | $                                                                   | 8,754  |   |   |   |   |   |   | $ | 391 |   |   |   |   |   |   | $ | 9,145 |   |   |   |   |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                                                    |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 45,612 |   |
|                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|--------|------------------------|--------|--------|----------------------|--------|--------|----------------------|--------|--------|--------|--------|
| (in 000's)                                                   |   |  Year Ended December 31, 2011 |   |
|                                                         |   | Commercial and industrial               |   |   | Commercial real estate |   |   | Consumer real estate |   |   | Consumer loans other |   |   | Total  |   |
| Beginning balance                                            |   | $                                       | 301    |   |                   | $      | 553    |                 |   | $      | 52                   |   |   | $      | 20     |   |   | $ | 926 |   |
| Provision for possible loan losses                           |   |                                    | 150    |   |                   |   | -      |                 |   |   | 15                   |   |   |   | 5      |   |   | $ | 170 |   |
|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
| Charge-offs                                                  |   |                                    | (65    | )      |                   |   | (150   | )                    |   |   | (5                   | )      |   |   | (46    | ) |   |   | (266 | ) |
| Recoveries                                                   |   |                                    | 1      |   |                   |   | 9      |                 |   |   | 6                    |   |   |   | 21     |   |   |   | 37 |   |
| Net charge-offs                                              |   |                                    | (64    | )      |                   |   | (141   | )                    |   |   | 1                    |   |   |   | (25    | ) |   |   | (229 | ) |
|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
| Ending balance                                               |   | $                                       | 387    |   |                   | $      | 412    |                 |   | $      | 68                   |   |   | $      | -      |   |   | $ | 867 |   |
|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
| Period-end amount allocated to:                              |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
|  Loans indivdually evaluated for impairment             |   | $                                       | 308    |   |                   | $      | -      |                 |   | $      | -                    |   |   | $      | -      |   |   | $ | 308 |   |
|  Loans collectively  evaluated for impairment |   |                                    | 79     |   |                   |   | 412    |                 |   |   | 68                   |   |   |   | -      |   |   |   | 559 |   |
|                                                         |   | $                                       | 387    |   |                   | $      | 412    |                 |   | $      | 68                   |   |   | $      | -      |   |   | $ | 867 |   |
|                                                         |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
| Loans, ending balance:                                       |   |                                    |   |   |                   |   |   |                 |   |   |                 |   |   |   |   |   |   |   |   |   |
|  Loans indivdually evaluated for impairment             |   | $                                       | 592    |   |                   | $      | 1,095  |                 |   | $      | -                    |   |   | $      | -      |   |   | $ | 1,687 |   |
|  Loans collectively  evaluated for impairment |   |                                    | 3,138  |   |                   |   | 29,102 |                 |   |   | 5,586                |   |   |   | 1,989  |   |   |   | 39,815 |   |
| Total                                                        |   | $                                       | 3,730  |   |                   | $      | 30,197 |                 |   | $      | 5,586                |   |   | $      | 1,989  |   |   | $ | 41,502 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|  (in 000's)                                             |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|--------|-------------------------------|--------|--------|----------------------------|--------|--------|-----------------------------|--------|--------|--------|--------|
|                                                         |   |  Year Ended December 31, 2010 |   |
|                                                         |   | Commercial and industrial               |   |   |   Commercial real estate |   |   | Consumer loans real estate |   |   |   Consumer loans other |   |   | Total  |   |
| Beginning balance                                            |   | $                                       | 324    |   |                          | $      | 298    |                       |   | $      | 85                          |   |   | $      | 20     |   |   | $ | 727 |   |
| Provision for possible loan losses                           |   |                                    | 159    |   |                          |   | 481    |                       |   |   | 84                          |   |   |   | 23     |   |   |   | 747 |   |
|                                                         |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Charge-offs                                                  |   |                                    | (189   | )      |                          |   | (227   | )                          |   |   | (162                        | )      |   |   | (23    | ) |   |   | (601 | ) |
| Recoveries                                                   |   |                                    | 7      |   |                          |   | 1      |                       |   |   | 45                          |   |   |   |   |   |   |   | 53 |   |
| Net charge-offs                                              |   |                                    | (182   | )      |                          |   | (226   | )                          |   |   | (117                        | )      |   |   | (23    | ) |   |   | (548 | ) |
|                                                         |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Ending balance                                               |   | $                                       | 301    |   |                          | $      | 553    |                       |   | $      | 52                          |   |   | $      | 20     |   |   | $ | 926 |   |
|                                                         |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Period-end amount allocated to:                              |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
|  Loans indivdually evaluated for impairment             |   | $                                       | 82     |   |                          | $      | 156    |                       |   | $      | -                           |   |   | $      | -      |   |   | $ | 238 |   |
|  Loans collectively  evaluated for impairment |   |                                    | 219    |   |                          |   | 397    |                       |   |   | 52                          |   |   |   | 20     |   |   |   | 688 |   |
|                                                         |   | $                                       | 301    |   |                          | $      | 553    |                       |   | $      | 52                          |   |   | $      | 20     |   |   | $ | 926 |   |
|                                                         |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
| Loans, ending balance:                                       |   |                                    |   |   |                          |   |   |                       |   |   |                        |   |   |   |   |   |   |   |   |   |
|  Loans indivdually evaluated for impairment             |   | $                                       | 523    |   |                          | $      | 1,993  |                       |   | $      | 391                         |   |   | $      | -      |   |   | $ | 2,907 |   |
|  Loans collectively  evaluated for impairment |   |                                    | 5,206  |   |                          |   | 28,745 |                       |   |   | 6,568                       |   |   |   | 2,186  |   |   |   | 42,705 |   |
| Total                                                        |   | $                                       | 5,729  |   |                          | $      | 30,738 |                       |   | $      | 6,959                       |   |   | $      | 2,186  |   |   | $ | 45,612 |   |

| (In 000’s)                     | Estimated   |   |   |   |   |   |   |
|--------------------------------------|-------------|--------|--------|--------|--------|--------|--------|
|                                 | useful life |   | 2011   |   |   | 2010   |   |
|                                 |        |   |   |   |   |   |   |
| Buildings and leasehold improvements | 10-15 years |   | $      | 1,328  |   |   | $      | 1,256 |   |
| Furniture and equipment              | 3- 7 years  |   |   | 746    |   |   |   | 726 |   |
|                                 |        |   | $      | 2,074  |   |   |   | 1,982 |   |
| Less accumulated depreciation        |        |   |   | (1,086 | )      |   |   | (839 | ) |
|                                 |        |   | $      | 988    |   |   | $      | 1,143 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|                           |   |             |   |
|--------------------------------|--------|------------------|--------|
|  Year ending December 31, |   | Operating leases |   |
| 2012                           |   | $                | 473    |   |
| 2013                           |   |             | 483    |   |
| 2014                           |   |             | 493    |   |
| 2015                           |   |             | 489    |   |
| 2016                           |   |             | 178    |   |
| Thereafter                     |   |             | 248    |   |
|                           |   |             |   |   |
| Total minimum lease payments   |   | $                | 2,364  |   |

|   | At December 31, 2011, the scheduled maturities of time deposits (certificates of deposit) are as follows: |
|--------|-----------------------------------------------------------------------------------------------------------|

|   | (In 000’s) |
|--------|------------------|

| 2012       |   | $      | 23,731 |   |
|------------|--------|--------|--------|--------|
| 2013       |   |   | 819    |   |
| 2014       |   |   | 185    |   |
| 2015       |   |   | 417    |   |
| 2016       |   |   | 154    |   |
| Thereafter |   |   | 46     |   |
|       |   |   |   |   |
|       |   | $      | 25,352 |   |
|       |   |   |   |   |

|   |   | At December 31, 2011,  the Bank has the ability to borrow on a fully secured basis at the Discount Window of the Federal Reserve Bank for which it currently has $1.75 million in securities pledged that result in borrowing capacity of $1.5 million.  As of December 31, 2011 and 2010, the Bank had no borrowings outstanding. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | At December 31, 2011, the Bank has net operating loss carry forwards of approximately $6,800,000 for income tax purposes that expire in 2014 through 2028. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.  For financial reporting purposes, a valuation allowance of $3,035,058 and $2,749,768   as of December 31, 2011 and 2010, respectively, has been recognized to offset the net deferred tax assets related to the cumulative temporary differences and the tax loss carry forwards.  Significant components of the Bank’s net deferred tax assets are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | December 31, |       |
|---------------------------------------------|--------|--------------|------------|
|                                        |   | 2011         |       |   | 2010 |   |
|                                        |   |         |       |   |   |   |
| Deferred tax assets(liabilities):           |   |         |       |   |   |   |
| Provision for loan losses                   |   | $            | 212,652    |   |   | $ | 214,918 |   |
| Unrealized gain on investment securities    |   |         | (19,710    | ) |   |   | (21,721 | ) |
| Depreciation                                |   |         | 369,764    |   |   |   | 380,715 |   |
| Net operating loss carryforwards            |   |         | 2,313,074  |   |   |   | 2,048,999 |   |
| Other, net                                  |   |         | 159,278    |   |   |   | 126,858 |   |
| Valuation allowance for deferred tax assets |   |         | (3,035,058 | ) |   |   | (2,749,768 | ) |
| Net deferred tax assets                     |   | $            | -          |   |   | $ | - |   |

|                            |   | 2011   |     |   | 2010   |   |
|---------------------------------|--------|--------|----------|--------|--------|--------|
|                            |   |   |     |   |   |   |
| Effective rate reconciliation:  |   |   |     |   |   |   |
| Tax at statutory rate (34%)     |   | $      | (350,622 | )      |   | $      | (417,451 | ) |
| Nondeductible expenses          |   |   | 6,278    |   |   |   | 6,163 |   |
| Increase in valuation allowance |   |   | 285,290  |   |   |   | 344,592 |   |
| Other                           |   |   | 59,054   |   |   |   | 66,696 |   |
| Total tax expense               |   | $      | -        |   |   | $      | - |   |
|                            |   |   |     |   |   |   |   |   |

|   | 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: |
|--------|--------------------------------------------------------------------------------|

|                          |   | 2011   |      |   | 2010   |   |
|-------------------------------|--------|--------|-----------|--------|--------|--------|
|                          |   |   |      |   |   |   |
| Commitments to extend credit  |   | $      | 9,162,490 |   |   | $      | 7,531,275 |   |
| Outstanding letters of credit |   |   | 1,208,183 |   |   |   | 695,033 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| 10.  FAIR VALUE MEASUREMENTS |   |
|----------------------------------------|--------|

| Level 1        |
|----------------|
| o              | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|           |   |
| Level 2 Inputs |
| o              | Quoted prices for similar assets or liabilities in active markets. |
| o              | Quoted prices for identical or similar assets or liabilities in markets that are not active. |
| o              | Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” |
|           |   |
| Level 3 Inputs |
| o              | Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. |
| o              | These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

| (in 000’s)                                                                                                                                                                            |                                                           | Fair Value Measurements at Reporting Date Using:               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|----------------------------------------------------------------|
|                                                                                                                                                                                        | Assets/Liabilities Measured at Fair Value at December 31, 2011 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Investment securitiesavailable-for-sale: Government Sponsored Enterprises residential mortgage-backed securities Money Market Funds      Total |     $1,152  129$1,281       |     $-  129$129                  |     $1,152  -$1,152 |     -  - |

| (in 000’s)                                                                                                                                                                                  |                                                           | Fair Value Measurements at Reporting Date Using:               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|----------------------------------------------------------------|
|                                                                                                                                                                                              | Assets/Liabilities Measured at Fair Value at December 31, 2010 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| Investment securities available-for-sale: Government Sponsored Enterprises residential mortgage-backed securities Money Market Funds      Total |     $1,210  129$1,339       |     $-  129$129                  |     $1,210  -$1,210 |     -  - |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| (in 000’s)                                   |    Total | Quoted Prices in Active markets for Identical Assets(Level 1) | Significant Other Observable Inputs(Level 2) | Significant Unobservable Inputs(Level 3) | Total fair value gain (loss) during the year endedDecember 31, 2011 |
|----------------------------------------------------|-------------------------|---------------------------------------------------------------|----------------------------------------------|------------------------------------------|---------------------------------------------------------------------|
| Impaired Loans                                | $206                    | -                                                             | -                                            | $206                                     | $(308)                                                              |
| Other real estate owned (“OREO”)  | 1,284                   | -                                                             | -                                            | 1,284                                    | -                                                                   |

| (in 000’s)                                   |    Total | Quoted Prices in Active markets for Identical Assets(Level 1) | Significant Other Observable Inputs(Level 2) | Significant Unobservable Inputs(Level 3) | Total fair value gain (loss) during the year endedDecember 31, 2010 |
|----------------------------------------------------|-------------------------|---------------------------------------------------------------|----------------------------------------------|------------------------------------------|---------------------------------------------------------------------|
| Impaired Loans                                | $679               | -                                                             | -                                            | $679                                | $(238)                                                         |
| Other real estate owned (“OREO”)  | 1,417                   | -                                                             | -                                            | 1,417                                    | -                                                                   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   | (in 000’s) |
|--------|------------------|

|                                                |   | 2011     |   |   |   |   |   | 2010     |   |   |   |   |
|-----------------------------------------------------|--------|----------|--------|--------|--------|--------|--------|----------|--------|--------|--------|--------|
|                                                |   | Carrying |   |   | Fair   |   |   | Carrying |   |   | Fair   |   |
| Assets:                                             |   | Amount   |   |   | Value  |   |   | Amount   |   |   | Value  |   |
|   Cash and cash equivalents               |   | $        | 14,497 |   |   | $      | 14,497 |     |   | $      | 8,696  |   |   | $ | 8,696 |   |
|   Investment securities                   |   |     | 18,490 |   |   |   | 19,019 |     |   |   | 16,477 |   |   |   | 16,582 |   |
|   Loans, net of allowance for loan losses |   |     | 40,635 |   |   |   | 40,552 |     |   |   | 44,686 |   |   |   | 44,698 |   |
|   Interest receivable                     |   |     | 342    |   |   |   | 342    |     |   |   | 363    |   |   |   | 363 |   |
| Liabilities:                                        |   |     |   |   |   |   |   |     |   |   |   |   |   |   |   |   |
|   Demand deposits                         |   |     | 31,260 |   |   |   | 31,260 |     |   |   | 27,331 |   |   |   | 27,331 |   |
|   Savings deposits                        |   |     | 14,689 |   |   |   | 14,689 |     |   |   | 13,856 |   |   |   | 13,856 |   |
|   Time deposits                           |   |     | 25,352 |   |   |   | 25,401 |     |   |   | 26,023 |   |   |   | 26,023 |   |
|   Interest Payable                        |   |     | 397    |   |   |   | 397    |     |   |   | 57     |   |   |   | 57 |   |

|   | Condensed Balance Sheets |
|--------|--------------------------|

|                                                          |   | December 31, |   |
|---------------------------------------------------------------|--------|--------------|--------|
| (Dollars in thousands)                                        |   | 2011         |   |   | 2010 |   |
| Assets:                                                       |   |         |   |   |   |   |
| Cash and cash equivalents                                     |   | $            | 20     |   |   | $ | 70 |   |
| Investment in United Bank of Philadelphia                     |   |         | 5,241  |   |   |   | 6,227 |   |
| Total assets                                                  |   | $            | 5,261  |   |   | $ | 6,297 |   |
|                                                          |   |         |   |   |   |   |   |   |
| Shareholders’ equity:                                   |   |         |   |   |   |   |   |   |
| Series A preferred stock                                      |   |         | 1      |   |   |   | 1 |   |
| Common stock                                                  |   |         | 11     |   |   |   | 11 |   |
| Additional paid-in capital                                    |   |         | 14,750 |   |   |   | 14,750 |   |
| Accumulated deficit                                           |   |         | (9,540 | ) |   |   | (8,509 | ) |
| Net unrealized holding gains on securities available-for-sale |   |         | 39     |   |   |   | 44 |   |
|                                                          |   |         |   |   |   |   |   |   |
| Total shareholders’ equity                              |   | $            | 5,261  |   |   | $ | 6,297 |   |
|                                                          |   |         |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity              |   | $            | 5,261  |   |   | $ | 6,297 |   |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   | Condensed Statements of Operations |
|--------|------------------------------------|

| Years ended December 31,                       |   |   |   |   |   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
| (Dollars in thousands)                         |   | 2011   |   |   | 2010   |   |
| Other Expenses                                 |   | $      | (50    | )      |   | $      | (47 | ) |
| Equity in net loss of subsidiary               |   | $      | (981   | )      |   | $      | (1,181 | ) |
| Net loss                                       |   | $      | (1,031 | )      |   | $      | (1,228 | ) |
| Condensed Statements of Cash Flows             |
| Years ended December 31,                       |   |   |   |   |   |   |   |   |
| (Dollars in thousands)                         |   |   | 2011   |   |   |   | 2010 |   |
| Cash flows from operating activities:          |   |   |   |   |   |   |   |   |
| Net loss                                       |   | $      | (1,031 | )      |   | $      | (1,228 | ) |
| Adjustments:                                   |   |   |   |   |   |   |   |   |
| Equity in net loss of subsidiary               |   |   | 981    |   |   |   | 1,181 |   |
| Net cash used in operating activities          |   |   | (50    | )      |   |   | (47 | ) |
| Cash and cash equivalents at beginning of year |   |   | 70     |   |   |   | 117 |   |
| Cash and cash equivalents at end of year       |   | $      | 20     |   |   | $      | 70 |   |

|   | The Bank engages in the commercial banking business, with a particular focus on serving African Americans, Hispanics and women, and is subject to substantial competition from financial institutions in the Bank’s service area.  As a bank holding company and a banking subsidiary, the Company and the Bank, respectively, are subject to regulation by the FDIC and the Pennsylvania Department of Banking (“PADOB”) and are required to maintain capital requirements established by those regulators. Effective January 1, 2010, the FDIC became the Bank’s primary regulator after it voluntarily surrendered its Federal Reserve Membership. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier I capital (as defined in the regulations) for capital adequacy purposes to risk-weighted assets (as defined). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

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

|                                       |   |   Actual |   |   |  For capital adequacy purposes |   |   | To be well capitalized under prompt correctiveaction provisions |   |
|--------------------------------------------|--------|--------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                                       |   | Amount             |   |   | Ratio                               |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2011:                   |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-                     |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   | $                  | 5,460  |   |                                |   | 12.45  | %                                                               |   | $ | 3,513 |   |   |   | 8.00 | % |   |   | N/A |   |   |   |   |
|      Bank         |   |               | 5,440  |   |                                |   | 12.41  | %                                                               |   |   | 3,507 |   |   |   | 8.00 | % |   | $ | 4,384 |   |   |   | 10.00 | % |
| Tier I capital to risk-                    |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 4,908  |   |                                |   | 11.20  | %                                                               |   |   | 1,756 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 4,888  |   |                                |   | 11.15  | %                                                               |   |   | 1,754 |   |   |   | 4.00 | % |   | $ | 2,630 |   |   |   | 6.00 | % |
| Tier I capital to average assets:          |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 4,908  |   |                                |   | 6.29   | %                                                               |   |   | 3,122 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 4,888  |   |                                |   | 6.27   | %                                                               |   |   | 3,119 |   |   |   | 4.00 | % |   | $ | 3,899 |   |   |   | 5.00 | % |

|                                       |   |   Actual |   |   |  For capital adequacy purposes |   |   | To be well capitalized under prompt correctiveaction provisions |   |
|--------------------------------------------|--------|--------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                                       |   | Amount             |   |   | Ratio                               |   |   | Amount                                                          |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2010:                   |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-                     |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   | $                  | 6,338  |   |                                |   | 13.91  | %                                                               |   | $ | 3,652 |   |   |   | 8.00 | % |   |   | N/A |   |   |   |   |
|      Bank         |   |               | 6,268  |   |                                |   | 13.75  | %                                                               |   |   | 3,646 |   |   |   | 8.00 | % |   | $ | 4,558 |   |   |   | 10.00 | % |
| Tier I capital to risk-                    |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| weighted assets:                           |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 5,761  |   |                                |   | 12.64  | %                                                               |   |   | 1,826 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 5,691  |   |                                |   | 12.49  | %                                                               |   |   | 1,823 |   |   |   | 4.00 | % |   | $ | 2,735 |   |   |   | 6.00 | % |
| Tier I capital to average assets:          |   |               |   |   |                                |   |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Consolidated |   |               | 5,761  |   |                                |   | 7.63   | %                                                               |   |   | 3,024 |   |   |   | 4.00 | % |   |   | N/A |   |   |   |   |   |
|      Bank         |   |               | 5,691  |   |                                |   | 7.53   | %                                                               |   |   | 3,022 |   |   |   | 4.00 | % |   | $ | 3,777 |   |   |   | 5.00 | % |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

| ·   | increase participation of the Bank’s board of directors in the Bank’s affairs by having the board assume full responsibility for approving the Bank’s policies and objectives and for supervising the Bank’s management; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | have and retain qualified management, and notify the FDIC and the Department of any changes in the Bank’s board of directors or senior executive officers; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | retain a bank consultant acceptable to the FDIC and the Department to develop a written analysis and assessment of the Bank’s management needs and thereafter formulate a written management plan; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate and implement written profit and budget plans for each year during which the orders are in effect; |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | develop and implement a strategic plan for each year during which the orders are in effect, to be revised annually; |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | develop a written capital plan detailing the manner in which the Bank will meet and maintain a ratio of Tier 1 capital to total assets (“leverage ratio”) of at least 8.5% and a ratio of qualifying total capital to risk-weighted assets (total risk-based capital ratio) of at least 12.5%, within a reasonable but unspecified time period; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate a written plan to reduce the Bank’s risk positions in each asset or loan in excess of $100,000 classified as “Doubtful” or “Substandard” at its current regulatory examination; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate all assets classified as “Loss” at its current regulatory examination; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | revise the Bank’s loan policy to establish and monitor procedures for adherence to the loan policy and to eliminate credit administration and underwriting deficiencies identified at its current regulatory examination; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | develop a comprehensive policy and methodology for determining the allowance for loan and lease losses; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | develop an interest rate risk policy and procedures to identify, measure, monitor and control the nature and amount of interest rate risk the Bank takes; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | revise its liquidity and funds management policy and update and review the policy annually; |
|--------------------|---------------------------------------------------------------------------------------------|

| ·   | refrain from accepting any brokered deposits; |
|--------------------|-----------------------------------------------|

| ·   | refrain from paying cash dividends without prior approval of the FDIC and the Department; |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | establish an oversight committee of the board of directors of the Bank with the responsibility to ensure the Bank’s compliance with the orders, and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | prepare and submit quarterly reports to the FDIC and the Department detailing the actions taken to secure compliance with the orders. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   | 14.  EARNINGS PER SHARE COMPUTATION |
|--------|-----------------------------------------------|

|                                     |   | Year ended December 31, 2011 |       |
|------------------------------------------|--------|------------------------------|------------|
|                                     |   | Loss                         |       |   | Shares |   |   | Per share |   |
|                                     |   | (numerator)                  |       |   | (denominator) |   |   | amount |   |
|                                     |   |                         |       |   |   |   |   |   |   |
| Net loss                                 |   | $                            | (1,031,240 | ) |   |   |   |   |   |   |
| Basic  EPS                     |   |                         |       |   |   |   |   |   |   |   |
| Loss attributable to common stockholders |   | $                            | (1,031,240 | ) |   |   | 1,068,588 |   |   | $ | (0.97 | ) |
| Fully Diluted EPS                        |   |                         |       |   |   |   |   |   |   |   |   |   |
| Loss attributable to common stockholders |   | $                            | (1,031,240 | ) |   |   | 1,068,588 |   |   | $ | (0.97 | ) |
|                                     |   |                         |       |
|                                     |   | Year ended December 31, 2010 |       |
|                                     |   | Loss                         |       |   | Shares |   |   | Per share |   |
|                                     |   | (numerator)                  |       |   | (denominator) |   |   | amount |   |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |
| Net loss                                 |   | $                            | (1,227,798 | ) |   |   |   |   |   |   |   |   |
| Basic  EPS                     |   |                         |       |   |   |   |   |   |   |   |   |   |
| Loss attributable to common stockholders |   | $                            | (1,227,798 | ) |   |   | 1,068,588 |   |   | $ | (1.15 | ) |
| Fully Diluted EPS                        |   |                         |       |   |   |   |   |   |   |   |   |   |
| Loss attributable to common stockholders |   | $                            | (1,227,798 | ) |   |   | 1,068,588 |   |   | $ | (1.15 | ) |
|                                     |   |                         |       |

----

|   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED |
|--------|--------------------------------------------------------|

|   | December 31, 2011 and 2010 |
|--------|----------------------------|

|   | The following summarizes the consolidated results of operations during 2011 and 2010, on a quarterly basis, for United Bancshares, Inc. and Subsidiary: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (Dollars in thousands) |
|--------|------------------------|

|                                         |   | 2011    |   |
|----------------------------------------------|--------|---------|--------|
|                                         |   | Fourth  |   |   | Third |   |   | Second |   |   | First |   |
|                                         |   | Quarter |   |   | quarter |   |   | Quarter |   |   | Quarter |   |
|                                         |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest income                              |   | $       | 847    |   |   | $ | 818 |   |   | $ | 813 |   |   | $ | 825 |   |
| Interest expense                             |   |    | 52     |   |   |   | 60 |   |   |   | 62 |   |   |   | 61 |   |
| Net interest income                          |   |    | 795    |   |   |   | 758 |   |   |   | 751 |   |   |   | 764 |   |
| Provision for loan losses                    |   |    | 70     |   |   |   | 30 |   |   |   | 40 |   |   |   | 30 |   |
| Net interest after provision for loan losses |   |    | 725    |   |   |   | 728 |   |   |   | 711 |   |   |   | 734 |   |
| Noninterest income                           |   |    | 259    |   |   |   | 199 |   |   |   | 399 |   |   |   | 214 |   |
| Noninterest expense                          |   |    | 1,257  |   |   |   | 1,209 |   |   |   | 1,279 |   |   |   | 1,255 |   |
| Net loss                                     |   | $       | (273   | ) |   | $ | (282 | ) |   | $ | (169 | ) |   | $ | (307 | ) |
| Basic (loss per common share                 |   | $       | (0.26  | ) |   | $ | (0.26 | ) |   | $ | (0.16 | ) |   | $ | (0.29 | ) |
| Diluted loss per common share                |   | $       | (0.26  | ) |   | $ | (0.26 | ) |   | $ | (0.16 | ) |   | $ | (0.29 | ) |

|   | (Dollars in thousands) |
|--------|------------------------|

|                                         |   | 2010    |   |
|----------------------------------------------|--------|---------|--------|
|                                         |   | Fourth  |   |   | Third |   |   | Second |   |   | First |   |
|                                         |   | Quarter |   |   | quarter |   |   | quarter |   |   | Quarter |   |
|                                         |   |    |   |   |   |   |   |   |   |   |   |   |
|                                         |   |    |   |   |   |   |   |   |   |   |   |   |
| Interest income                              |   | $       | 851    |   |   | $ | 878 |   |   | $ | 848 |   |   | $ | 812 |   |
| Interest expense                             |   |    | 68     |   |   |   | 74 |   |   |   | 77 |   |   |   | 76 |   |
| Net interest income                          |   |    | 783    |   |   |   | 804 |   |   |   | 771 |   |   |   | 736 |   |
| Provision for loan losses                    |   |    | 270    |   |   |   | 70 |   |   |   | 377 |   |   |   | 30 |   |
| Net interest after provision for loan losses |   |    | 513    |   |   |   | 734 |   |   |   | 394 |   |   |   | 706 |   |
| Noninterest income                           |   |    | 282    |   |   |   | 615 |   |   |   | 301 |   |   |   | 267 |   |
| Noninterest expense                          |   |    | 1317   |   |   |   | 1,303 |   |   |   | 1,256 |   |   |   | 1,164 |   |
| Net loss                                     |   | $       | (522   | ) |   | $ | 46 |   |   | $ | (561 | ) |   | $ | (191 | ) |
| Basic loss per common share                  |   | $       | ( 0.47 | ) |   | $ | 0.04 |   |   | $ | (0.54 | ) |   | $ | (0.18 | ) |
| Diluted loss per common share                |   | $       | ( 0.47 | ) |   | $ | 0.04 |   |   | $ | (0.54 | ) |   | $ | (0.18 | ) |

----

|   | Commission File No. 0-25976 |
|--------|-----------------------------|

|   | SECURITIES AND EXCHANGE COMMISSION |
|--------|------------------------------------|

----

|   | FORM 10-K |
|--------|-----------|

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

|   | THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|-------------------------------------|

|   | For the Year Ended December 31, 2011 |
|--------|--------------------------------------|

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|   | UNITED BANCSHARES, INC. |
|--------|-------------------------|

|   | EXHIBITS |
|--------|----------|

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